chapter 2 worksheet - salem state...

Chapter 3 Worksheet

The concepts in this worksheet correspond directly with the text. If you do not understand the concept or need to refresh your memory, please refer to the text. I provide the page reference for each of the criteria. You should also use the CD-ROM for concepts that require more detailed explanation than the text provides.

The purpose of the external analysis is to identify opportunities and threats for the industry you are analyzing. Do not focus on the company under analysis. Focus on the industry in which the company competes. Make sure your analysis of the facts leads to a logical determination of specific opportunities and threats associated with the criterion you are analyzing. Consider each criterion from a strategic perspective. In other words, does your analysis lead you to conclude how or in which ways does the criterion under analysis create opportunities or threats for the industry or specific companies in the industry? State the specific nature of the opportunity or threat. This will strengthen your analysis and help you with your subsequent SWOT analysis.

Do not use speculative statements. Typical key words indicating speculation include: if, should, could, would, and may. Avoid contractions in written business reports. You only use contractions in a business report when it involves a direct quote.

Macro-environment forcesCriteria

(Refer to page 74.)Facts What does this mean?

The economy at large(Address the economic conditions during the timeframe of the case.)

The economy at large was very robust during the time frame of the case. Memphis and the surrounding area were growing mainly due to the establishment of 9 casinos in Tunica Mississippi, which is about 20 miles from Memphis. The market grew over 15% in 1996

This is an opportunity for companies in the industry to grow their sales volume. Please elaborate on the specific nature of the opportunity (ies). This comment applies throughout your worksheet. The casinos have contributed to population increases in the market. The casinos are also attracting customers who expect to dine on foods they are accustomed to. Specialty sausage is among the food they seek. The casinos are willing to pay a premium and offer variety so that they may satisfy their customers appetites.

Legislation and regulation The USDA imposes some regulation on sausage producers that want to operate on a commercial scale. Government regulations specified that nutrition facts must be included on all food products.

The USDA regulations are reasonably easy to comply with and therefore do not prevent a significant barrier to new entrants. This is a significant threat to the existing companies as nearly any company may easily enter the industry.

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Population demographics(Population demographics analysis relies on developing various categories of the population and analyzing their impact on the industry. Typical categories include gender, age, education level, geographic location, and income levels. In addition to population demographics, this type of categorization includes ethno-graphics and psychographics

The Memphis market is growing in population. The opening of 9 casinos in Tunica, Mississippi, which is only 20 miles from Memphis, is largely responsible for attracting approximately 16 million visitors annually to the Memphis region. These visitors are bringing prior knowledge of and appreciation for specialty sausage. The casinos are bringing increased prosperity to the local residents. While these facts are interesting, they do not address the population demographic categories. Please address the demographic categories. How are the population’s demographics or changing demographics impacting opportunities or threats for this industry?

Increased business activity and the larger number of visitors present an opportunity for growth for the specialty sausage industry in this area. Please elaborate on the specific nature of the opportunity (ies).

Societal values and lifestyles Sausage is growing in acceptance as more than just a breakfast item. The market for specialty sausage, which can be sold at a premium, has increased particularly with the casino goers. Lifestyle changes are causing consumers to be increasingly health conscious. These same consumers are also finding that they have less time to prepare meals and are looking for products that can be ready in a half hour or less.

These conditions are presenting opportunities for specialty sausage makers to diversify their product offerings such as Healthy Choice has. There is also the opportunity for increased market due to the acceptance of sausage for meals other than breakfast. Health consciousness and meal preparation time could ultimately be threats to the industry if the industry can not offer products to respond to customers’ changing tastes and they begin switching to the readily available substitutes.

Technology There have been no significant technological advances in the specialty sausage industry. E-commerce opportunities may potentially exist. This response should be in the “what does this mean” column. Please elaborate or provide supporting narrative that describes the specific nature of the opportunity.

The lack of specialized or unique technology is a threat to the existing firms as a company can easily acquire the equipment necessary to compete with them.

1. What are the Industry's dominant economic features (page 77)?Please note that table 3.1 provides a sample profile of the sulfuric acid industry. Table 3.2 provides examples of the strategic significance of each of the criterion. Make sure you know the industry you are analyzing.

Criteria Facts What does this mean?Market size The retail portion of the Memphis The local market is in a state of high growth,

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market is 12.25 million dollars on 6.1 million pounds of sausage products sold. The market grew 15.4% in 1996.

producing opportunities for specialty companies such as Guiseppe’s to grow their revenues.

Scope of the competitive rivalry(The competitive scope criterion addresses geographic scope (Global, National, Regional, and Local), product scope, market scope and so on.)

The scope of the rivalry is local with small producers of specialty sausage fighting for market share. Some national players are involved in the Memphis market. Product breadth tends to be large for the smaller companies and narrow for the larger national companies.

This arrangement tends to increase the competition between rivals. Because of this competitive situation there is a threat of lower profit margins for the existing firms.

Market growth rate and position in the business cycle

The retail segment grew 15.4% while the entire local market grew at a rate of 18.3% in 1996. The industry appears to be entering the later stages of growth and possibly has already entered the mature stage.

This is an opportunity for the smaller producers to increase revenues. Enough growth exists to offer opportunities for the local producers but there is probably not enough growth for the national companies to target the market.

Number of rivals and their relative size(Relative size refers to the market share based on total sales for the overall market or, when applicable, individual market segments.)

There were 20 or 30 companies who have sales in the Memphis market. Most were national players such as Johnsonville, Jimmy Dean and John Morrell. Locally Guiseppe’s main rival was Dino’s.

The high level of competition poses a threat to the industry of declining profit margins. The large national players drive the market price down reducing the profits the specialty companies can make, while the small companies force their larger rivals to increase product offering which can drive down their profits.

Number of buyers and their relative size(Address the number of buyers in each market and market segment. Buyer size refers to the buyer’s volume of sales for the industry.)

There are two major buyers in the Memphis market. These are the (brokers) retailers and the food service industry. There are also numerous individuals who make direct purchases.

The individuals do not pose a threat in the industry because the retailers and food service companies purchase the majority of product. The retailers and food service companies present a threat of lower profits to the existing companies as they prefer to make purchases through brokers who expect to profit from this service.

Extent of rivals’ vertical integration (How far forward or backwards have the rivals extended their value chain?)

There is no evidence of backwards, vertical integration in the industry. Guiseppe’s and a couple others make small individual sales, which are evidence of forward integration.

Although it would be possible there is no real threat of vertical integration either forwards or backward in the specialty sausage industry.

Extent of rivals horizontal integration

The case makes no mention of horizontal integration.

Types of distribution channels rivals use to access customers (Do the channel types vary by customer segment?)

Sausage is sold to the individual consumer via mail order. The retailers are reached through a retail broker and an independent or company distributor. The food service buyers are similarly reached through a food service broker and distributor.

The distributors and brokers pose a slight threat to market penetration while holding down the profits that a manufacturer can achieve. This threat is not insurmountable to a company willing to establish the necessary relationships for competing in the market.

Pace of technological innovation in production process

The pace of technological advance in the industry has been slow.

The relative lack of technology acts as a threat of entry to the current market participants.

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innovation Pace of technological innovation in product introduction

Product innovation is relatively fast with new products being offered and copied at a steady pace. Technology is not a significant contributor to this innovation.

The lack of technological innovation is a threatening to firms currently in the industry. New entrants or existing rivals can quickly copy new products.

Extent to which the rivals products and/or services are differentiated

Most of the industries products are essentially identical with much competitive copying and inter-brand pricing.

This situation poses a threat that drives down the market prices and offers little opportunity to consistently generate a premium on the specialty offerings.

Extent to which rivals use economies of scale in: Purchasing Manufacturing Services Transportation

(logistics) Marketing Advertising General and

Administration Others

There is no true economy of scale in the industry. The national brands do hold some advantages over the smaller local companies due to sheer size and marketing prowess. These national companies have achieved brand recognition and hold most of the retailers’ limited shelf space. This hampers the smaller specialty companies’ ability to increase market presence.Would you consider that some rivals do have economies of scale while others do not?

This is a threat to the sausage makers as it is relatively easy for new competitors to enter the market. A company with a recognized brand name would likely find it relatively easy to establish themselves as suppliers of specialty sausage.

Extent to which the key industry participants are clustered in one geographic location

The small specialty makers are local to the Memphis Market. The National competitors operate out of different locales.

A new entrant possessing adequate and cost effective distribution capabilities could start their company in almost any location. This is a threat to the existing companies.

Extent to which certain industry activities result from learning and experience curve effects

Very little advantage is gained in the industry from learning curve effects.

This acts as a threat as a new competitor can easily enter the market and quickly become competitive. This is a possessive pronoun. It infers possession or ownership. It is not appropriate to start a sentence with this.

Capacity surplus or shortage in the industry

Guiseppe’s has excess capacity, as he runs his operation on one shift. There is no specific mention of the other rivals capacity status.

Assuming there is a surplus of capacity this is an opportunity to the existing companies, as they will be able to manufacture the increased demand in a cost effective manner.

Capital requirements and the ease of entry or exit

Very little capital is required to enter the specialty sausage industry making entry and exit very simple.

This poses a great potential threat to the existing companies of new rivals entering the market.

Industry profitability Industry profitability is low to average due mainly to the high level of competition and availability of substitute products.

This acts as a barrier to new entrants.

Degree of alliances There is little in the way of alliances in the industry. We see some signs in the distribution channels.

This acts as a threat to the industry as new competitors can easily penetrate the market.

(You can provide additional economic features)

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1. What is competition like and how strong is each of the competitive forces (page 79)?

Criteria Facts What does this mean?(Does this make the force strong or weak for the industry? What does it mean for the company?)

RIVALRY (pages 81-84)How many competitors are there in this industry?

20 to 30 brands participate in the specialty sausage industry. There are 8 or 9 top competitors in the Memphis market.

Competition is a strong force in the industry. This is a threat to the continued profitability of the existing firms.

What is the relative size of each competitor?

Dino’s and Guiseppe’s are similar in size but each faces competitions from the national companies who are hundreds of times larger. Although the small companies have an advantage in their ability to offer many sausage varieties their profit margin is kept down due to the pricing advantage the national companies own. Conversely if the national companies manufacture more varieties in smaller quantities to be more competitive in local markets, they face declining overall profit.

These diverse factors act as a threat to overall profitability of the existing firms. This tends to act as a strong force to keep profits down.

What is the industry concentration ratio (C4)? Top 4 company’s sales Industry sales

This information is not available.

What is the product or service demand growth rate?

The specialty sausage market grew 18.3% from 1996 to 1997.

This high growth rate is an opportunity for the existing firms to increase their revenues.

Are rivals using price cuts or other competitive weapons to boost unit volume?

The large national brands chose to offer a small number of sausage varieties at a low price to the larger buyers such as the retailers and food process companies.

This strategy threatens the overall profitability of the existing companies by making it difficult to demand a premium for uniqueness or variety.

Are the customer's switching costs low?

Customer switching costs are low. Substitutes are available at competitive prices. Most often these substitutes are available where specialty sausages are purchased. Customers also find it very easy to switch from one brand of specialty sausage to another brand.

These two factors combine to increase the rivalry between the sausage companies. They form the incentive for the existing firms to keep sell prices low to avoid the loss of market share to rival firms or substitute products. Do low switching costs increase rivalry? If so, what are the resulting opportunities or threats?

Are rivals launching moves to change their market share or industry position at the expense of other industry participants?

Yes. Column two is for facts. Do not answer the questions in this column. Companies are copying successful products, diversifying product offerings and waging price competition.

These actions are driving down potential profits by limiting the price a rival can charge for its product. Do these actions create opportunities or threats for the

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industry?What are the payoffs for strategic moves?

Increased market share and revenue growth are the payoffs for successful strategic moves in the specialty sausage industry.

These payoffs likely come with the cost of reduced profit margin, as any successful strategy would most certainly require offering specialty sausage at a reduced price.

Does it cost more to exit the industry than to continue participation?

It is not costly to exit the sausage industry. Firms will be more likely to leave then to linger unprofitably. As profit margins continue to dwindle, aggressive firms or firms with lower costs may be able to drive other firms out of the specialty sausage industry.

As the specialty sausage industry continues to mature, rivalry will continue to intensify. As price competition intensifies, companies will have the opportunity to leave the industry without suffering significant losses. This should allow the remaining firms to operate their companies profitably.

How consistent are rivals strategic visions, strategic intents, objectives, strategies, resources and origins?

The national companies operate in a similar manner. They offer a small range of products that they can manufacture in high volumes. The smaller local firms tend to offer more varieties that they produce in small volumes. This allows them to find niches in the overall market.

These two diverse strategies pose a threat to the industry. Each strategy has its competitive advantage, and there are enough firms in each group to drive profits down.

Are strong new entrants acquiring weaker rivals and launching well-funded, aggressive moves?

Currently the industry has not seen the arrival of aggressive new entrants looking to dominate the specialty sausage market.

We do anticipate the arrival of this type of new rival. This is an opportunity for the existing firms to grow or defend their current position. Please re-read your response. If there are new entrants, then rivalry increases. The increased rivalry is a threat for the industry. Defending your market position inherently is defending against a threat.

THREAT OF ENTRY(pages 84-87)

Under the heading of new entrants, your analysis should lead you to conclude that new entrants are likely or unlikely to challenge the existing firms in the industry. Therefore, new entrants are likely (threat) or unlikely (opportunity) to pose an opportunity or threat to the existing firms in the industry.

What economies of scale exist in each of the following areas: Production Purchasing Inbound and outbound

logistics Advertising Financing Customer service Raw materials R&D

There are no significant economies of scale in the specialty sausage industry. The larger national brands do have an advantage due to their brand recognition and ability to spread their costs over a greater number of units.

Please refer to my previous comment.

This poses a threat to existing firms, as it is relatively easy for new entrants to join the industry particularly if the new entrant is an established firm with the listed capabilities already in place.

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Other steps in the value chain?

Cost and resource disadvantages independent of size

Existing firms do not have a significant advantage in the industry unrelated to size. The one area they may have a slight opportunity is in access to the distribution channels.

This is a threat to the existing companies, as new entrants have no significant obstacles to overcome in their quest to become competitive within the industry. Would you consider access to the brokers and the limited retailer shelf space as significant obstacles?

What are the learning curve and experience effects to enter?

Learning curve effects do not contribute significantly to lower unit costs.

This poses a threat, as new entrants can quickly become cost competitive.

Inability to match the technology and specialized know-how of firms already in the industry. How accessible is the industry's technology?

The industry’s technologies are readily accessible.

This is also a threat to the existing firms, as new entrants can easily acquire the equipment necessary to produce specialty sausage.

Brand preferences and customer loyalty

It’s expensive for start-up companies to establish brand recognition and to make a better quality or service for a lower price. Customers taste preferences can lead to brand loyalty.

This is an opportunity for the established firms.

What are the capital requirements to enter?

No significant capital is required to enter the industry.

This is a serious threat to existing firms.

What other resource requirements are necessary to enter?

There are no specific resources required to gain entry.

This is also a threat to the existing firms.

What is the access to distribution channels?

Use of the existing distribution channels is critical to growth of market share and revenues. It is relatively easy for new entrants to access these channels. The availability of selling space is limited however and this may present a more significant barrier to a new entrant trying to displace a current firm.

See my previous comments regarding brokers and retail shelf space.

Access to the distribution channels is a mild deterrent to new entrants in the specialty sausage industry.New firms would find it difficult to penetrate these channels. An existing food producer that decided to get in the specialty sausage business may already have access and find this as easily overcome.

What regulatory policies apply? Government agencies can limit or stop entry by requiring licenses and permits. These are relatively easy to acquire for new companies.

This easy access to permits, is a threat to the existing firms.

What tariffs and trade restrictions apply?

None apply in the specialty sausage industry. This normally would act as a threat however it is unlikely that a foreign producer would enter this market.

SUBSTITUTES (pages 87-88) Under the heading of substitutes, your analysis should lead you to conclude that substitutes are likely or unlikely to challenge the existing products the industry produces. Therefore, substitutes are likely (threat) or unlikely

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(opportunity) to pose an opportunity or threat to the existing firms in the industry.

What is the availability of attractively priced substitutes?

Attractively priced alternatives to specialty sausage are plentiful.Chicken, beef, pork, and fish are all comparatively priced substitutes.

Substitutes’ attractive prices are a threat to the industry.

Is the substitute of better, worse, or equal quality?Is the substitute of better, worse or equal performance?

Most of these substitutes are likely to be viewed as of equal quality in the price range of sausage. The substitutes will do equally well as the entrée in a meal.

Substitutes’ performance and quality are threats to the sausage industry.

Is the substitute of better, worse or equal nutrition?

Most substitutes would be considered a healthier alternative to sausage. Most specialty sausage consumers do not appear to place an emphasis on the nutritional value of their purchase.

Substitute products nutritional advantages are not a threat to the specialty sausage producers.

Can buyers easily switch to the substitutes?

Yes, one could purchase the substitutes in the same place, and not suffer any undo costs.

This is a definite threat to specialty sausage makers.

SUPPLIERS (pages 88-90)Is the item or service a commodity available on the open market from many suppliers who are capable of filling the order?

The ingredients needed to make sausage could be considered a commodity, as there are many suppliers capable of filling the industry needs.

This is a neutral factor as the supplier has no advantage but the companies do not hold much of an advantage either.

Are there good substitutes for the product or service to which the buyers can easily switch?

There are several good substitutes that can be used as ingredients in specialty sausage.

The opportunity to use substitute ingredients poses a slight threat to the suppliers.

Is the company a major buyer? The sausage industry as a whole is not a major buyer of the majority of products required to manufacture sausage.

This is a threat to the sausage manufacturers, as they do not have great leverage in keeping the price of ingredients down.

Does the supplier dominate the industry? (The supplier provides the industry with an item that accounts for a sizable fraction of the costs of an industry's product (or service), is crucial to the industry, or significantly affects product

No one supplier seems to dominate the industry. Sausage makers are spread out geographically and the cost of transporting sausage ingredients makes it unlikely that one supplier could service all the sausage makers.

The diversity of buyers and availability of numerous suppliers is an opportunity for the sausage makers.

Does an outside supplier provide a cost advantage over vertical integration?

Purchasing from an outside supplier provides a cost advantage to sausage makers over becoming vertically integrated. A variety of ingredients that are not specific to specialty sausage making are required.

This is a threat to the sausage companies. They do not possess the opportunity to vertically integrate.

Does an outside supplier provide other advantages over vertical integration?

The suppliers do not possess any other specific advantage in addition to being able to supply the sausage makers with lower cost supplies.

This is neither threat nor opportunity for the sausage makers.

What types of working relationships exist? Start by

There are no significant strategic advantages for the local specialty sausage makers. No

Neither the buyer nor the seller appears to have a significant

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listing the types of working relationships that exist. Then, focus on the strategic importance of relationships with suppliers in this industry. Are these relationships of strategic value for the competitors in the industry? If so, why and how do the relationships impact the competitive structure and environment of the industry?

industry alliances are mentioned in the case. strategic advantage in this relationship.

What is the relative quality of the supplier and his services or products?

It is relatively easy for sausage makers to obtain the quality of supplies they require.

The buyers are unlikely to be tied to an individual supplier due to a concern over quality. There are many opportunities to find the desired quality.

BUYERS (pages 90-92)What is the cost of switching? There is very little cost to the buyer when it

comes to switching from one brand to another.

The sausage makers have very little leverage with their customers. This poses a threat to the sausage maker that their customers can easily switch to another producer.

How many buyers are there in this industry?

There were many different retailers and service industries in the local market. There are many individual buyers.

Sellers have many outlets for their product. This is an opportunity for the sausage makers.

What is the relative size of each buyer?

Large retailers tend to have influence over suppliers. The casinos are also very important to suppliers like Guiseppe’s. Small individual buyers have little influence.

Sausage makers’ customers are capable of dictating terms of sale to them. This is a threat to their profitability.

What is the buyer's knowledge level?

The buyers do not possess great knowledge although many are likely to follow their taste preferences.

The buyers taste preferences pose a mild threat especially to the small specialty firms.

Can the buyers threaten the industry with backward integration?

It is unlikely that any of the significant buyers pose a threat of backwards integration. It would not be profitable for the larger buyers to begin making their own sausage.

This is not a threat to the firms in the industry.

Are the industry's products discretionary purchases?

Buyers can easily choose not to purchase specialty sausage. There are many substitutes that are readily available to the buyers.

The ability of the buyers to purchase other products to replace specialty sausage purchases is a threat to the sausage makers.

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3. What is (and how are they) causing the industry's competitive structure and business environment to change (page 93)?

Please refer to the Cannondale1 example on the web site for good examples of appropriate analysis for this question.Factors(pages 94-100)

Industry competitive structureThis factor is supposed to capture how the drivers of change are altering the industry's competitive structure.

Industry business environmentThis factor is supposed to capture how the drivers of change are altering the industry's business environment.

Strategic implications

The competitive structure of an industry entails the number of competitors and their competitive relationships. For example, an industry entering maturity causes fewer, larger competitors. This affects the industry's structural arrangement between rivals, buyers and suppliers. When approaching maturity or when in decline, the industry's business environment will create intense rivalry for a diminishing market.

Internet and new e-commerce opportunities

These opportunities are not specifically talked about in the case. We expect firms will seek to use the internet to market specialty sausage to individual customers. Sausage snobs of the future will be able to order product on line and receive next day delivery.

E-commerce opportunities could close the gap between the large national firms and the smaller local companies. A small company with a clever marketing campaign may gain new customers nationally and ship product all over the United States.

With the growing changes in technology businesses must review their practices to fully integrate the internet and the new e-commerce. Companies will need to evaluate partnerships with existing e-commerce companies such as Amazon. Other companies may seek to build their own e-commerce sales network.

Increasing globalization of the industry

Approximately 25 to 30 major brands are competing within the Memphis area. Globalization in the specialty sausage industry although unlikely in the near term would likely cause mergers among these companies.

Globalization would likely threaten the companies that are participating in the specialty sausage industry. Current specialty sausage companies would need to establish distribution systems capable of quickly transporting both sausage and the ingredients to make sausage in an effort to ensure freshness. The costs associated with accomplishing this would strain the already low profit margins in the industry.

Globalization is unlikely in the near future. Companies would need to overcome transportation issues related to freshness of product. Companies would likely seek to merge to get greater manufacturing capability over a wider geographical area.

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Long term industry growth rate

In 1996, the sausage industry registered 18.3% growth. This high growth rate is likely to entice new competitors particularly some of the larger meat producers. If companies such as Perdue were to enter the market it is likely that partnerships and consolidation would increase.

The potential entry of large established meat producers poses a strong threat to the national companies such as Jimmy Dean who have contracts with retailers that effectively prevent smaller companies such as Guiseppe’s from easily gaining market share. These large meat producers also have distribution with these same retailers thus giving them the opportunity to displace companies such as Jimmy Dean.

The leading national companies may be forced to aggressively defend the positions that they currently have in the market if the large meat producers take an interest in specialty sausage. One or more of the existing companies may look to sell their manufacturing capabilities to these new entrants in an effort to get out of the industry as they would likely be facing declining profit margins and possibly loss of market share.

Who buys the product and how do they use it

Specialty dinner sausage sales consisted mostly of 2 segments retail (super market) and food services, which are comprised of restaurants and institutions, such as schools, hospitals and others establishmentsRetailers buy the product for resale as is to individual consumers, typically at a very small margin. Retailers with huge buying power such as Wal-Mart and Sam’s Club have begun to displace some of the smaller supermarkets that would normally carry specialty sausage products. The food service buyers use the specialty sausage as the entree in meals that they prepare and sell to individual consumers. Independent restaurants are facing increasing competition from franchised restaurants for market share in the food services industry.

“Shelf space and competitive inter brand pricing were keys” to a successful company in this environment. The potential loss of supermarket customers being forced out of business by giant retailers could be devastating to some of the current industry firms. On the flip side, securing a customer such as Sam’s Club or Wal-Mart might vault a sausage supplier to industry leader in a short period of time.Similar opportunities and threats exist with the restaurant buyers. A current customer could be forced out of business by franchise restaurants. Conversely securing a contract with the McDonalds of specialty sausage could provide an existing firm with a dramatic revenue increase.

Larger national sausage manufacturers might seek to become the low cost producer so that they may entice firms such as Wal-Mart or Sam’s Club to carry their specialty sausage by offering very low prices. This type of price competition could lead to many companies becoming unprofitable sparking industry consolidation. Other companies might be tempted to partner with an existing franchise chain, in an attempt to market their specialty sausage to a whole new set of consumers. If a company was successful under either of these strategies they would likely seek to change the relationships that they currently have with their existing suppliers of the ingredients necessary to manufacture specialty sausage.

Product innovation

Product innovation is a key to success for small companies able to differentiate themselves by offering “exceptional, distinctive- tasting and

Buyers’ tastes and preferences are constantly changing. Two examples that may affect the specialty sausage

R & D efforts will be increased in an effort to produce specialty sausage that is either healthier or quicker to

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quality sausages. Competitors are quick to copy successful new products. New suppliers could be needed to provide the ingredients or packaging necessary to support new products that are created in response to customers’ preferences changing.

industry are consumers becoming increasingly health conscious and consumers desire to more quickly prepare meals. Companies able to satisfy these and other buyer preferences with new sausage offerings are likely to become more successful. A company such as Healthy Choice with its experience in low fat, microwave products is an example of a new entrant due to changing environment.

prepare. Current firms may look to partner with companies having expertise with microwave or low fat products. Existing firms with these capabilities may look to gain entry into the specialty sausage market.

Technological change

Technological advances can greatly increase the industry competitive force. There have been no technological advances of note in the production and packaging of specialty sausage. Technological change is being driven by internet development.

The technology used in the specialty sausage is fairly mature and readily available. This makes it easy for new companies to enter the market.

Technological change is not driving changes in the way sausage companies operate strategically with the exception of change brought about by development of the internet.

Marketing innovation

Innovative new marketing campaigns are likely to be launched by firms utilizing the growing internet. Firms will look to the internet as a possible vehicle to increase direct sales to consumers diverting these sales from existing retailers. Firms may also seek to form collaborative relationships with existing internet firms in an attempt to market specialty sausage.

The internet could become an equalizer for small firms looking to compete against the larger national firms. The possibility exists, that new entrants could be successful utilizing an innovative internet marketing campaign.

All specialty sausage firms will be forced to alter their marketing strategies to include the internet eventually. Aggressive firms will make offensive moves to capitalize on opportunities the internet brings. As these moves begin to pay dividends the other companies will be forced to use defensive moves or counter with their own offensives.

Entry of major firms

Currently no major firms are entering the industry. The biggest concern to existing firms is that large meat packing companies decide to enter the market. This threat would likely increase pricing pressure. Existing firms may be forced to examine their current relationships with suppliers in an effort to drive down their costs.

Major new entrants would heighten the already strong competitive environment that specialty sausage firms operate in. This would likely threaten the profitability of most if not all of the existing firms. It is likely that existing firms would be forced to leave the business or look to merge

Most existing firms would likely put more strategic emphasis on becoming a low cost provider. Aggressive moves would likely be launched in an effort to increase market share. Companies might look at harvesting in an effort to gradually exit the industry, realizing that the cost of

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with rivals seeking a competitive advantage.

exiting is relatively small.

Exit of major firms

There have been no recent instances major firms exiting the industry.

The industry business environment in this sense has not been changed.

No specific strategies are needed, as competition has not been altered.

Diffusion of technical know-how

This is not a major competitive factor in the specialty sausage industry. The technology and skills required to manufacture sausage are mature and readily available. The speed that new sausage varieties are copied, by rival firms is evidence of widespread technical know-how.

The diffusion of technological know-how is normally a powerful stimulant to increasing competition within the business environment. In the case of the sausage industry it is not.

Diffusion of technical know-how does not have current strategic implications. Future strategies could be altered by successful exploitation of the internet and e-commerce initiatives.

Increasing globalization

Globalization is not affecting the industry competitive structure. Approximately 25 to 30 major brands were already competing within the Memphis area for market shares in the retail segment. Although globalization creates new partners, new challenges and also extends the competitive field of the industry, globalization is unlikely in this industry.

Globalization is not a threat to existing companies. Profit margins in this industry are not attractive enough to entice firms to compete on a global scale.

The need for specific strategy is unnecessary due to globalization is not taking place.

Cost and efficiency

The specialty sausage industry is under increasing pressure to lower costs. Unfortunately there does not appear to be any low hanging fruit to pick in the industry. Companies may look to establish partnerships with distributors and suppliers in order to lower costs. Firms should seek to use company intranets or the internet as a way to lower ordering and distribution costs.

This driver is not affecting the manufacturing aspects of companies to a great extent. There have been no breakthrough technologies for some time. A meat, processing, firm boasting low cost manufacturing facilities, coupled with an efficient supply chain, and a strong brand name could be a significant threat to existing firms if they were able to reduce prices by as little as 5 or 10%. Existing specialty sausage firms would be hard pressed to lower their prices that much without significant profit erosion.

Existing firms must put heavy strategic emphasis on finding ways to gain an advantage in cost and efficiency internally as there are not significant industry wide differences in the cost structures of existing firms. As maturation of the industry continues it is likely that the surviving firms will be the ones with the greatest market share and lowest cost structures.

Growing buyer preferences for

Large segments of the industry’s customers specifically upscale restaurants, individuals, and casinos are demanding a variety of specialty

This growing demand for variety is threatening to the larger companies. Smaller companies willing to offer a

Smaller companies will seek to expand their product line in an effort to compete against the national firms.

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differentiated products instead of a commodity product

sausage. Most retailers are unable to provide this variety due to shelf space concerns. Most national producers prefer to offer less variety in larger volumes. Differentiated suppliers may seek to strengthen their relationships with buyers demanding variety.

diverse range of products can eat away at the market share of the larger companies

They may also look to find a niche in the market where they can earn a good profit and expand market share. The larger firms may be forced to expand the range of their product offering to compete retain their current market positions.

Regulatory and government policy changes

Despite the requirement to put nutritional information on food products the specialty sausage industry experienced double, digit growth in the mid 1990’s. Regulatory changes do not appear to be affecting this industry.

The likelihood of new entrants is increased by the lack of barriers imposed by regulators on the specialty sausage industry.

No significant strategic moves are being necessitated by regulatory changes. The necessity of having nutritional labels on food products may entice some firms to set strategies to capitalize on buyers preferences for healthier foods.

Societal concerns, attitudes and lifestyle changes

Consumers are increasingly demanding healthier food choices. Firms must work more closely with their suppliers to ensure higher quality, healthier ingredients. Suppliers in turn must make sure they are capable of responding to the stricter demands. Partnerships could develop to support these changing demands between the firms and their suppliers and buyers to ensure healthier offerings.

These demands are an opportunity for existing firms to differentiate their products based on quality or nutrition.There is an increased threat of entry by new firms that have experience in producing health food products.

R&D expenditures are likely to increase as companies search for healthier alternatives to their existing products. Companies will also look to develop sausages that can be cooked in less than 30 minutes to meet the growing demand for quicker preparation times. Some companies may look to developing new sausage products as an alternative to seeking further cost reductions which are becoming increasingly difficult to obtain.

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Reductions in uncertainty and risk

The specialty sausage industry is past the stage where this is a strong factor affecting firms currently in operation.

The fact that the industry is at this stage is a threat to existing firms. Potential new entrants are well aware of the level of risk in the industry. They are able to make an educated analysis and decision on whether to enter this industry or not. New entrants are therefore likely to be competitively viable.

Companies are likely to craft defensive strategies to combat the threat of entry and to protect their current market share.

4. Which companies are in the strongest/weakest positions (page100)?

High

Quality

Medium

Low

15

Narrow broad

Available Resources

High

Price

Medium

Jimmy Dean Bryan Dino’s Guiseppe’s

16

Low

Narrow broad

Market scope

What strategic moves are rivals likely to make next (page103)? Refer to Table 3.3 on page 105.

Wha

t is t

he c

ompe

titiv

e sc

ope

of

each

(loc

al, r

egio

nal,

natio

nal,

mul

ti-co

untry

, or g

loba

l)?

Wha

t is t

heir

stra

tegi

c in

tent

(d

omin

ant l

eade

r, ov

erta

ke th

e le

ader

, top

5, m

ove

up a

pos

ition

, m

aint

ain

posi

tion,

sur

vive

)?

Wha

t is t

heir

mar

ket s

hare

ob

ject

ive

(agg

ress

ive

expa

nsio

n,

expa

nsio

n vi

a in

tern

al g

row

th,

expa

nd b

y ac

quis

ition

, hol

d pr

esen

t sha

re, g

ive

up sh

are)

?

Wha

t is t

heir

com

petit

ive

posi

tion

(get

ting

stro

nger

, wel

l en

trenc

hed,

stuc

k in

the

mid

dle,

go

ing

afte

r diff

eren

t mar

ket

posi

tion,

losi

ng g

roun

d,

retre

nchi

ng)?

Wha

t is t

heir

stra

tegi

c po

stur

e (o

ffen

sive

, def

ensi

ve, b

oth)

?

Wha

t is t

heir

com

petit

ive

stra

tegy

(lo

w c

ost,

diff

eren

tiatio

n, b

road

or

nar

row

, bes

t val

ue)?

Wha

t doe

s th

is m

ean

in te

rms o

f th

eir m

ost l

ikel

y m

oves

?

Johnsonville National Overtake the leader

Aggressive expansion

Getting stronger

Both Broad Special promotions. Get quality out there by advertising.

Dino’s Regional Maintain position

Hold present share

Stuck in the middle

Defensive Narrow differentiation

Get some new specialty sausage out there

King Cotton Regional Move up a position

Hold present share

Stuck middle Defensive Best cost Bring out new products at same low prices.

Jimmy Dean Bryan Dino’s Guiseppe’s

17

Jimmy Dean Global Dominant leader

Expansion via internal growth

Well entrenched

Both Narrow differentiation

They will expand their line of dinner sausages in order stay on top.

Bryan Regional Top 5 Aggressive expansion

Getting stronger

Offensive Broad differentiation

Advertising and special promotions to get the name out there. Become national.

John Morrell Global Overtake the leader


Getting stronger

Both Low cost Come out with more products. They can still keep the costs low since they are backward integrated.

Mr. Turkey National Maintain Position

Hold present share

Well entrenched

Offensive Market niche Add other varieties of turkey sausage.

Healthy Choice

National Maintain Position

Hold present share

Well entrenched

Offensive Market niche Add on some other low fat dinner sausages.

Guiseppe’sOriginal sausage co.

Regional Move up a position


Seeking to add to market share.

Defensive Broad differentiation

Slim down their product line and produce only the more popular and profitable varieties.

What are the key factors for competitive success (in this industry) (page 106)? How does each competitor fare on each success factor? To use this tool, start by determining which of the KSF”s apply. Then provide your justification for choosing these KSF”s. Generally, there are less than ten (10) KSF”s applicable to an industry. Then assess each of the industry competitor's capabilities for the KSF. Please note I provide space for three competitors. You should add the number of columns necessary to evaluate all of the competitors in an industry. You should also add industry specific KSF”s when they apply. Refer to Table 3.4 on page 107.

Manufacturing (production of the product or service)

related KSF”s

Quality of manufacture

Marketing related KSF”s

Breadth of product and product selection

Skills related KSF”s Ability to develop innovative products and product improvements

Other KSF”s

Image and reputation

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Questions in this row apply for all the sausage companies listed.

What is their capability for this factor?

What does this mean?







Johnsonville No specific information was available. The package was vacuum sealed

Instructions inside package; no sell-by date

Able to provide several low cost specialty sausage.

They can compete on a lower cost basis.

They have high ability for improvement.

They have variety of innovative product line

They are known as a market leader.

This is an advantage for brand recognition.

Dino’s No specific information was available.The package was vacuum sealed

Only instructions on package and sell-by date.

Produces a few varieties of sausage in the local market.

Focus is local a direct competitor of Guiseppe’s

To market his sausages, get some new products out for advertisement

Dino’s should improve the products he sold

They are locally known in the Memphis market.

They have an advantage over Guiseppe’s.

King Cotton No specific information was available.The package was vacuum sealed

No instructions on package; no sell-by date

Capable of providing variety of low cost sausage.

Does not offer specialty sausage varieties.

King Cotton’s strategic plan is to improve the product

He wants to make the product better.

Image is that of a low cost alternative

Does not directly compete in the specialty segment.

Guiseppe’s Original Sausage Company

He wants to assure his customers that the company has the best reputation in the industry

The product is vacuum-sealed. Instructions and date are on package. He followed high standard set of procedures

Guiseppe’s produce 80 different varieties of sausage in small volumes

Smaller companies offer a smaller volume with a wide variety of products

Guiseppe’s main objective is to improve the product.

Guiseppe’s concentrates on improving, other companies’ primary products and making them better.

They have a good reputation with local buyers.

If they can become available in more outlets they will gain market position. Word of mouth will spread.

Jimmy Dean No specific information

No instructions

Jimmy Dean was able to

Larger companies

Jimmy Dean uses different

They utilize the

Has all ready achieved this.

This is helping their market

19

was available on package; no sell-by date

produce on a much larger scale.

concentrated on fewer varieties and a larger volume of sales per variety.

lines of dinner sausages to empower other competitors

best/cheapest suppliers available in the market to make better product for the consumer.

position.

Bryan No specific information was available

No instructions on package; no sell-by date

Bryan was able to offer large scale, high priced sausages, bratwurst and kielbasa. Offering smoked, beef, polska, and Cajun.

A much larger selection for the diverse consumer.

Bryan advertise, they want to develop innovative products and to become national

They want to actively get the name out there.


This is helping their market position.

John Morrell No specific information was available

Only instructions on package and sell-by date.

John Morrell is able to produce on a small volume. But offers skinless varieties.

Limited variety, offering two types of skinless sausage.

John Morrell is the leader in low cost and developing innovative products

They need to come out with more products



Mr. Turkey No specific information was available

No instructions on package Only sell-by date.

Mr. Turkey produces on a very limited healthy amount.

To produce a healthy low fat turkey product.

Mr. Turkey should innovate other turkey sausages

Increasing customer demand and using primary products to make them better



Healthy Choice No specific information was available

Only instructions on package

Healthy Choice produces on a

To produce the healthiest

Healthy choice concentrates

Maybe adding more low fat dinner



20

and sell-by date.

smaller volume.

quality all natural product

on healthy nutritional sausages

sausages

21

Is this industry attractive and what are its prospects for above-average profitability (page 108)?

Criteria Facts What does it mean?Industry growth potential The industry as a whole grew at a rate of 18.3% in

1996 and was experiencing growth in all segments.Currently this industry is attractive due to its high growth rate. There is currently too much competition to expect to achieve above average profitably.

Does competition permit adequate profit potential?

Competition is tending to drive profit margins down in this industry. The competitive strengths of the local and national companies work to keep prices down.

Competition is straining the profit potential in the specialty sausage industry. At the current growth rates we expect companies to be generate adequate profits. When growth stops the majority of specialty sausage makers will struggle to remain profitable.

Does competition lead to stronger or weaker forces?

Competition leads to stronger forces because it will force out the weak competitors. It is unlikely that the industry participants will be able to boost profits to an above average level.

Competitors will look to reduce prices as a way to increase market share as growth rates decline. This will continue to decrease profitability.

Will the prevailing driving forces positively or negatively impact profit potential?

Overall profit will increase due to the growth of the specialty sausage market. The number of rivals competing for this extra profit is likely to remain steady.

We see the overall profit in this industry increasing. We expect the competitive situation to decrease profit margins.

What is the company's relative competitive potential in this industry?

The company is relatively weak when stacked against all firms in the industry. They lack broker connections, accurate costing, and long-term relationship with buyers.

Guiseppe’s is currently at a competitive disadvantage in the industry. Unless Guiseppe’s can work to strengthen their relative position, they will continue to struggle to achieve profitability.

What is the company's ability to capitalize on its competitor's weaknesses?

Guiseppe’s would not seem capable of capitalizing on the weaknesses of its competitors under current conditions. The weakness they are most likely to exploit is the lack of product breadth that the national companies have in the Memphis market.

Guiseppe’s must focus their energies on successfully promoting their ability to offer a wide selection of specialty sausage. The customer segments most likely to seek this selection are the casinos and upscale restaurants.

Can the company defend against or is it insulated from the factors that make this industry unattractive?

The company is not insulated from the low profit margins in the specialty sausage industry. Guiseppe’s would have a difficult time defending itself if one of its many rivals more aggressively competed against

Guiseppe’s cannot defend itself if necessary. They must obtain accurate costing for the many varieties of sausage they produce. They must use this information to compete against their

22

Guiseppe’s. rivals. Guiseppe’s must make and sell only sausage varieties that have a high enough profit margin to overcome costs.

How well does the company's capabilities match the industry's KSF”s?

Guiseppe’s is very capable of competing on a quality and breadth of product basis. They are beginning to establish some brand recognition in the local market.

The company’s capabilities are well enough suited to take advantage of the high growth of the specialty sausage market. Unfortunately their current strategy and customer base does not allow for this to happen.

What are the future uncertainties and risks for this industry?

Intense competition among the existing rivals could lower the profit margins to a point that would make the business unattractive to most companies. It is possible that the next generation of consumers could become so health conscious that they switch to healthier substitute products.

Competitive pressures will remain very high as this industry continues to mature. The industry must recognize any changes in consumer preferences and take actions to offset these changes if companies wish to remain profitable.

What is the severity of the issue(s) or problem(s) facing this industry?

The issues that is most affecting this industry, is the high degree of competition among rival firms. This has not yet hit the stage where companies begin to merge or buy out competitors. We could expect this to happen if industry growth rates decline.

This industry should be able to remain profitable as long as double-digit growth remains. As this industry matures companies will need to fight for their survival.

If a corporation, will continue participation in this industry positively or negatively impact its ability to compete in other industries?

Continued participation in the specialty sausage industry should not hamper the ability of a firm to compete in other industries.

A strong specialty sausage company possessing a good national distribution system with access to the retail brokers, has the foundation necessary to sell other products to the same buyers.

III. Summary of External Factors

Which of these forces and factors are the most important to the corporation and to the industries in which it competes at the present time? Which will be important in the future? Which represent opportunities and which represent threats to the corporation? Summarize using the following matrix. Consider the external forces and factors for the corporate, business, functional and business levels of the organization.

External Forces and Factors Opportunities Strategic Implications for the company

Threats Strategic Implications for the company

23

Societal X X

Political

Legal

Regulatory X X

Dominant economic traits X X

Five forces X X

Driving forces of change for the industry and the industry’s environment

X X

Companies in the strongest and weakest position

Rivals most likely moves X X

Key Success Factors X X

Industry Attractiveness and prospects for profitability

X X

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