INDUSTRY AND COMPETITOR ANALYSIS An industry may be defined as a group of firms whose products have so many of the same

attributes that they compete for the same buyers. More broadly the definition could include closely related industries supplying services to the industry and receiving services from the industry, e.g. hotels and lodges, tour operators, handicrafts and parks. Purpose of industry analysis The main purpose is to identify opportunities and threats posed by the state of the industry so as to match strategy to industry conditions, e.g. making entry and exit strategies may be necessary depending on industry attractiveness. An evaluation of the industry of the industry structure looks at; the number of competitors, their size, their strengths and weaknesses, degree of differentiation that separates them e.g. market segments served etc. All this gives the industrys environment Porters 5 Force Model Porter identifies 5 competitive forces driving competition in any industry. These are: threats of new entrants, rivalry among industry competitors, threats of substitute products, bargaining power of suppliers and bargaining power of customers. Industry competition depends on the structure of the industry as defined by forces affecting the industry. The forces determine profitability or attractiveness of the industry. Understanding industry attractiveness or profitability is important for entry, exit and other strategic decisions. 1. Threat of new entrants new entrants to an industry typically bring in new capacity, a desire to gain market share and substantial resources. An entry barrier is an obstruction that makes it difficult for a company to enter an industry. This depends on entry barriers such as: _ Economies of scale _ Proprietary product differences _ Brand identity _ Switching costs _ Capital requirements _ Access to distribution channels _ Government policy

2. Rivalry within the industry In most industries corporations are mutually dependent. A competitive move by one firm can be expected to have a noticeable effect on its competitors and this may cause retaliation or counter-efforts. This depends on factors such as:_ Number of competitors _ Industry growth rate _ Product or service characteristics _ Amount of fixed costs _ Height of exit barriers 3. Threat of substitute products Substitute here refers to product of other industries that can be used to substitute the industrys products, e.g. gas is a substitute of electricity. Power or threats of substitute depends on factors such as: a) Relative price performance of substitutes b) Switching costs c) Buyer prosperity to substitute 4. Bargaining power of suppliers Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services. _ A supplier is powerful if some of the following factors apply; _ Supplier industry is dominated by a few companies, but it sells to many _ Its product is unique and/or it has built up switching costs _ Substitutes are not readily available _ Suppliers can integrate forward and compete directly with its present customer _ A purchasing industry buys only a small portion of the suppliers goods. 5. Bargaining power of buyers Buyers affect an industry through their ability to force down prices, bargain for higher quality and service, and play competitors against each other. This depends on factors such as: Buyer concentration versus firm concentration Buyer volume Buyer switching cost relative to firms switching costs Ability to backward integrate Substitute products Price sensitivity

 Product differences Brand identity. 6. Relative power of other stakeholders These include government, local communities, creditors, trade associations, special interest groups, unions, shareholders and complementors. Their power varies by industry e.g. government in financial industry, unions in industrial and agricultural industry. Implications of competitive forces o Active competition in the industry will greatly affect the firms performance o The possibility of new competitors entering the market will affect the existing competitive structure and as companies plan, they will need in-built mechanisms to deal with new competition o The impact of substitute products will limit the competitive action o Key suppliers to the organization will limit the competitive action e.g. credit (capital) o Presence of buyer power and distributors will limit competitive action.

COMPETITOR ANALYSIS Competitors in an industry refer to firms who sell the same product. The products may or not be branded. More broadly, the concept may include firms that sell a different product but which can serve as a substitute for the industrys product. Such substitutes may be many. Activities of competitors affect a firms performance and therefore cannot be ignored in the firms strategy. Competitor Analysis - 5 questions 1. Who are our customers? 2. What are their objectives? 3. What are their strategies? 4. What are their strengths and weaknesses? 5. How are they likely to react? Who are our competitors? It is easy to identify direct competitors for our organizations. However, the organization competes with any company that produces a product that competes for the same disposable income. Its difficult to monitor all competitor activity, we should therefore focus on competitors within the same strategic group, i.e. following the same strategies, size, turnover, product range, quality of product or service. What are their objectives? It is necessary to understand competitor objectives to understand their priorities and to try and predict their future actions e.g. a company maybe investing in technology as a way of differentiating future products i.e. investing in future growth rather than short term profits. When formulating strategy, we then need to decide whether to make a similar investment in technology or to attempt to gain market share while their resources are tied up. What are their strategies? By identifying their current markets and segments, we can discern past and current strategies in their segments. Examining the way competitors are competing provides a guide for future strategy e.g. it is likely that a company that has produced a premium price product will continue to do so unless market conditions change drastically. Competitor strategy informs our own strategy. We can choose a completely different strategy or closely follow theirs if successful, depending on assets and competencies. Identifying failed strategies and reasons for failure will help prevent us making the same mistakes.

What are their strengths and weaknesses? Analysis of strengths and weaknesses will reveal how well equipped a company is to compete in the chosen industry. It enables us to identify competitors capabilities such as marketing, production, finance etc. Porters value chain is an important tool for developing and understanding a competitors weaknesses. How are they likely to react? Predicting how companies are likely to react to competitive activity helps to identify which competitors to target and which to avoid. There are various types of competitor responses; The laid back unlikely to respond The selective react to certain activities e.g. price cuts, sales promotions. The tiger are very aggressive/ highly reactive. The stochastic are unpredictable or inconsistent in their response. Note In the longer term, companies need to monitor potential new entrants and indirect competitors. It is easy to focus on large competitors as they are more visible but smaller companies need to be watched. Competitor analysis is an on-going process and not just taken prior to strategic planning. More important, effective systems must be developed to gather, manage and analyze competitor information continuously. Methods of carrying out competitor analysis i. Customer surveys ii. Interviews with experts iii. Corporate raids iv. Studying competitor products v. Espionage