1. Chapter 6 Analyzing the Industry and Market

2. Copyright © Houghton Mifflin Company. All rights reserved.6 | 2 Learning Objectives Explain the industry life cycle Use frameworks to characterize an industry Conduct an industry analysis Characterize the target market and first customer Gather competitive intelligence Gather demand data

3. Copyright © Houghton Mifflin Company. All rights reserved.6 | 3 Some Definitions Industry: A grouping of similar businesses that interact in a common environment Market: A grouping of customers that an entrepreneur targets Primary Customer: Represents that segment of the marketplace that needs the product or service most.

4. Copyright © Houghton Mifflin Company. All rights reserved.6 | 4 An Overview of Industry Analysis How is the industry described? Is the industry growing? Where are the opportunities? What is the status of any new technology? How much do industry companies spend on research and development? Who are the opinion leaders in the industry?

5. Copyright © Houghton Mifflin Company. All rights reserved.6 | 5 An Overview of Industry Analysis (Continued) Are there young, successful firms in the industry? What does the future look like? Are there any threats to the industry? What are the typical margins in the industry?

6. Copyright © Houghton Mifflin Company. All rights reserved.6 | 6 Table 6.1: Resources for Industry Analysis

7. Copyright © Houghton Mifflin Company. All rights reserved.6 | 7 Frameworks for Understanding Industries Birth Growth and adaptation Differentiation and competition Shakeout Maturity and decline

8. Copyright © Houghton Mifflin Company. All rights reserved.6 | 8 Figure 6.2: Industry Trajectories

9. Copyright © Houghton Mifflin Company. All rights reserved.6 | 9 Porter’s Five Forces Model Barriers to entry: Economies of scale Brand loyalty Capital requirements Switching costs for the buyer Access to distribution channels Proprietary factors Government regulations

10. Copyright © Houghton Mifflin Company. All rights reserved.6 | 10 Porter’s Five Forces Model (continued) Threats: –Threats from substitute products: Products/services which accomplish the same function in a different way or at a different price. –Threats from buyers’ bargaining power: The more large buyers understand the nature of the industry and the more products are standardized, the greater the likelihood that these buyers will have significant bargaining power.

11. Copyright © Houghton Mifflin Company. All rights reserved.6 | 11 Porter’s Five Forces Model (continued) Threat’s (continued) –Threats from suppliers’ bargaining power: If the number of these suppliers is few relative to the size of the industry or the industry is not the primary customer of the suppliers, the suppliers’ potential power to raise prices or change the product quality of goods/services supplied to manufactures and distributors is greater.

12. Copyright © Houghton Mifflin Company. All rights reserved.6 | 12 Porter’s Five Forces Model (continued) Competitive rivalry among existing firms: In general, a highly competitive industry will drive down profits and ultimately the rate of return on investment.

13. Copyright © Houghton Mifflin Company. All rights reserved.6 | 13 Figure 6.4: PEST Analysis

14. Copyright © Houghton Mifflin Company. All rights reserved.6 | 14 Characterizing the Target Market Key questions to answer: –What are the potential markets for the product or service? –Of these potential markets, which customers are most likely to purchase the product or service at market introduction? –How much do these customers typically buy, how do they buy, and how do they hear about the product or service? –How often do they buy? What is their buying pattern? –How can the new venture meet these customers’ needs?

15. Copyright © Houghton Mifflin Company. All rights reserved.6 | 15 Characterizing the Target Market (continued) Steps in Market Research: –identify and profile the first customer –estimate potential demand from that customer –identify subsequent customer segments and needs to grow the company

16. Copyright © Houghton Mifflin Company. All rights reserved.6 | 16 Characterizing the Target Market (continued) Primary research techniques –Mail and phone surveys –Interviews –Informal focus groups –The Internet –Online or in-person surveys

17. Copyright © Houghton Mifflin Company. All rights reserved.6 | 17 Gathering Competitive Intelligence Elements of Competitive Intelligence Analysis: –Identify the competition –Find information about competitors

18. Copyright © Houghton Mifflin Company. All rights reserved.6 | 18 New Venture Checklist Identify the NAICS code for the new venture industry Collect secondary data on the industry Conduct field research Develop an industry profile Define the industry target market Determine most effective method for gathering primary data to develop customer profile