Masters in Engineering and Management of Technology Masters in engineering Design Entrepreneurship and New Venture Creation Rui Baptista.

Masters in Engineering and Management of Technology

Masters in engineering Design

Entrepreneurship and New Venture Creation

Rui Baptista

Market Research and Structural Analysis of Industries

Entrepreneurship - Rui Baptista3

Opportunity and Market

Potential market: a significant group of people with a need that is not being satisfied adequately

Potential for an opportunity: There is a technology that allows us to supply an

effective solution to satisfy that need Alternatives being offered by competition are inferior

or more costly It is possible to develop, produce and place the

product in the market at a cost which is lower than what consumers are willing to pay


What industry is BMW in: World Auto industry? European Auto industry? World luxury car industry?

Key criteria: GEOGRAPHY and SUBSTITUTABILITY On the demand side :

• Where are the buyers located? Are they willing to substitute across countries?

• Are buyers willing to substitute between types of cars? On the supply side :

• Where are the manufacturers located? Are they able to switch production across countries?

• Are manufacturers able to switch production between types of cars?

Drawing Industry Boundaries: Identifying the Relevant Market


The Target Market


Questions Raised by Market Research

What are the main differences between customer groups/market segments

How to identify customers in each segment? What are the costs to make the product known and

place it next to the relevant market? How much are the consumers willing to pay for the

product? What is the minimum size required for the market to

be profitable?


Market Assessment

Existing market/product

New market/product

Market research philosophy

Statistical analysis, segmentation

Intuition

Information gathering techniques

Questionnaires, direct interviews, observation of relevant potential consumers

Industry specialists, industry tendencies,


Concepts in Strategy

Core Competencies resources and capabilities available to the firm that are indispensable to produce and commercialize its products and that are not easily replicated by competitiors

Competitive Advantage distinct competencies held by a firm that allow it to attain a favorable position in the market - commercialize better and/or cheaper products

Sustainable Competitive Advantage occurs when the distinct competencies held by a firm that allow it to attain a favorable position in the market are not easily replicated by competitiors


Sources of Competitive Advantage

Competencies Efficiency – low costs per unit

produced Innovation and product

improvements Quality/reliability Diversification/customization,

access to consumers Process innovation Establishment of a critical mass

of consumers

Examples Ryanair; easyJet; Ibis/Accor; Zara;

Alcoa; Wal-Mart; Worten Intel, Nokia, Motorola; Pfizer; Eli

Lilly; 3M; Apple; Audi; BMW Mercedes; IBM; JP Morgan Hewlett Packard; Disney; General

Electric; Dell; Amazon.com Toyota; McDonald’s; Ikea Microsoft; Adobe; SAP; Oracle;

Armani; Ralph Lauren


Defining the Business Model

Target marketWho are the customers? How important is our product in their total consumption expenditure?

Value for the customerWhat benefits for the customer are offered exclusively by our product?

Competitive advantage and differentiation

How can we protect the distinct, key competencies and featires that make our product unique? How sustainable are those competencies?

Product development and value chain analysis

What are the activities required for the development and commercialization of our product and what is their cost? Which activities should be developed in-house and which can be outsourced?

Competencies to developWhat are the technical, market and professional abilities and experiences required to be successful?

Organizational structureHow should the activities to be carried out be organizes? How are activities and responsibilities divided?

Revenue generation and profitsHow to generate revenues from commercialization? Which competencies allow the firm to charge prices above unit costs? How sustainable are those competencies


THE FIRM

Goals & Values

Resources &Capabilities

Structure & Systems

THE INDUSTRYENVIRONMENT

CompetitorsCustomersSuppliers

STRATEGYSTRATEGY

The Basic Framework of Strategy: the Link Between the Firm and Its Environment


To understand how industry structure drives competition, which determines the level of industry profitability.

To assess industry attractiveness

To use evidence on changes in industry structure to forecast future profitability

To identify opportunities to change industry structure to impose industry profitability

To identify Key Success Factors

Objectives of Industry analysis


THE INDUSTRYENVIRONMENT

• Suppliers• Competitors• Customers

Social structure

The national/ The national/ international international

economyeconomy

TechnologyTechnology

GovernmentGovernment& Politics& Politics

The natural The natural environmentenvironment

Demographic Demographic structurestructure

Social structureSocial structure

•The Industry Environment lies at the core of the Macro Environment

•The Macro Environment impacts the firm through its effect on the Industry Environment

From Environmental Analysis to Industry Analysis


The value of the product to customers

The intensity of competition

Relative bargaining power at different levels within the value chain

3 key influences:

Determinants of Industry Profitability (Revenues-Costs)


Concentration

Entry and ExitBarriers

ProductDifferentiation

Information

Perfect Competition

Oligopoly Duopoly Monopoly

Many firms A few firms Two firms One firm

No barriers Significant barriers High barriers

HomogeneousProduct

Potential for product differentiation

PerfectInformation flow

Imperfect availability of information

The Spectrum of Industry Structures


SUPPLIERS

POTENTIALENTRANTS

SUBSTITUTES

BUYERS

INDUSTRYCOMPETITORS

Rivalry amongexisting firms

Bargaining power of suppliers

Bargaining power of buyers

Threat of

new entrants

Threat of

substitutes

Porter’s 5 Competitive Forces Framework


New entrants’ threat to industry profitability depends upon the height of barriers to entry. The principal sources of barriers to entry are:

Capital requirements Economies of scale Absolute cost advantages Proprietary product differentiation (e.g. brand identity) Access to channels of distribution Government Policies: legal and regulatory barriers Threat of retaliation

Threat of Potential Entrants


Extent of competitive pressure from producers of substitutes depends upon:

Switching costs Buyers’ propensity to substitute Price-performance characteristics of substitutes Network externalities

Threath of Substitutes


Buyer’s price sensitivity Relative bargaining power

• Switching Costs• Cost of purchases as % of

buyer’s total costs• How differentiated is the

purchased item? • How intense is

competition between buyers?• How important is the item to

quality of the buyers’ own output?

• Size and concentration of buyers vs. sellers

• Buyer volume

• Buyer’s information• Ability to backward

integrate

Note: analysis of supplierpower is symmetric

Bargaining Power of Buyers


The extent to which industry profitability is depressed by aggressive price competition depends upon: Industry growth – product/technology life cycle Concentration (number and size distribution of firms) Diversity of competitors (differences in goals, cost

structure, etc.) Product differentiation Excess capacity and exit barriers Cost conditions

• Extent of scale economies• Ratio of fixed to variable costs

Rivalry Between Incumbents (Established Competitors)


Forecasting Industry Profitability Past profitability is a poor indicator of future profitability If we can create or foresee changes in industry structure

we can induce changes on competition and profitability

Strategies to Improve Industry Profitability• What structural variables affect profitability?

• Which of those variables can be changed by individual or collective strategies?

Applying 5 Forces Analysis


Entrepreneurial Industry Evaluation

Factors Attractiveness

High Low

Competition among companies

Competition is minimal but will become intense in a year

The industry is mature or declining

Power of customers Volume is high and willing to negotiate

Customer has few switching costs

Power of suppliers Many substitutes and sources are available

Limited supply; differentiated products

Entry

Complex barriers and high entry costs Many start-ups attempting to enter

Few, simple entry barriers Few companies are entering this market

Complement Complementary products being introduced with high demand growth

Dominant companies control market for complementary products


Porter’s framework assumes:• industry structure drives competitive behavior• Industry structure is stable

But competition also changes industry structure

Schumpeterian Competition: A “perennial gale of creative destruction” where innovation overthrows established market leaders

Hyper-competition: intense and rapid competitive moves, creating disequilibrium through continuously creating new competitive advantages and destroying, neutralizing or making obsolete opponents’ competitive advantages—overlapping product/technology life-cycles

Entrepreneurship and Dynamic Competition


• The more unstable is industry structure—the less helpful is analysis based upon industry structure

• Taking account of time—willingness to endure losses today in order to reap profit tomorrow • General structural features of digital, networked industries: Low Entry Barriers + Extreme Scale Economies + Network

Externalities = Winner-take-all markets = Intense competition

Applying the 5 Forces to Digital/E-Business Markets


SUPPLIERS

POTENTIALENTRANTS

SUBSTITUTES

BUYERS

INDUSTRYCOMPETITORS

Rivalry amongexisting firms

Bargaining power of suppliers

Bargaining power of buyers

Threat of

new entrants

Threat of

substitutes

Porter’s Framework in the Knowledge Economy

Network externalities: the suppliers of

complements create value for the industry

and can exercise bargaining power


Pre-requisites for success

• What drives competition? • What are the main dimensions of competition? • How intense is competition? • How can we obtain a superior competitive position?

Analysis of demand

• Who are our customers?

• What do they want?

KEY SUCCESS FACTORS

Analysis of competitionAnalysis of competition

• What drives competition?What drives competition?

• What are the main What are the main dimensions of competition?dimensions of competition?

• How intense is competition?How intense is competition?

• How can we obtain a superior How can we obtain a superior competitive position?competitive position?

What do What do customers want?customers want?

How may the firm How may the firm survive competition?survive competition?

Pre-requisites for success

Identifying Key Sucess Factors


Entrepreneurial Industry Evaluation

FactorsAttractiveness

High Low

Rivalry/Competition

Costumer Power

Supplier Power

Barriers to Entry

Substitute and Complementary

Products

Masters in Engineering and Management of Technology Masters in engineering Design Entrepreneurship and New Venture Creation Rui Baptista.

Documents

market potential market

relevant market slide

target market slide

industry tendencies

industry boundaries

industry attractiveness

environment slide

competitiors slide