Industry and competitor analysis

unit 5
Industry trend analysis
An industry is a group of firms producing a similar
product or service, such as airlines, fitness drinks,
furniture, or electronic games.
Industry Analysis is business research that focuses on
the potential of an industry.
Industry trend analysis is a market assessment tool
used by industrial professionals to understand the
competitive position of the industry.
The major aspects of industrial trend analysis include the
following aspects
Demand and supply position in the market
Degree of competition within the industry
Level of competition between the industries and emerging
industries
Future prospects of the industry based on technological
changes
Credit system within the industry
Influence of external factors in the past and probable in
future.
Commonly used techniques of industry trend analysis
are
Porter’s five competitive forces model
PEST analysis
SWOT analysis
Porter’s five competitive forces model
Developed by Michael E. Porter in 1979, professor of
Harvard Business School.
Five specific factors that determine whether or not an
industry can be profitable in relation to other industries
in the environment.
The first job of the strategist is to understand and cope
with competition.
Close watch on their rivals and look beyond the
strategies and action of competitors.
Threat of new entrants
Threat of new entrants exists in all industries
a new entrant will come who will try to win 
market share in an already intense industry.
The industry attractiveness increases when there are 
barriers to entry.
For example – in the import export business, a lot of
barriers exist with regards to government policy. Thus,
an established player will see new entrants as a lesser
challenge as compared to an existing competitor.
Threat of substitutes
Many consumers prefer the use of substitutes over the
original because of the low price and almost
equivalent value added. These substitutes affect the
prices of the company, its demand pattern and
therefore its profitability.
In an industry with high threat of substitute products,
it is highly likely that you will worry more about the
substitutes eating your business, and then you will
worry about the competition present in the industry
itself.
Determinants of substitutes
Relative price performance of substitutes
Switching cost
Buyer propensity to consume
Brand image and identity of substitute product
Bargaining power of suppliers
Suppliers can suppress the profitability of the
industries if they sell by rising prices or reduce quality
of the components.
Industries are more attractive when bargaining power
of suppliers is low.
Determinants of bargaining power of
suppliers
Number of suppliers in the market
Size and concentration of suppliers
Availability of substitutes for the suppliers’ products
Switching cost
Differentiation or uniqueness of supplier’s product or
services.
Bargaining power of buyers
There are different ways in which a customer or a buyer
can have high bargaining power over the supplier. In
such cases, the industry tends to be unprofitable
because you have to overcome the challenge of having
the buying power over suppliers.
Competitive rivalry
The intensity of rivalry between competitors who are
already existing in the industry.
If the rivalry is too intense, it is natural that the firm’s
profitability will drop. Such industries will have high
barriers of entry and hence establishing in such
industries will be difficult.
At the same time, if the rivalry is healthy and there are
far fewer competitors, then there is a good possibility
that margins will be fair enough and you can establish
yourself securely in the industry.
Value of the five forces model
Five forces model guides the entrepreneurs to adjust
the business strategy to maintain competitive
advantage for improving industry attractiveness and
profit.
The integration of Porter’s five forces model with
SWOT analysis will be helpful to understand the
present position of industry and its anticipated future
prospect.
1.Assess attractiveness
Can be used to assess the attractiveness of industry
Analysis of all five factors helps to know the position of
industry in the market.
2.Determine industry entry
Threat of new entry is low in the market
Can enter in the market with new brand, innovative idea
and effective team of management.
Analyze the competitive environment
Guides the management for getting detail information
of competitors.
No of competitors, price of product quality and other
strategies.
Such information support to analyze competitive
environment.
Helps to determine level of competition
Improve the competitive advantages.
Guide business strategy
Collects the information about rivals
Focuses on bargaining power of suppliers, bargaining
power of buyers, threats of new entrants and threats of
substitute products and services.
Such information guides the management for the
development of new business strategy.
Factors influence profitability
Integration of five factors model with SWOT analysis
helps to know both internal and external factors
affecting business activities.
Improvement of internal weaknesses and adaption
with dynamic environment.
Anticipate future prospects
Information of past and present trend is the basis of
future anticipation of future prospects.
Helps to know factors affecting in present business
turnover and profitability
New business model
Guides the entrepreneurs to innovate new business
model to survive and growth of business in
competitive environment.
Environment is dynamic
Industry type and the opportunities
Emerging Industries
Industries in which standard operating procedures have yet
to be developed.
Opportunity: First-mover advantage.
A first mover advantage is a insurmountable advantage
gained by the first company to establish a significant
position in a new market.
Differentiation strategy based on technology or product
uniqueness.
Strategic alliance by forming partnership with key suppliers
Fragmented industries
A fragmented industry is one where the industrial
units remain scattered over particular geographical
region and none of the units has a substantial market
share.
Opportunities: consolidation
No clear leader in the market share
Hotels, health clinics boutiques, furniture making etc.
Focuses on capturing local consumers and may adopt
low cost strategy.
Mature Industries
Industries that are experiencing slow or no increase in
demand.
An industry that has passed both emerging and
growth phase of industrial performance.
It may be at its peak but not yet in the decline phase
Stable sales and earnings low rate of return on
investment, high dividend expectation.
Opportunities: Process innovation and after-sale
service innovation.
Global Industries
Industries that are experiencing significant international sales.
Many start ups enter global industries and from day one try to
appeal to international rather than just domestic markets.
Opportunities: Multi domestic strategy compete for market
share on a country-by-country basis and vary their product or
service offerings to meet demands of the local market.
Opportunities: global strategy use the some basic approach in all
foreign markets. The choice between these to strategies depends
on how similar consumers tastes are from market to market.
For example, food companies typically are limited to a multi
domestic strategy because food preferences vary significantly
form country to country.
Declining Industries
Industries that are experiencing a reduction in
demand
A declining industry is the one which experiences
negative growth rate or remains stagnant due to
decline in demand of its products.
Video rental service is the example of such strategy.
Opportunities: Leadership, establishing a niche
market, and pursuing a cost reduction strategy.
Identifying competitors
Today’s business world is full of competition
Identifying competitors is primary step of competitor
analysis.
A competitor analysis is the detail analysis of a firm’s
competition. It helps a firm to understand the position
of major competitors and the opportunities that are
available to obtain the competitive advantage in one or
more areas.
Type of competitors
Direct competitors
Business offering identical or similar products.
Companies that directly compete for the same
consumers.
Immediate and intense competitors
For example coca cola and Pepsi are the direct
competitors
Indirect competitors
Business offering close substitute products
Indirect competitors are the companies that are the
same category but they sale different products or
services of the company.
For example cable television and You tube.
In the long run they may provide great impact on
company’s business.
Future competitors
Business that are not yet direct or indirect competitors
but could be at any time.
For example at the beginning Samsung mobile future
competitors of Nokia and Apple in smart phone
technology.
Sources of competitive intelligence
Competitive intelligence refers to the information
collected by a company about rival businesses and
markets which may then be analyzed.
In other words competitive intelligence refers to the
ability to gather analyze and use information of
competitors for maintaining competitive advantages.
Competitive intelligence is significant because it
supports the entrepreneurs to understand their
competitive environment and the opportunities and
challenges that they create in the market.
1.Conferences and trade shows
2. Purchasing competitors’ products
3 explore and study competitors’ web sites
4. Set up Google and yahoo email alerts
5. Reading industry related books magazines and
websites.
6. Taking with customers about likes and dislikes of the
firms products.
Completing a Competitive Analysis Grid
A tool for organizing the information a firm collects
about its competitors
 A competitive analysis grid can help a firm see how it
stacks up against its competitors, provide ideas for
markets to pursue, and identify its primary sources of
competitive advantage.