WHY DO WE HAVE TO ANALYZE,INDUSTRY AND COMPETITION? * Analyzing industry and competition completes the process of marketing environment analysis.

* Supports strategy formulation; serves as a prelude to strategy formulation. * Helps a firm know the two key factors in forging strategy: industry attractiveness and its competitive position within the industry. * Helps the industry identify and build its competitive advantage. Importance of Industry Analysis Industry Analysis help business owners understand the big picture of their industry and identify the various threats and opportunities facing their business, ultimately helping them identify ways to create competitive advantages. Knowing what political, economic, and market factors affect your industry will better prepare you for when you enter the market by understanding the major forces that effect how you do business. PORTER FIVE FORCES ANALYSIS is a framework for industry analysis and business strategy development. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit. Three of Porter's five forces refer to competition from external sources. The remainders are internal threats. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to accompany that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average. Porter's five forces include - three forces from 'horizontal' competition: the threat of substitute products or services, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers. This five forces analysis is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies.

Porters Five Forces in Action: Sample Analysis of Coca-Cola Company Since its introduction in 1979, Michael Porters Five Forces has become the de facto framework for industry analysis. The five forces measure the competitiveness of the market deriving its attractiveness. The analyst uses conclusions derived from the analysis to determine the companys risk from in its industry (current or potential). The five forces are (1) Threat of New Entrants, (2) Threat of Substitute Products or Services, (3) Bargaining Power of Buyers, (4) Bargaining Power of Suppliers, (5) Competitive Rivalry Among Existing Firms. The following is a Five Forces analysis of The Coca-Cola Company in relationship to its Coca-Cola brand.

Threat of New Entrants/Potential Competitors: Medium Pressure Entry barriers are relatively low for the beverage industry: there is no consumer switching cost and zero capital requirements. There is an increasing amount of new brands appearing in the market with similar prices than Coke products Coca-Cola is seen not only as a beverage but also as a brand. It has held a very significant market share for a long time and loyal customers are not very likely to try a new brand. Threat of Substitute Products: Medium to High pressure There are many kinds of energy drink s/soda/juice products in the market. Coca-Cola doesnt really have an entirely unique flavor. In a blind taste test, people cant tell the difference between Coca -Cola and Pepsi.

The Bargaining Power of Buyers: Low pressure The individual buyer no pressure on Coca-Cola Large retailers, like Wal-Mart, have bargaining power because of the large order quantity, but the bargaining power is lessened because of the end consumer brand loyalty.

The Bargaining Power of Suppliers: Low pressure The main ingredients for soft drink include carbonated water, phosphoric acid, sweetener, and caffeine. The suppliers are not concentrated or differentiated. Coca-Cola is likely a large, or the largest customer of any of these suppliers.

Rivalry among Existing Firms: High Pressure Currently, the main competitor is Pepsi which also has a wide range of beverage products under its brand. Both Coca-Cola and Pepsi are the predominant carbonated beverages and committed heavily to sponsoring outdoor events and activities. There are other soda brands in the market that become popular, like Dr. Pepper, because of their unique flavors. These other brands have failed to reach the success that Pepsi or Coke has enjoyed. SWOT Analysis of Coca Cola Company Strengths: 1. 2. 3. 4. 5. Effective advertising campaign Youth sensitivity marketing Collaboration with other companies Worlds largest beverage company Favorite drink

Weaknesses: 1. 2. 3. Not all products are available in all divisions Cost instability No performance in snack division

Threats: 1. 2. 3. 4. Trend toward healthy eating and drinking Regulations regarding warning labels Possible entrants in the industry Parting of Nestle and Coca-Cola

Opportunities: 1. 2. 3. Use of digital marketing platform Increasing investment CSG divesting in the beverage industry

SUMMARY Industry and competitive analysis (ICA) is a part of any strategy development in firms and other organizations. It contains a very practical set of methods to quickly obtain a good grasp of an industry, be it pharmaceuticals, information and communication

technology, aluminum, or even the beer industry. The purpose of ICA is to understand factors that impact on the performance of the industry, and as well the performance of firms within the industry. Firms in an industry can be categorized in so called strategic groups based on the strategies they are pursuing. Each strateg ic group is associated with a certain level of performance, and the firms' membership in such groups can be used to predict their moves within the industry. Moreover, managers use ICA to allocate resources, reach strategic goals such as market share or profitability, and help their firms improve their position within the industry. COMPETITIVE ANALYSIS Identifying your competitors and evaluating their strategies todetermine their strengths and weaknesses relative to those of your own product or service. Most important documents in product planning. Critical part of your company-marketing plan. With this evaluation, you can establish what makes your product or service unique--and therefore what attributes you play up in order to attract your target market. An assessment of the differences between a firm and its competition, as well as a detection and examination tool to define the factors that cause these differences. Gives an overview of your direct and indirect competitors in relationship to your business and gives a list of all your competitors. In the most basic sense, direct competitors are those that sell a similar product to the same customers as your business, while an indirect competitor is any company whose product could be a substitute for yours. The main objectives of doing competitive analysis can be summarized as follows: To study the market To predict and forecast organizations demand and supply To formulate strategy To increase the market share To study the market trend and pattern To develop strategy for organizational growth When the organization is planning for the diversification and expansion plan To study forthcoming trends in the industry Understanding the current strategy strengths and weaknesses of acompetitor can suggest opportunities and threats that will merit aresponse Insight into future competitor strategies may help in predictingupcoming threats and opportunities Know your competition

Whether you are creating a new business plan or revamping an old one, knowing what your competitors are up to can save your business.

One of the biggest mistakes new entrepreneurs make is failing to recognize the range of competitors for their businesses. *Evaluate your competitors by placing them in strategic groups accordingto how directly they compete

for a share of the customer's dollar.For eachcompetitor or strategic group, list their product or service, its profitability, growth pattern, marketing objectives and assumptions, current and past strategies, organizational and cost structure, strengths and weaknesses, and size (in sales) of the competitor's business. Answer questions such as: Who are your competitors? What products or services do they sell? What is each competitor's market share? What are their past strategies? What are their current strategies? What types of media are used to market their products or services? How many hours per week do they purchase to advertise through the media used in this market? What are each competitor's strengths and weaknesses? What potential threats do your competitors pose? What potential opportunities do they make available for you? Types of competition 1. Pure Competition - Low barriers to entry, many choices, no business has dominance - Many companies competing and nobody has a significantadvantage examples 2. small bars and restaurants variety stores, convenience stores nail salons, barbers small grocery stores doughnut shops professional services (dentist, doctor, architects)

Oligopoly - Very similar products, few sellers, small firms follow lead of big firms, fairly inelastic demand. - Many barriers to establishing a business so only the oldest and biggest businesses are operating examples - All the businesses are big and of equal size

 3.

banking industry automotive manufacturers gasoline retail companies insurance companies telecommunications companies

Monopoly - One single large seller with no close competition and no alternate substitutes examples - The definition of a Monopoly, some say, is that it is bigger than all other competition combined software companies like Microsoft local telephone in Canada (Bell)

4.

Monopolistic Competition - Sellers feel they do have some competition - There is one big company dominating the market with a few medium or smaller sized companies

SUMMARY A competitive analysis is incredibly useful because it reveals your company true position within the market. It shows you what your competitors are doing and demonstrates to potential investors how you are unique from the competition. After completing a competitive analysis, you will have a better understanding of your competitive advantage and be able to foresee any potential barriers your startup has to enter the market.