Presentation on theme: "Industry Analysis Agenda – Industry Analysis – RA – 6 (go through the worksheets – they really will help) – Feedback to other groups – part of your participation."— Presentation transcript:
Industry Analysis Agenda – Industry Analysis – RA – 6 (go through the worksheets – they really will help) – Feedback to other groups – part of your participation grade – Events for reflection journal Ongoing: – Strategic Positioning, RA-9 – Preliminary Executive Summary Pitch *** – Marketing & Sales, RA-10
Strategy Question Seerse, Inc. is a diversified company that has six lines of business. The company’s management states that all these businesses are essential to its competitive future. This table describes the different businesses’ contribution to revenue and profits: Business% of revenue% of profit Retailing (discount dept. stores)5018 Insurance3050 Consumer credit card operations617 Stock brokerage56 Commercial/residential real estate48 Drivers’ education51 Explain the variability in the sales/profit across Seerse’s businesses. In what business is Seerse more successful? Explain your answer.
Heather McKay Who was the best athlete? Aleksandr Karelin
4 Levels of the environment firm macro-environment industry suppliers customers competitors technology demographics policy/law macroeconomics global sociocultural physical environment
5 Industries, markets & segments Market - a group of customers interested in a certain product. Segment - a subcategory of a market defined with reference to certain product and/or customer characteristics. – Many markets can be broken into segments. Strategic group is a group of firms within an industry following similar strategies. – Often this means they pursue similar market segments.
Why do we care about Industry? Industry Structure exerts industry effect on all firms in the industry Allows you to check your assumptions. – If you are you out of line, more explanation needed Firm effects Industry effects Firm Performance 4% 2%
Ways of Knowing Industry overview – IBISWorld – Maybe market Research.com – smaller coverage Industry leaders – OneSource Interviews with industry professionals – Come prepared Lists of specific questions Limited amount of time End by asking “What is something that I need to know that I have not asked yet?”
Industry Classification The North American Industry Classification System (NAICS)NAICS standard used by Federal statistical agencies classifies business establishments Used for U.S. business economy statistics
What is the boundary for this Industry? Companies in this industry manufacture cars and automobile chassis. They are referred to as automakers and typically produce automobiles (cars, including electric cars) in assembly plants. The manufacturing of light trucks such as vans, pick ups and SUVs, heavy trucks and motorcycles are not included in this industry. Why? Recall NAICS 33611a (Car & Automobile Mfg)
NAICS 33611a [Car & Automobile Mfg] Products, top players, cost structure and market segments indicate elements of the value chain.
Value Chain for our Industry Some elements of the value chain may need more data and information. Understand the dynamics of these interactions Dealers Toyota Labor Resources Mid-size Small Luxury Sports Ford GM Wholesalers Tier 1/OEMs Govt Honda Exports Leasing
Where to start The Big Picture Size (does it matter) Growth Rate (p. 75) – Put it in perspective, compared to GDP, other industries Stage of maturity – Table on p 77 – think through implications for other parts of the plan Accuracy in forecasting Economic cycles – Cyclical – Countercyclical Seasonality – Summer buying – Christmas
Your Own Analysis Supply Channels Distribution Channels Maturity Technological change
How to analyze the 5 Forces? Assume a firm is magically placed in the industry (like an experiment). – You’re already there. What’s it like? Assess strength of each of the five competitive forces (Strong? Moderate? Weak? ) Assess the factors causing each force to be strong or weak? Rate combined effect: brutal, fierce, strong, normal/moderate, or weak Who is this?
What increases Buyer bargaining power – They are large and purchase a sizable percentage of industry’s product (Monopsony) – They buy in large quantities – They can integrate backward (Buy you out) – Industry’s product is standardized – Their costs in switching to substitutes or other brands are low – They can purchase from several sellers – Product purchased does not save buyer money Overall Buyer Bargaining Power is moderate to high
What increases supplier bargaining power Labor Tier 1 Government OEMs Overall Supplier Bargaining Power is high Item makes up large portion of product costs, is crucial to production process, and/or significantly affects product quality Costly for buyers to switch suppliers Have good reputations and growing demand Can supply a component cheaper than industry members can make it themselves Few substitutes for supply Buying firms are not important customers
What increases forces of rivalry? Frequent launches of new offensives to gain sales and market share Aggressive marketing and product strategy Lots of firms that are relatively equal in size and capability Commoditization Low switching costs for buyers Scarce supply side resources Overall Rivalry is moderate to high
Entry Barriers: Threat of Entry – Supply side scale economies – Demand side scale economies – Existence of strong learning/experience curve effects – Strong brand preferences and customer loyalty – Difficulties in gaining access to distribution channels – Regulatory policies, tariffs, trade restrictions – Expected retaliation Overall Entry Barriers are high
What are some substitutes? Readily available Attractively priced Believed to have comparable or better performance features Customer switching costs are low Overall currently low to moderate threat of substitutes
High Mod to High Low Low to Mod Overall this Industry is low to moderately attractive
22 Ways of influencing industry structure SUPPLIERS POTENTIAL ENTRANTS SUBSTITUTES BUYERS INDUSTRY COMPETITORS Rivalry among existing firms create switching costs develop economies of scale integrate vertically identify new niche market
Now you try it Supply Channels Distribution Channels Maturity Technological change
Wrap-up Key takeaways – Industry affects firm profitability (it’s comparative) – Know the industry investors can sense weakness Avoid For Next Class: Ongoing: – Strategic Positioning, RA-9 – Preliminary Executive Summary Pitch – Marketing & Sales, RA-10