1. Industry and Competitor Analysis
Chapter 8
Industry and Competitor Analysis By
T. Norah Al Jasser

2. Chapter Objectives Industry analysis. Five competitive forces.
Barriers to entry”.
Competitor analysis.
Three groups of competitors a new firm will face.
Information about competitors.

3. What is Industry Analysis?
An industry is a group of firms producing similar products or services, such as airlines, fitness drinks, furniture, or electronics.
Industry Analysis
Is a business research that focuses on the potential of an industry.

4. Two Key Questions Question 1: Is the industry accessible?
When studying an industry, an entrepreneur must answer two questions before pursuing the idea of starting a firm.
Question 1: Is the industry accessible?
Question 2:Does the industry contain markets that are ready for innovation or not?

5. The Five Competitive Forces Model
Five Forces Model:
A framework for understanding the structure of an industry.
Composed of the forces that determine industry profitability.
Help determine the average rate of return for the firms in an industry.

6. The Five Competitive Forces Model

7. Threat of Substitutes Threat of Substitutes
The price that consumers are willing to pay for a product depends in part on the availability of substitute products.
Firms in an industry always offer their customers features to reduce the chance of changing to a substitute product. IF
Few / No Substitute IF
Close Substitute exist
Difficult to switch when Price goes up
customers might stop buying when Price goes up)

8. Example A customer could easily get a cup of coffee cheaper at
one of Starbuck’s competitors.
To decrease the chances of
this, Starbucks offers high-
quality fresh coffee, good
service, and a satisfying
feeling.
Starbucks has therefore
reduced the threat of
substitutes.

9. Threat of New Entrants Threat of New Entrants
If the firms in an industry are highly profitable, the industry becomes more attractive to new entrants.
The competition in the industry will increase unless something is done to stop this.
Firms in an industry try to keep the number of new entrants low by creating barriers to entry..

10. Examples of barriers to entry :
A Barrier to entry: is a condition that discourage a new firm from entering an industry.
Examples of barriers to entry :
Economic scale .
Product differentiation.
Capital requirements.
Access to distribution channels.
Government and legal barriers.

11. Rivalry Among Existing Firms
Rivalry (competition) Among Existing Firms:
In most industries, the major determinant of industry profitability is the level of competition among existing firms.
Factors that determine the intensity of the competition:
Number and balance of competitors: The more competitors there are, the more one or more will try to gain customers by cutting its price.
Degree of difference between products: The degree to which products differ from the others affects industry rivalry.
Growth rate of an industry :The competition among firms in a slow-growth industry is stronger than among those in fast-growth industries.
Level of fixed costs :Firms that have high fixed costs must sell a higher amount of their product to reach the break-even point than firms with low fixed costs.

12. Bargaining Power of Suppliers
Suppliers can affect the profitability of the industries by raising prices or reducing the quality of the components they provide.
Factors that have an impact on the ability of suppliers to pressure on buyers:
Supplier concentration
changing from one supplier to another costs.
Attractiveness of substitutes.

13. Bargaining Power of Buyers
Buyers can affect the profitability of the industries by negotiating prices or demanding increases in quality.
Factors that have an impact on the ability of buyers to pressure on suppliers :
Buyer group concentration
Buyer’s costs.
Degree of standardization of supplier’s products

14. Application of the Five Forced Model
Assessing Industry Attractiveness Using the Five Forces Model

15. Identifying Competitors
Types of Competitors

16. Sources of Competitive Intelligence
ways to obtain information about competitors
Attend conferences and trade shows.
Purchase competitor’s products.
Study competitors’ Web sites.
Set up Google and Yahoo! alerts.
Read industry-related books, magazines, and Web sites.
Talk to customers about what motivated them to buy your
product rather than your competitor’s product.