Intra-Industry Analysis OUTLINE Game theory Competitor Analysis Segmentation Strategic Groups 30

The Contribution of Game Theory to Competitive Analysis Main value: Framing strategic decisions as interactions between competitors Predicting outcomes of compeittive situations involving a few players Some key concepts: Competition and Cooperation—Game theory can show conditions where cooperation more advantagfeeous than comeptition Deterrence—changing the payoffs in the game in order to deter a comeptitor from certain actions Commitment—irrevokable demployments of resoruces that give criditability to threats Signaling—communication to influnece a comeptior’s decision Problems of game theory: Useful in explaining past competitive behavior—weak in prediucting future competive behaoir. What’s the problem? — Multitude of models, outcomes highly sensitive to small changes in assumptions

A Framework for Competitor Analysis OBJECTIVES What are competitor’s current goals? Is performance meeting there goals? How are its goals likely to change? STRATEGY How is the firm competing? PREDICTIONS What strategy changes will the competitor initiate? How will the competitor respond to our strategic initiatives? ASSUMPTIONS What assumptions does the competitor hold about the industry and itself? RESOURCES & CAPABILITIES What are the competitors’ key strengths and weaknesses? 5

Segmentation Analysis: The Principal Stages Identify key variables and categories. Construct a segmentation matrix Analyze segment attractiveness Identify KSFs in each segment Analyze benefits of broad vs. narrow scope. Identify segmentation variables Reduce to 2 or 3 variables Identify discrete categories for each variable Potential for economies of scope across segments Similarity of KSFs Product differentiation benefits of segment focus 31

The Basis for Segmentation: Customer and Product Characteristics *Size *Technical sophistication *OEM/replacement Industrial buyers Characteristics of the Buyers *Demographics *Lifestyle *Purchase occasion Household buyers *Size *Distributor/broker *Exclusive/ nonexclusive *General/special list Distribution channel Opportunities for Differentiation Geographical location *Physical size *Price level *Product features *Technology design *Inputs used (e.g. raw materials) *Performance characteristics *Pre-sales & post-sales services Characteristics of the Product 1

Segmenting the European Metal Can Industry

Segmenting the World Automobile Market REGION US& Canada W.Europe E.Europe Asia Lat America Australia Africa Luxury Cars Full-size sedans Mid-size sedans Small sedans Station wagons Passenger minivans Sports cars Sport-utility Pick-up trucks

Vertical Segmentation & Industry Profit Pools —The US Auto Industry 25% 20 Leasing Service & repair Operating margin 15 Warranty Aftermarket parts Auto manufacturing 10 Auto rental Auto insurance Auto loans New car dealers 5 Used car dealers Gasoline 100% Share of industry revenue

Segmentation and Key Success Factors in the U.S. Bicycle Industry * Low-costs through global sourcing of components & low-wage assembly. * Supply contract with major retailer. Leading competitors: Taiwanese & Chinese assemblers, some U.S manufacturers, e.g. Murray Ohio, Huffy Low price bicycles sold primarily through department and discount stores, mainly under the retailer’s own brand (e.g. Sears’ “Free Spirit”); *Cost effieciency through large scale operation and either low wages or automated manufacturing. *Reputation for quality (durability, reliability) through effective marketing to dealers and/or consumers. * International marketing & distribution. Leading competitors: Raleigh, Giant, Peugeot, Fuji Medium-priced bicycles sold primarily under manufacturer’s brand name and distributed mainly through specialist bicycles stores; *Quality of components and assembly, Innovation in design (e.g. minimizing weight and wind resistence). *Reputation (e.g. through success in racing, through effective brand management). *Strong dealer relations. High-priced bicycles for enthusiasts. Children’s bicycles (and tricycles) sold primarily through toy retailers (discount toy stores, department stores, and specialist toy stores). Similar to low-price bicycle segment. 2

Strategic Group Analysis A strategic group is a group of firms in an industry following the same or similar strategy. Identifying strategic groups: Identify principal strategic variables which distinguish firms. Position each firm in relation to these variables. Identify clusters. 33

Strategic Groups in the World Automobile Industry Broad GLOBAL, BROAD-LINE PRODUCERS e.g., GM, Ford, Toyota, Nissan, Honda, VW, Daimler Chrysler REGIONALLY-FOCUSED BROAD-LINE PRODUCERS e.g. Fiat, PSA, Renault, GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Volvo, Subaru, Isuzu, Suzuki, Saab, Hyundai NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS e.g. Tofas, Kia, Proton, Maruti PRODUCT RANGE LUXURY CAR MANUFACTURERS e.g., Jaguar, Rolls Royce, BMW NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS e.g., Bristol (U.K.), Classic Roadsters (U.S.), Morgan (U.K.) PERFORMANCE CAR PRODUCERS e.g., Porsche, Maserati, Lotus Narrow National GEOGRAPHICAL SCOPE Global 3

Strategic Groups Within the World Petroleum Industry INTERNATIONAL UPSTREAM COMPANIES INTEGRATED OIL MAJORS INTERNATIONAL UPSTREAM, REGIONALLY FOCUSED DOWNSTREAM Premier Oil Enterprise Kuwait Petroleum PDVSA INTEGRATED DOMESTIC OIL COMPANIES NATIONAL PRODUCTION COMPANIES Iran NOC 0 0.5 1.0 1.5 2.0 Statoil BP-Amoco Exxon -Mobil Vertical Balance INTEGRATED INTERNATIONAL MAJORS Pemex Petronas Chevron Royal Dutch -Shell Gp. Phillips ENI Elf-Fina-Total Repsol Indian Oil YPF Phillips Petrobras Texaco ENI Repsol INTERNATIONAL DOWNSTREAM OIL COMPANIES Nippon E.g. Neste Tosco 0 10 20 30 40 50 60 70 80 NATIONALLY-FOCUSED DOWNSTREAM COMPANIES Geographical Scope 4