Industry Analysis

Agenda– Industry Analysis – RA – 6 (go through the worksheets –

they really will help)– Feedback to other groups – part of your participation

grade– Events for reflection journal

Ongoing:– Strategic Positioning, RA-9– Preliminary Executive Summary Pitch ***– Marketing & Sales, RA-10

Strategy Question• Seerse, Inc. is a diversified company that has six lines of business.

The company’s management states that all these businesses are essential to its competitive future. This table describes the different businesses’ contribution to revenue and profits:

Business % of revenue % of profit

Retailing (discount dept. stores) 50 18

Insurance 30 50

Consumer credit card operations 6 17

Stock brokerage 5 6

Commercial/residential real estate 4 8

Drivers’ education 5 1

Explain the variability in the sales/profit across Seerse’s businesses. In what business is Seerse more successful? Explain your answer.

Heather McKay

Who was the best athlete?Aleksandr Karelin

4

Levels of the environment

firm

macro-environment

industry

suppliers customers

competitorstechnology

demographicspolicy/law

macroeconomicsglobal

sociocultural physical environment

5

Industries, markets & segments• Market - a group of customers interested in a certain product.

• Segment - a subcategory of a market defined with reference to certain product and/or customer characteristics. – Many markets can be broken into segments.

• Strategic group is a group of firms within an industry following similar strategies. – Often this means they pursue similar market segments.

Why do we care about Industry?

• Industry Structure exerts industry effect on all firms in the industry

• Allows you to check your assumptions. – If you are you out of line,

more explanation needed

Firm effects

Industry effects

Firm Performance

4%

2%

Ways of Knowing

• Industry overview – IBISWorld– Maybe market Research.com – smaller coverage

• Industry leaders – OneSource• Interviews with industry professionals– Come prepared• Lists of specific questions• Limited amount of time• End by asking “What is something that I need to know

that I have not asked yet?”

Industry Classification

• The North American Industry Classification System (NAICS)

• standard used by Federal statistical agencies

• classifies business establishments

• Used for U.S. business economy statistics

What is the boundary for this Industry?

• Companies in this industry manufacture cars and automobile chassis. They are referred to as automakers and typically produce automobiles (cars, including electric cars) in assembly plants. The manufacturing of light trucks such as vans, pick ups and SUVs, heavy trucks and motorcycles are not included in this industry.

• Why? Recall NAICS 33611a (Car & Automobile Mfg)

NAICS 33611a [Car & Automobile Mfg]

• Products, top players, cost structure and market segments indicate elements of the value chain.

Value Chain for our Industry

• Some elements of the value chain may need more data and information.

• Understand the dynamics of these interactions

DealersToyotaLabor

Resources

Mid-sizeSmallLuxurySports

Ford

GM

WholesalersTier 1/OEMs

Govt

Honda

Exports

Leasing

Where to start

The Big Picture• Size (does it matter)• Growth Rate (p. 75)

– Put it in perspective, compared to GDP, other industries

• Stage of maturity – Table on p 77 – think through

implications for other parts of the plan

Accuracy in forecasting• Economic cycles

– Cyclical– Countercyclical

• Seasonality– Summer buying– Christmas

Potential threats / opportunities

• Technological change

• Regulation / Certification

• Supply Channels

• Distribution Channels

Your Own Analysis

Supply Channels Distribution Channels

Maturity

Technological change

Technological change

How to analyze the 5 Forces?

• Assume a firm is magically placed in the industry (like an experiment).– You’re already there. What’s it like?

• Assess strength of each of the five competitive forces (Strong? Moderate? Weak? )

• Assess the factors causing each force to be strong or weak?

• Rate combined effect: brutal, fierce, strong, normal/moderate, or weak

Who is this?

What increases Buyer bargaining power

– They are large and purchase a sizable percentage of industry’s product (Monopsony)

– They buy in large quantities– They can integrate backward (Buy you

out)– Industry’s product is standardized– Their costs in switching to substitutes

or other brands are low– They can purchase from several sellers– Product purchased does not save buyer

money

Overall Buyer Bargaining Power is moderate to high

What increases supplier bargaining power

Labor

Tier 1

Government

OEMs

Overall Supplier Bargaining Power is high

• Item makes up large portion of product costs, is crucial to production process, and/or significantly affects product quality

• Costly for buyers to switch suppliers

• Have good reputations and growing demand

• Can supply a component cheaper than industry members can make it themselves

• Few substitutes for supply• Buying firms are not important

customers

What increases forces of rivalry?• Frequent launches of new

offensives to gain sales and market share

• Aggressive marketing and product strategy

• Lots of firms that are relatively equal in size and capability

• Commoditization• Low switching costs for buyers• Scarce supply side resources

Overall Rivalry is moderate to high

Entry Barriers: Threat of Entry

– Supply side scale economies– Demand side scale economies– Existence of strong learning/experience curve effects– Strong brand preferences and customer loyalty– Difficulties in gaining access to distribution channels– Regulatory policies, tariffs, trade restrictions– Expected retaliation

Overall Entry Barriers are high

What are some substitutes? Readily available

Attractively priced

Believed to have comparable or better performance features

Customer switching costs are low

Overall currently low to moderate threat of substitutes

High

High

Mod to High

Low

Low to Mod

Overall this Industry is low to moderately attractive

22

Ways of influencing industry structure

SUPPLIERS

POTENTIALENTRANTS SUBSTITUTES

BUYERS

INDUSTRYCOMPETITORS

Rivalry amongexisting firms

create switching costsdevelop economies of scale

integrate vertically

identify new niche market

Now you try it

Supply Channels Distribution Channels

Maturity

Technological change

Technological change

Wrap-up

• Key takeaways– Industry affects firm profitability (it’s comparative)– Know the industry

• investors can sense weakness• Avoid

For Next Class:

Ongoing:– Strategic Positioning, RA-9– Preliminary Executive Summary Pitch– Marketing & Sales, RA-10