intra-industry analysis game theory competitor analysis segmentation strategic groups outline
TRANSCRIPT
Intra-Industry AnalysisIntra-Industry Analysis
• Game theory
• Competitor Analysis
• Segmentation
• Strategic Groups
OUTLINE
The Contribution of Game Theory to Competitive Analysis
The Contribution of Game Theory to Competitive Analysis
Main value:1. Framing strategic decisions as interactions between competitors2. Predicting outcomes of competitive situations involving a few
players
Some key concepts:1. Competition and Cooperation—Game theory can show conditions where
cooperation is more advantageous than competition {P.D.}2. Deterrence—changing the payoffs in the game in order to deter
a competitor from certain actions3. Commitment—irrevokable deployments of resources that
give creditability to threats4. Signalling—communication to influence a competitor’s decision
Problems of game theory:Useful in explaining past competitive behavior—weak in predicting future competitive behavior. {SCENARIOS}What’s the problem? — Multitude of models, outcomes highly sensitive to small changes in assumptions
Complementors & Competitors
• Complementor: customer values your product MORE when they have the other player’s product than when they have yours alone.
• Competitor: customer values your product LESS when they have the other player’s product than when they have yours alone. May cooperate to develop market & infrastructure.
From Thinking Strategically• Prisoner’s Dilemma: Competitor pricing, MAD, Employer/Union, Hostage
Dilemma.• To lead or not to lead: If in lead, can imitate as soon as follower’s intentions
are known, or when follower’s success as been assessed.• Look before you leap - use your bargaining power when you’ve got it.• Mix your plays• Opponent’s choices & actions tell you information Monty Hall’s Let’s Make a
Deal.• Pride & irrationality can’t be ignored - people.• Moving first & being intransigent.• Moving second after seeing what your opponent did.• 2 kinds of interaction: sequential & simultaneous.• For sequential, Rule #1: look forward & reason backward. Draw a game tree.• For simultaneous, build table, check for dominant strategies, (Rule #2: if you
have one, use it!), then dominated strategies (Rule #3: eliminate dominated strategies), Rule #4: look for an equilibrium, a pair of strategies in which each player’s action is the best response to the others.
Thinking Strategically, Dixit & Nalebuff, 1991
• If Newcleaners (N) enters and Fastcleaners accomodates, N makes $100k.
• If N enters and Fastcleaners starts price war, N loses $200k.
• What should N do?
Newcleaner’s game
Thinking Strategically, Dixit & Nalebuff, 1991, p. 38
Newcleaner’s game map
Thinking Strategically, Dixit & Nalebuff, 1991, p. 38
Larry’s choice
• Larry, Mo, & Curly are in a duel and will shoot once in that order for 2 rounds.
• Outcome ranking: sole survivor, then one of 2 survivors, then noone gets killed, then (& worst) you get killed.
• Larry hits 30% of time, Mo 80%, Curly 100%.
• What should Larry do?
Thinking Strategically, Dixit & Nalebuff, 1991, p. 329
David & Goliath’s choices.
>David produces 1 slingshot per quarter, Goliath 2, & no flexibility in output.>Once exit industry, can’t come back in.
Thinking Strategically, Dixit & Nalebuff, 1991, p. 340
Thinking Strategically, Dixit & Nalebuff, 1991, p.343
What Price a Dollar?
• Bidding proceeds at 5 cent increments.
• Highest bidder gets the dollar.
• The highest AND the second highest bidder must pay their bid.
Thinking Strategically, Dixit & Nalebuff, 1991, p. 349
From Co-opetition
• Players: when you enter a game, you change it. Get paid to play.
• Added Value: Size of the pie when you are in MINUS size of pie when you are out. Red & Black card pair = $100.
• Rules: w/ customers, suppliers, government sets many, changing. Most Favored Customer clause.
• Tactics: Actions to your benefit.• Scope: Boundaries of the game.
Co-opetition, Brandenburger & Nalebuff, 1996
Value Net
Co-opetition, Brandenburger & Nalebuff, 1996
University Value Net
Co-opetition, Brandenburger & Nalebuff, 1996
Co-opetition, Brandenburger & Nalebuff, 1996
PREDICTIONS
• What strategy changes will the competitor initiate?
• How will the competitor respond to our strategic initiatives?
OBJECTIVESWhat are competitor’s current goals?Is performance meeting there goals?How are its goals likely to change?
STRATEGYHow is the firm competing?
ASSUMPTIONSWhat assumptions does the competitorhold about the industry and itself?
RESOURCES & CAPABILITIESWhat are the competitors’ key strengths and weaknesses?
A Framework for Competitor Analysis A Framework for Competitor Analysis
{Sources of information}
Segmentation Analysis: The Principal Stages
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 variablesReduce to 2 or 3 variablesIdentify discrete categories for each variable
Potential for economiesof scope across segmentsSimilarity of KSFsProduct differentiation benefitsof segment focus
The Basis for Segmentation: Customer and Product Characteristics The Basis for Segmentation: Customer and Product Characteristics
Opportunities forDifferentiation
Opportunities forDifferentiation
Characteristics of the Buyers
Characteristics of the Buyers
Characteristics of the Product
Characteristics of the Product
Industrial buyersIndustrial buyers
Household buyersHousehold buyers
Distribution channelDistribution channel
Geographicallocation
Geographicallocation
*Size*Technical sophistication*OEM/replacement
*Size*Technical sophistication*OEM/replacement
*Demographics*Lifestyle*Purchase occasion
*Demographics*Lifestyle*Purchase occasion
*Size*Distributor/broker*Exclusive/ nonexclusive*General/special list
*Size*Distributor/broker*Exclusive/ nonexclusive*General/special list
*Physical size*Price level*Product features*Technology design*Inputs used (e.g. raw materials)*Performance characteristics*Pre-sales & post-sales services
*Physical size*Price level*Product features*Technology design*Inputs used (e.g. raw materials)*Performance characteristics*Pre-sales & post-sales services
Segmenting the European Metal Can IndustrySegmenting the European Metal Can Industry
Food Fruit Juice Pet food Soft drink Beer Oil
Steel 3-piece
Steel 2-piece
Aluminum 2-piece
General cans
Composite cans
Aerosol cans
Segmenting the World Automobile MarketSegmenting 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
0
5
0
10
15
20
25%
100%Share of industry revenue
Auto loans
Leasing
Warranty
Gasoline
Auto insurance
Aftermarket parts
Auto rentalO
per
atin
g m
arg
in
Auto manufacturing
New car dealers
Used car dealers
Service & repair
Vertical Segmentation & Industry Profit Pools—The US Auto Industry
Vertical Segmentation & Industry Profit Pools—The US Auto Industry
SEGMENT
Low price bicycles sold primarily through department and discount stores, mainly under the retailer’sown brand (e.g. Sears’ “Free Spirit”);
KEY SUCCESS FACTORS
* 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
Medium-priced bicycles sold primarily under manufacturer’s brandname and distributed mainly throughspecialist bicycles stores;
*Cost efficiency 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
*Quality of components and assembly, Innovation in design (e.g. minimizing weight and wind resistance).*Reputation (e.g. through success in racing, through effective brand management).*Strong dealer relations.
Similar to low-price bicycle segment.
High-priced bicycles for enthusiasts.
Children’s bicycles (and tricycles) soldprimarily through toy retailers (discount toy stores, department stores, and specialist toy stores).
Segmentation and Key Success Factors in the U.S. Bicycle Industry Segmentation and Key Success Factors in the U.S. Bicycle Industry
Focus vs. Broad, Branding
Strategic Group AnalysisStrategic 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.
Broad
PRODUCT RANGERANGE
Narrow
National GEOGRAPHICAL SCOPE Global
NATIONALLY- FOCUSED, SMALL, SPECIALIST
PRODUCERS e.g., Bristol (U.K.), Classic Roadsters
(U.S.), Morgan (U.K.)
NATIONALLY FOCUSED, INTERMEDIATE LINE
PRODUCERS
e.g. Tofas, Kia, Proton, Maruti
REGIONALLY-FOCUSED BROAD-LINE PRODUCERS
e.g. Fiat, PSA, Renault,
PERFORMANCE CAR PRODUCERS
e.g., Porsche, Maserati, Lotus
LUXURY CAR MANUFACTURERS
e.g., Jaguar, Rolls Royce, BMW
GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g., Volvo, Subaru, Isuzu,
Suzuki, Saab, Hyundai
GLOBAL, BROAD-LINEPRODUCERS
e.g., GM, Ford, Toyota, Nissan, Honda, VW, Daimler
Chrysler
Strategic Groups in the World Automobile Industry Strategic Groups in the World Automobile Industry
Geographical Scope
0 10 20 30 40 50 60 70 80
Ver
tica
l Bal
ance
00.
51.
01.
52.
0
NATIONALPRODUCTION COMPANIES
INTEGRATED INTERNATIONAL
MAJORS
NATIONALLY-FOCUSEDDOWNSTREAM COMPANIES
INTEGRATED DOMESTICOIL COMPANIES
Chevron Royal Dutch-Shell Gp.
Exxon-Mobil
Statoil
PDVSA
Kuwait Petroleum
Petronas
Petrobras
RepsolNippon
Tosco
BP-Amoco
TexacoPhillips
Pemex
Indian Oil
ENI
INTEGRATED OIL MAJORSINTERNATIONALUPSTREAM,REGIONALLYFOCUSEDDOWNSTREAM
IranNOC
E.g. Neste
PhillipsENI
Elf-Fina-TotalRepsol INTERNATIONAL
DOWNSTREAM OIL COMPANIES
INTERNATIONALUPSTREAMCOMPANIES
Enterprise
PremierOil
YPF
Strategic Groups Within the World Petroleum Industry Strategic Groups Within the World Petroleum Industry