Industry Competitive Structure Analysis Serge Oréal

5 Forces Model Rivalry Analysis Buyers Suppliers Final Consumers New Entrants Producers of Substitutes

Rivalry Analysis Define industry limits Define industry limits Analyze concentration rate of the industry Analyze concentration rate of the industry Identify competitive structure of the industry Identify competitive structure of the industry Evaluate strategies and competitive weapons Evaluate strategies and competitive weapons Analyze evolution of industry structure Analyze evolution of industry structure Increasing concentration Increasing concentration Increasing competition Increasing competition Existence of barriers to Entry and to Exit Existence of barriers to Entry and to Exit Strategic map: identify Strategic Groups Strategic map: identify Strategic Groups

Industry Limits Exogenous Exogenous Geographic coverage Geographic coverage Degree of diversity Degree of diversity Degree of vertical integration Degree of vertical integration Endogenous Endogenous Product Product Markets/needs being served Markets/needs being served Technology/know-how Technology/know-how

Industry Concentration Number of FirmsTop4Top8Top20 Cigarettes770%100% Detergents59970%78%86% Artificial Fur coats %10%11%

Industry Structure Monopoly Monopoly Monopolistic competition Monopolistic competition Oligopoly Oligopoly Pure/perfect competition Pure/perfect competition

Industry Structure & Competitive Weapons Perfect Competition Cost Competitiveness Price Production Logistics Purchasing, Supply mgt Distribution Process innovation General/admin. Cost mgt

Industry Structure & Competitive Weapons Oligopoly Quality, Service, Attributes, Image, Brand name, etc… Market analysis Research & development Communication CRM

Barriers to Entry Start-up capital Start-up capital Technology and know how Technology and know how Government policy Government policy Regulations and norms, legal barriers Regulations and norms, legal barriers Access to suppliers and to distribution channels Access to suppliers and to distribution channels Switching costs Switching costs Economies of scale Economies of scale Image and reputation Image and reputation Product differentiation Product differentiation Cost disadvantages independent of scale: location, government subsidies, experience curve effects Cost disadvantages independent of scale: location, government subsidies, experience curve effects Expected retaliation by existing competitors Expected retaliation by existing competitors Market saturation Market saturation Concentration of the industry Concentration of the industry

Barriers to Exit Legal barriers: contracts, serviving, public service obligation Legal barriers: contracts, serviving, public service obligation Specialized assets Specialized assets Fixed costs of exit Fixed costs of exit Sunk costs Sunk costs Political and social pressures Political and social pressures Emotional and cultural barriers Emotional and cultural barriers Relationships with other SBUs Relationships with other SBUs Image and reputation Image and reputation

Strategic Group Mapping Strategic Group: Strategic Group: Group of companies in the same industry Group of companies in the same industry Having very similar economic characteristics, Having very similar economic characteristics, Following very similar strategies Following very similar strategies

Industry Mapping: Strategic Group Analysis ab c d e g h i j k l m f n o

How to use it? Analysis: Analysis: Identify direct competitors Identify direct competitors Benchmarking Benchmarking Follow their strategic evolution Follow their strategic evolution Decision making: Decision making: Be/stay the leader in your group Be/stay the leader in your group Join an other group Join an other group Create your own group: Innovate Create your own group: Innovate

Strategic Group Mapping Firms in same strategic group have two or more competitive characteristics in common Firms in same strategic group have two or more competitive characteristics in common Sell in same price/quality range Sell in same price/quality range Cover same geographic areas Cover same geographic areas Be vertically integrated to same degree Be vertically integrated to same degree Have comparable product line breadth Have comparable product line breadth Emphasize same types of distribution channels Emphasize same types of distribution channels Offer buyers similar services Offer buyers similar services Use identical technological approaches Use identical technological approaches

Procedure for Constructing a Strategic Group Map STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics STEP 3: Assign firms that fall in about the same strategy space to same strategic group STEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales

Example: Strategic Group Map of the Video Game Industry Types of Video Game Suppliers/Distribution Channels Overall Cost to Players of Video Games Low (Coin-operated equipment) Medium (Console players cost $100-$300) High (Use PC) Arcades Home PCs Video game consoles Online/Internet Sony, Sega, Nintendo, several others Arcade operators Publishers of games on CD-ROMs MSN Gaming Zone, Pogo.com, America Online, HEAT, Engage, Oceanline, TEN

Example: Strategic Group Map of Selected Retail Chains

Car Industry Number of Models FewMany Market Coverage National World Zone

Car Industry Number of Models FewMany Market Coverage National World Zone VAG Chrysler Fiat Nissan Renault PSA GM Ford Toyota Honda BMW Mercedes Ferrari Porsche Rolls Jaguar Huyndai Daewoo Mitsubishi Isuzu Rover Lada Dacia