Presentation is loading. Please wait.

Presentation is loading. Please wait.

Marketing-Industry Analysis Web: Office: Bus 308 Phone: 416-979-5000 Ext. 4215 MKT 731 Winter 2005.

Similar presentations


Presentation on theme: "Marketing-Industry Analysis Web: Office: Bus 308 Phone: 416-979-5000 Ext. 4215 MKT 731 Winter 2005."— Presentation transcript:

1 Marketing-Industry Analysis Web: Office: Bus 308 Phone: Ext MKT 731 Winter 2005 Lecture 2 Instructor: Armand Gervais

2 1 Lecture 2 Agenda Research Seminar in Library with Jane Binksma Learning Commons Lab - on the main floor of library Break Attendance Questions and Answers Administration Porters Framework Structure of Industries To Do’s for next week’s class

3 Porters 5 Forces Framework

4 3 Differences in Profitability of Industries

5 4 Porter 5 Forces Framework Entry Barriers Economies of Scale Proprietary Product Differences Brand Identity Switching Costs Capital Requirements Access to Distribution Absolute Cost Advantages - Proprietary learning curve - Access to necessary inputs - Proprietary low-cost product design Government Policy Expected Retaliation Determinants of Supplier Power Differentiation of Inputs Switching Costs of Suppliers and Firms in the Industry Presence of Substitute Inputs Supplier Concentration Importance of Volume to Supplier Cost Relative to Total Purchases in the Industry Impact of Inputs on Cost or Differentiation Threat of Forward Integration Relative to the Competition Threat of Backward Integration by Firms in the Industry Rivalry Determinants Industry Growth Fixed (or Storage) Costs/Value Added Intermittent Over-Capacity Product Differences Brand Identity Switching Costs Concentration and Balance Informational Complexity Diversity of Competitors Corporate Stakes Exit Barriers Determinants of Substitutes Relative Price Performance of Substitutes Switching Costs Buyer Propensity to Substitute Bargaining Leverage Buyer Concentration vs. Firm Concentration Buyer Volume Buyer Switching Costs Relative to Firm Switching Costs Buyer Information Ability to Backward Integrate Substitute Products Pull-Through Price Sensitivity Price/Total Purchases Product Differences Brand Identity Impact on Quality/ Performance Buyer Profits Decision Makers’ Incentives Industry Competitors Intensity of Rivalry Buyers New Entrants Substitutes Suppliers Threat of New Entrants Bargaining Power of Suppliers Threat of Substitutes Buying Power of Buyers Determinants of Buyer Power

6 5 Entry Barriers Economies of Scale-Auto production, microchips Proprietary Product Differences- Brand Identity Switching Costs-Main Frame computers data transfer Capital Requirements-Diamond Mining Access to Distribution-Consumer product/PG Absolute Cost Advantages - Proprietary learning curve - Access to necessary inputs - Proprietary low-cost product design Government Policy Expected Retaliation

7 6 Rivalry Determinants Industry Growth Fixed (or Storage) Costs/Value Added Intermittent Over-Capacity Product Differences Brand Identity Switching Costs Concentration and Balance Informational Complexity Diversity of Competitors Corporate Stakes Exit Barriers

8 7 Determinants of Buyer Power Bargaining Leverage Buyer Concentration vs. Firm Concentration Buyer Volume Buyer Switching Costs Relative to Firm Switching Costs Buyer Information Ability to Backward Integrate Substitute Products Pull-Through

9 8 Determinants of Buyer Power Price Sensitivity Price/Total Purchases Product Differences Brand Identity Impact on Quality/Performance Buyer Profits Decision Makers’ Incentives

10 9 Determinants of Supplier Power Differentiation of Inputs Switching Costs of Suppliers and Firms in the Industry Presence of Substitute Inputs Supplier Concentration Importance of Volume to Supplier Cost Relative to Total Purchases in the Industry

11 10 Determinants of Supplier Power Impact of Inputs on Cost or Differentiation Threat of Forward Integration Relative to the Competition Threat of Backward Integration by Firms in the Industry

12 11 Determinants of Substitutes Watch Technological developments Relative Price Performance of Substitutes Switching Costs Buyer Propensity to Substitute

13 Sustaining Superior Performance: Commitments and Capabilities Harvard Business School July 31, 1997 Ghemawat & Pisano

14 13 Sustaining Competitive Advantage Is a competitive advantage necessary to sustain superior performance? Not necessarily so just look at the proverbial mousetrap PIMS ROI over ten years business units top ROI 39% bottom 3% ROI difference shrank by 90%over the 10 year period

15 14 Threats to Sustainability Sustained superior performance is likely if two conditions are satisfied: 1. Scarcity 2. Appropriability Diamond Vs Air Part of the difference is transforming the products But the big part is scarcity How do you test whether a strategic position offers scarcity value? 1. Imitation 2. Substitution 3. Appropriability can owners pocket the value 4. Holdup and Slack

16 15 Imitation Most direct and obvious threat-China: toys, clothing etc. Attempts at product differentiation based on R&D as opposed to Marketing are vulnerable on several counts Competitors secure detailed information on the bulk of new products within a year of their development Patenting usually fails to deter imitation and imitation tends to cost a 1/3 less than innovation and 1/3 quicker Process innovations do not seem to be significantly less imitable than product innovations Summary Imitation is a serious threat to sustainability Impediment to imitation can be early mover advantage First mover advantage may be beneficial but also risky

17 16 Five Principals of Early mover Advantage 1.Private information  Better information kept private good example is food processing processes Instant Coffee. 2.Size Economies  Scale –being large. Shipbuilding Hyundai  Learning-being large at a particular time  Scope-interrelated businesses Canon Optics 3.Enforceable Contracts/Relationships-Better terms or contracts lock up the supply of a critical input ie 4.Threats of Retaliation  US Cigarette industry-filtered brands supported by advertising 5.Response Lags-sum or observation and implementation  US Cigarette Industry-Filter brands 80% of market within two decades  1951 there were 18 varieties by 1967, 80 varieties  Advertising to sales ratio up from 3.8% to 8.7%  Prisoners’ dilemma

18 17 Substitution 1. Less likely to be confined to direct competitors 2. Successful substitution finds away around scarcity, it is an indirect attack Substitution is a bigger threat then scarcity since it is often overlooked by companies Substitution depends on the mismatch between established positions and market opportunities to override early mover advantage Mainframe computer need 10* performance improvement Some companies control substitution some get displaced PBX Switches : 1 Electromechanical AT&T→ 2 Electronic (Voice only) 125 conversations Rolm→3 Voice & Data InteCom →Voice, Data, Video …..Voice over IP

19 18 Holdup Consequence of gap between owners and managers NFL Survived substitutes like WFL USFL Recognizing the threat of holdup the NFL evolved practices to thwart holdup by the players Players were signed to enforceable multiyear contracts Rights to draft rookies Restrictions on free agency Revenue sharing among owners prevented bidding wars Players formed the NFL players’ association Owners could not thwart holdup and player salaries climbed 170% Players share of revenue jumped from 35% to 55% Same thing is playing out today in the NHL

20 19 Slack Slack measures the extent to which the scarcity value realized by the organization falls short of its potential Holdup concerns portion of pie to owners and non-owners Slack affects the total size of pie available to owners and non- owners Slacks stems from organizational problems Xerox- slack represented 20% of the companies sales revenues The ratio of shareholder enrichment R/E over the 70’s and early 80’s was -220% Reasons slack build: High innovation intensity hard to monitor Incomplete information to monitor Growth of employees How to manage Information, aligning goals of employees with companies and moral suasion Air Canada

21 20 Building Sustainable Competitive Advantage Multiple potent threats to sustainability implies that manager cannot take the sustainability of a competitive advantage for granted Is sustainability rooted in resources or activities Resource base view- intrinsically inimitable-infinitely costly IE Location, patents, causal ambiguity-sum of parts or social complexity corporate culture – Southwest Culture of service, 3M culture of innovation. Not a 9-5 environment Activity based focuses on activities rather than resources Basic idea is takes more time and costs more to imitate along many dimensions than along one or two. The probability decreases as the number of activities increases.9*.9*.9*.9=66% Both views afford limited insight into building sustainable advantage

22 21 Making Commitments Making commitments can have significant and lasting effects on possible future outcomes Three indicators of irreversibility: Significant sunk costs, opportunity costs, time lags Sunk costs create irreversibility through lock-in Boeing 747 vs Airbus 380 Boeing believes in point to point future not hub model that Airbus is betting on. Lock out closing a mine- Floods and is destroyed Time Lags-Coors going national took a decade had to build a distribution network in 39 new states Staking out particular opportunities through commitments a company may create sustainable early mover advantage IE Dupont Titanium Oxide Spent million to master cheaper feedstock technology which gave Dupont a 20% cost advantage over competitors But also built a large new plant to crowd out large scale expansions by competitors. Made a capacity commitment to lock out others Commitments can also help prevent substitution Intel CISC vs RISC Commitments don’t always lead to competitive advantage: Holdup, slack and uncertainty all reduce advantage

23 22 Developing Capabilities Not all commitments are lumpy some are cumulative Intel Organizational capabilities are relevant to strategy for 2 reasons: 1. Characterize what an organization can do well or not well-choices about product and services influences capabilities 2. Organizational capabilities differ across companies in the same industries. IE Biotech companies can scale up production in 1/3 less time than other companies Auto industry Toyota and Honda produce a new model in half the time with half the engineering resources of the Big 3 This led to vehicles costing $2000 less to produce were better aligned with the customers needs and had significantly higher quality than domestic producers Capabilities are hard to imitate-private information, tacit, rooted deep in complex organizational processes Of the threats to sustainability, superior capabilities can indeed support sustained superior performance. In order to do so they must: 1. Demonstrable-difficult to determine and hard to measure 2. Prevent the overall coherence of capability development from being nibbled away Specific capabilities commitments imply rigidities and in an uncertain world could result in inferior performance

24 Industry Transformation Harvard Business School July 10, 2000 Michael Porter & Jan Rivkin

25 24 Industry Transformation Industry structure normally changes relatively slowly Occasionally and industry altogether transforms itself. Mom and Pop hardware stores replaced by category killers Workstations over take mainframe and mini-computers Two modes of change evolutionary and revolutionary Periods of industry transformation pose threats and opportunities to companies Also provide gives companies latitude to influence future industry structure Soft Drink industry evolved an attractive structure

26 25 Nature of Transformations The trigger –significant way of doing business that was not possible before Three forms of Triggers: 1. Change in technology-Electronic computing led to bar-code lead to improved distribution Walmart 2. Change in what customers need or want- WWII Surburbia-led to growth in cars, building of freeways and shopping malls 3. Change in regulation-Deregulation of airlines led to vicious price competition and a unattractive industry for many All these set the stage but metamorphosis does not occur until managers and companies see potential and act. Mass production-Assembly line Ford, Hub and spoke to Fedex

27 26 Transformations Dramatic changes in relative positions are rarely ignited by improvements in operational effectiveness alone. Such improvements shift the entire productivity frontier of the industry Examples Frequent fliers programs, UPC barcodes Bar codes scanners gave big grocers advantage of M&P and more power over grocery manufactures due to information A period of widespread experimentation follows the trigger Auto industry Auto-by-tel, CarMax Risk and lack of information characterize this stage Capital providers play a crucial role-lacking tried and true metrics they overvalue companies fueling experimentation

28 27 Convergence Most experiments fail because they poorly meet buyer value or fail to drive a wedge between buyer value and costs for a sufficient number of customers -A Dominant design emerges Shakeout average time for products is ten years Products introduced average first-mover endured for 33 years Products introduced years Time # Of Firms

29 28 Strategy During Periods of Transformation Some argue that strategy during uncertain times is useless Other believe that deliberate setting of strategy is more important then ever during periods of change Without explicit strategy managers and employees more in conflicting directions Firms with clear strategies play major role in defining nature of the post transformation industry Good analysts of future industry structure follow some important principles: 1. They distinguish the enduring form the transient 2. They look for internal consistencies 3. They identify clearly the uncertainties that remain

30 29 To Do’s for Next Week  and Hand in Project Outline before beginning of next class  me your contact information if you haven’t done so.  Complete the assigned readings  Work on Industry analysis


Download ppt "Marketing-Industry Analysis Web: Office: Bus 308 Phone: 416-979-5000 Ext. 4215 MKT 731 Winter 2005."

Similar presentations


Ads by Google