Industry & Competitive Analysis

Lecture Notes #9A

BA 315: Economy, Industry, and Competitive Analysis

Source: Chapter 3, Strategic Competition: A Primis created by Ali Emami from:

Thompson and Strickland. Strategic management: Concepts and Cases, 13th Edition,
Irwin/McGraw-Hill New York. 2003.

Screen graphics created by: Jana F. Kuzmicki, PhD, Mississippi University for Women

Department of Finance
Charles H. Lundquist College of Business
University of Oregon

1
 COMPETITIVE ANALYSIS

LECTURE OUTLINE
¡Role of Situation Analysis in Strategy-Making
¡Methods of Industry and Competitive Analysis

Î Industry’s Dominant Economic Characteristics

Î Industry’s Competitive Forces
Î Drivers of Industry Change
Î Competitive Positions of Rivals
Î Competitive Moves of Rivals
Î Key Success Factors
Î Conclusions: Overall Industry Attractiveness

2
¡Conducting an Industry and Competitive Analysis

What Is Situation Analysis?

¡Two considerations

ÎCompany’s external or macro-environment

z Industry and competitive conditions

ÎCompany’s internal or micro-environment

z Competencies, capabilities, resource strengths and

weaknesses, and competitiveness

3
Figure 3.1: The Components of a Company’s
Macro-Environment

MACROENVIRONMENT

The Economy
at Large

Legislation
Technology
And
Regulation
Suppliers Substitutes

COMPANY
Rival Buyers
Firms

New
Entrants
Societal Values Ï Population
and Lifestyles IMMEDIATE INDUSTRY Demographics
AND COMPETITIVE
ENVIRONMENT

4
 Figure 3.2: Strategic Thinking and Analysis Leads
to Good Strategic Choices
Assess Industry & Competitive Conditions

1. Industry’s dominant economic

characteristics
2. Nature of competition & strength of
competitive forces
3. Drivers of industry change
4. Competitive position of rivals Identify Select
5. Strategic moves of rivals Strategic the Best
6. Key success factors Options Strategy
7. Conclusions about industry attractiveness
for the for the
Assess Company Situation Company Company

1. Assessment of company’s present strategy

2. Resource strengths and weaknesses,
market opportunities, and external threats
3. Company’s costs compared to rivals
4. Strength of company’s competitive position
5. Strategic issues that need to be addressed

5
The Methods of Industry and Competitive Analysis
Industries differ in terms of their economic characteristics, competitive forces and
profitability

• Economic Characteristics:
Industry Size (sales)
Market Growth Rate
Technology
Market Boundaries (Local, Global)
Number of Buyers and Sellers
Product Characteristics (Differentiated, identical)
Cost structure in Relation to Economies of Scale
Types of Distribution Channels

• Competitive Forces:
Moderate
Fierce
Cutthroat
Best Price
Product Quality
Product Reliability (washer and dryers, PC’s)
Service Quickness and Reliability (Fast foods, online shopping)
Product Features and Performance (Cars, cameras)
Brand Reputation (Beer, soft drinks)
Cooperation with Suppliers
Cooperation with Customers
Cooperation with other Competitors

• Profitability:
Excellent
Average
Poor

Industry and competitive analysis attempts to provide a framework for identify the key
industry characteristics, the nature and degree of competition, the drivers of industry
change, strengths and weaknesses of competitors, competitive strategies of rivals, key
success factors in competition, and revealing profitability of industry. Such a framework
enables us to analyze any industry’s attractiveness (or the lack of) for investment.

Industry and competitive analysis explores the followings:

6
 Key Considerations Regarding the Industry and
Competitive Environment

Industry’s
dominant
economic
characteristics

Competitive Drivers of
forces and change in the
strength of industry
each force

Key success Conclusions:

Competitor Industry
analysis factors
attractiveness

7
 Question 1: What are the
Industry’s Dominant Economic
Characteristics?

¡ Market size and growth rate

¡ Scope of competitive rivalry
¡ Number of competitors and their
relative sizes
¡ Prevalence of backward/forward
integration
¡ Entry/exit barriers
¡ Nature and pace of technological
change
¡ Product and customer characteristics
¡ Scale economies and experience curve
effects
¡ Capacity utilization and resource
requirements
¡ Industry profitability

8
Table 3.1: Sample Profile
of the Dominant Economic
Characteristics of the
Sulfuric Acid Industry

9
The Experience Curve Effect
¡An experience curve exists when a company’s unit
costs decline as its cumulative production volume
increases because of

Î Accumulating production know-how

Î Growing mastery of the technology

¡The bigger the experience curve effect, the bigger the

cost advantage of the firm with the largest cumulative
production volume

Figure 3-3: Cost Advantages of

Different Experience Curve Effects

$1
$1 .90
.81
Cost per .80 .729 10% Cost
Unit .70 .64 Reduction
.512
.49 20% Cost
Reduction
.343
30% Cost
Reduction

1 2 4 8
Millio Million Million Million
n Units Units Units
Units

10
 Table 3.2: Relevance of
Key Economic Features

Economic Strategic Importance

Feature

Market Size Small markets don’t tend to attract new firms; large markets attract firms looking to
acquire rivals with established positions in attractive industries

Market growth rate Fast growth breeds new entry; slow growth spawns increased rivalry & shake-
out of weak rivals

Capacity Surpluses push prices & profit margins down; shortages pull them up
surpluses/shortages

Industry profitability High-profit industries attract new entrants; depressed conditions lead to exit

Entry/exit barriers High barriers protect positions and profits of existing firms; low barriers make
existing firms vulnerable to entry

Product is big-ticket More buyers will shop for lowest price

item for buyers

Standard products Buyers have more power because it’s easier to switch from seller to seller

Rapid technological Raises risk; investments in technology facilities/equipment may become

change obsolete before they wear out

Capital requirements Big requirements make investment decisions critical; timing becomes
important; creates a barrier to entry and exit

Vertical integration Raises capital requirements; often creates competitive & cost differences
among fully vs. partially vs. non-integrated firms

Economies of scale Increases volume & market share needed to be cost competitive

Rapid product Shortens product life cycle; increases risk because of opportunities for
innovation leapfrogging

11
 Question 2: What Is Competition Like and
How Strong Are the Competitive Forces?

Objective
¡ To identify
ÎMain sources of
competitive forces
ÎStrength of these forces
¡ Key analytical tool
ÎFive Forces Model
of Competition

Figure 3-4: Five Forces

Model of Competition

Substitute Products
(of firms in
other industries)

Rivalry
Suppliers of Among Buyers
Key Inputs Competing
Sellers

Potential
New
Entrants

12
 Analyzing the Five Competitive Forces:
How to Do It

¡Assessstrength of each of the five

competitive forces (Strong? Moderate? Weak? )

Î Rivalry among competitors

Î Competitive threat from potential entrants

Î Competition from substitute products

Î Bargaining power of suppliers and supplier-seller

collaboration

Î Bargaining power of buyers and buyer-seller

collaboration

¡Explain how each force acts to create

competitive pressure—What are the factors
that cause each force to be strong or weak?

¡Decide whether overall competition (the

combined effect of all five competitive forces) is
brutal, fierce, strong, normal/moderate, or
weak

13
 Rivalry Among Competing Sellers
¡Usually the most powerful of the five forces

¡The big factor determining the strength of rivalry is how

actively and aggressively are rivals employing the various
weapons of competition in jockeying for a stronger market
position and seeking bigger sales
Î Is price competition vigorous?
Î Active efforts to improve quality?
Î Are rivals racing to offer better performance features?
Î Are rivals racing to offer better customer service?
Î Lots of advertising/sales promotions?
Î Active efforts to build a stronger dealer network?
Î Active product innovation?
Î Active use of other weapons of rivalry?

What Causes Rivalry to be Stronger?

¡Active jockeying for position among rivals and frequent
launches of new offensives to gain sales and market share
Î One or more firms initiates moves to bolster their standing at expense of
rivals

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

¡Slow market growth

¡Industry conditions tempt some firms to go on the

offensive to boost volume and market share

¡Customers have low costs in switching to rival brands

¡A successful strategic move carries a big payoff

¡Costs more to get out of business than to stay in

¡Firms have diverse strategies, corporate priorities,

resources, and countries of origin

14
 Factors That Affect the Strength of Rivalry

Rivalry is generally stronger when:

The “Weapons” of •Rivals are active in making fresh moves to
Competitive Rivalry increase sales and market share
•Lower prices ƒBuyer demand is growing slowly
•More appealing ƒThe number of rivals ranges from at least 5 to
features upwards of 12 or more

•Better product ƒRivals are of roughly equal size and

performance capability

•Higher quality Rivalry ƒBuyer costs to switch brands are low

among ƒOne or more rivals is dissatisfied with their
•Strong brand image Competing current position and market share and make
and appeal Sellers aggressive moves to improve their market
•Better customer
Efforts of
prospects
service capabilities
rivals to ƒWhen rivals have diverse strategies and
•Wider product gain objectives and are located in different
countries
selection better

•Bigger/better dealer
market ƒ When one or two rivals have powerful
position, strategies and other rivals are scrambling to
network higher sales stay in the game
• Stronger product and market
share,
innovation
capabilities and
competitive
•Longer warranties advantage
Rivalry is generally weaker when:

•Higher levels of •Rivals move only infrequently or in a non-

aggressive manner to draw sales and market
advertising share away from rivals
•Buyer demand is growing rapidly
•Buyer costs to switch brands are high

Principle of Competitive Markets

Competitive jockeying among rival firms is dynamic
and ever-changing
Î As industry members initiate new offensive and
defensive moves
Î As emphasis swings from one mix of
competitive weapons to another

15
 Competitive Force of Potential Entry

¡Seriousness of threat depends on

Î Barriers to entry

Î Reaction of existing firms to entry

¡Barriers exist when

Î Newcomers confront obstacles
Î Economic factors put potential entrant at a disadvantage
relative to incumbent firms

Factors Affecting the Threat of Entry

Entry threats are
stronger when

The Rivalry •The pool of entry

Entry threats are
weaker when
•The pool of entry
candidates is small
•Entry barriers are high Competitive pressures coming
•Existing competitors
are struggling to earn
good profits
• The industry’s outlook
is risky or uncertain
•Buyer demand is
growing slowly or is
stagnant
candidates is large
Among
Competing • Entry barriers are low or
can be readily hurdled by
Sellers
the likely entry candidates
• When existing industry
members are looking to
expand their market reach
from the threat of entry
of new rivals
by entering product
segments or geographic
areas where they
currently do not have a
presence
Potential New
Entrants •Industry members are
earning attractive profits
•Buyer demand is
growing rapidly

16
 Common Barriers to Entry
¡Sizable economies of scale

¡Inability to gain access to specialized technology

¡Existence of strong learning/experience curve effects

¡Strong brand preferences and customer loyalty

¡Large capital requirements and/or other specialized

resource requirements

¡Cost disadvantages independent of size

¡Difficulties in gaining access to distribution channels

¡Regulatory policies, tariffs, trade restrictions

Principle of Competitive Markets

Threat of entry is stronger when:
Î Entry barriers are low
Î Sizable pool of entry candidates exists
Î Incumbents are unwilling or unable to
contest a newcomer’s entry efforts
Î Newcomers can expect to earn attractive
profits

17
 Competitive Force of
Substitute Products

Concept
Substitutes matter when customers are
attracted to the products of firms in other
industries
Examples
✔ Eyeglasses vs. Contact Lens
✔ Sugar vs. Artificial Sweeteners
✔ Newspapers vs. TV vs. Internet
✔ E-mail vs. Overnight Delivery vs
“Snail mail” (U.S. Post Office)

How to Tell Whether Substitute Products are a

Strong Force
¡ Sales of substitutes are growing rapidly
¡ Producers of substitutes plan to add new
capacity
¡ Profits of producers of substitutes are up

18
 Factors Affecting Competition
from Substitutes

Firms in Other Competitive pressures

Competitive pressures
from substitutes are
weaker when:
•Good substitutes are
not readily available or
don’t exist
•Substitutes are Competitive pressures coming
higher priced relative
to the performance
they deliver
•Buyers have high
costs in switching to
substitutes
Industries from substitutes are
Offering stronger when
Substitute
Products • Good substitutes are
readily available or
new ones are emerging
•Substitutes are lower
from the attempts of
priced relative to the
companies outside the performance they
industry to win buyers deliver
•
over to their products
Buyers have low
costs in switching to
Rivalry substitutes
among
Competing •Buyers grow more
Sellers comfortable with using
substitutes

Principle of Competitive Markets

Competitive threat of substitutes is stronger when they
are:
ÎReadily available
ÎAttractively priced
ÎBelieved to have comparable or better
performance features
ÎCustomer switching costs are low

19
Competitive Pressures From Suppliers
and Supplier-Seller Collaboration
¡Whether supplier-seller relationships represent a
weak or strong competitive force depends on
Î Whether suppliers can exercise sufficient bargaining leverage
to influence terms of supply in their favor
Î Extent and competitive importance of collaborative
partnerships between one or more sellers and their suppliers

Competitive Force of Suppliers

¡Suppliers are a strong competitive force when:

Î Item makes up large portion of product costs, is crucial to

production process, and/or significantly affects product quality
Î It is costly for buyers to switch suppliers
Î They have good reputations and growing demand
Î They can supply a component cheaper than industry members
can make it themselves
Î They do not have to contend with substitutes
Î Buying firms are not important customers

20
Factors Affecting Supplier Bargaining Power

Suppliers of Raw Competitive Rivalry

Materials, Parts, pressures
stemming from Among
Components, supplier Competing
or Other bargaining
Resource Inputs power and Sellers
seller-supplier
collaboration

Supplier bargaining power is stronger when

•Seller switching costs to alternative suppliers are high
•Some suppliers are a threat to integrate forward into the business of their
customers
•Needed inputs are in short supply
Supplier bargaining power is weaker when
•Seller switching costs to alternative suppliers are low
•There is a surge in the availability of supplies
•Good substitute inputs exist or new ones emerge
•Supplier-seller collaboration or partnering provides attractive win-win
opportunities

21
 Competitive Pressures: Collaboration between
Sellers and Suppliers

¡ Rival sellers are forming long-term strategic

partnerships with select suppliers to

Î Promote just-in-time deliveries and

reduced inventory and logistic costs

Î Speed availability of next-generation

components

Î Enhance quality of parts being

supplied

Î Reduce suppliers’ costs which paves

way for lower prices on items supplied
¡ Competitive advantage potential may accrue to
industry rivals doing the best job of managing
supply-chain relationships

Principle of Competitive Markets

Suppliers are a stronger force the more they can

exercise power over:

¾ Prices charged

¾ Quality and performance of items supplied

¾ Reliability of deliveries

22
 Competitive Pressures From Buyers
and Seller-Buyer Collaboration

¡ Whether seller-buyer relationships represent a

weak or strong competitive force depends on

Î Whether buyers have sufficient bargaining

leverage to influence terms of sale in their
favor

Î Extent and competitive importance of

collaborative partnerships between one or
more sellers and their customers

Competitive Force of Buyers

¡ Buyers are a strong competitive force when:

Î They are large and purchase a sizable
percentage of industry’s product
Î They buy in large quantities
Î They can integrate backward
Î Industry’s product is standardized
Î Their costs in switching to substitutes or
other brands are low
Î They can purchase from several sellers
Î Product purchased does not save buyer
money

23
 Competitive Pressures: Collaboration Between
Sellers and Buyers

¡ Partnerships are an increasingly important

competitive element in business-to-business
relationships
¡ Collaboration may result in mutual benefits
regarding
Î Just-in-time deliveries
Î Order processing
Î Electronic invoice payments
Î On-line sharing of sales at the cash
register
¡ Competitive advantage potential may accrue to
industry rivals who do the best job of managing
seller-buyer partnerships

24
 Factors Affecting Buyer Bargaining Power

Buyers
Competitive pressures
Rivalry stemming from buyer
Among bargaining power and
seller-buyer collaboration
Competing
Sellers

Buyer bargaining power is stronger when

•Buyer switching costs to competing brands are low
•Buyers are large and purchase in large quantities
•Quantity and quality of information available to buyers improves
•Some buyers are a threat to integrate backward into the business of sellers
•Buyer demand is weak or declining

Buyer bargaining power is weaker when

•Buyer switching costs to competing brands are high
•There is a surge in buyer demand
•Seller-buyer collaboration or partnering provides attractive win-win opportunities

25
 Principle of Competitive Markets

Buyers are a stronger competitive force the

more they have leverage to bargain over:

Î Price
Î Quality
Î Service
Î Other terms and
conditions of sale

Strategic Implications of the

Five Competitive Forces
¡ Competitive environment is unattractive
from the standpoint of earning
good profits when:
Î Rivalry is strong
Î Entry barriers are low
and entry is likely
Î Competition from
substitutes is strong
Î Suppliers and customers have
considerable bargaining power

26
 Strategic Implications of the
Five Competitive Forces

¡ Competitive environment is ideal from a

profit-making standpoint when:

Î Rivalry is moderate
Î Entry barriers are high and no firm is
likely to enter

Î Good substitutes do not exist

Î Suppliers and customers are in a weak
bargaining position

Coping With the

Five Competitive Forces

¡ Objective is to craft a strategy

ÎTo insulate firm from
competitive forces
ÎTo help make the “rules,”
placing added pressure on rivals
ÎWhich allows firm to define the
business model for the industry

27
 Question 3: What Forces Are at
Work to Change Industry Conditions?

¡ Industries change because forces

are driving industry participants
to alter their actions
¡ Driving forces are the
major underlying causes
of changing industry and
competitive conditions

Analyzing Driving Forces

1. Identify those forces likely to exert greatest

influence over next 1 - 3 years
ÎUsually no more than 3 - 4
factors qualify as real
drivers of change
2. Assess impact
ÎWhat difference will the
forces make - favorable?
unfavorable?

28
 Common Types of Driving Forces

¡ Internet and e-commerce opportunities

¡ Increasing globalization of industry
¡ Changes in long-term industry growth rate
¡ Changes in who buys the product and how
they use it
¡ Product innovation
¡ Technological change/process innovation
¡ Marketing innovation
Common Types of Driving Forces

¡ Entry or exit of major firms

¡ Diffusion of technical knowledge
¡ Changes in cost and efficiency
¡ Market shift from standardized to differentiated
products (or vice versa)
¡ Regulatory policies / government legislation
¡ Changing societal concerns, attitudes, and
lifestyles
¡ Changes in degree of uncertainty and risk
29
 Environmental Scanning

Definition
Monitoring and interpreting sweep of social, political,
economic, ecological, and technological events to spot
budding trends that could eventually impact industry

Purpose
Raise consciousness of managers about potential
developments that could
Î Have important impact on industry conditions
Î Pose new opportunities and threats
Question 4: Which Companies are in Strongest /
Weakest Positions?

¡ One technique for revealing the different

competitive positions of industry rivals is
strategic group mapping
¡ A strategic group
consists of those
rivals with similar
competitive
approaches in
an industry

30
 Strategic Group Mapping

¡ Firms in same strategic group have two or

more competitive characteristics in common
Î Sell in same price/quality range
Î Cover same geographic areas
Î Be vertically integrated to same degree
Î Have comparable product line breadth
Î Emphasize same types of distribution
channels
Î Offer buyers similar services
Î Use identical technological approaches
Procedure for Constructing a
Strategic Group Map
STEP 1: Identify competitive characteristics that
differentiate firms in an industry from one
another
STEP 2: Plot firms on a two-variable map using
pairs of these differentiating
characteristics
STEP 3: Assign firms that fall in about the same
strategy space to same strategic group
STEP 4: Draw circles around each group, making
circles proportional to size of group’s
respective share of total industry sales

31
 Example: Strategic Group Map of the Video Game
Industry

Arcades Arcade
operators
Publishers
of games on
Types of Home PCs
Sony, Sega, CD-ROMs
Video Nintendo, several
Game others
Suppliers/ Video game
Distribution consoles
Channels
MSN Gaming
Online/Internet Zone, Pogo.com,
America Online,
HEAT, Engage,
Oceanline, TEN

Low Medium High

(Coin-operated (Console players cost (Use PC)
i t) $100-$300)

Overall Cost to Players of Video Games

Guidelines: Strategic Group Maps

¡ Variables selected as axes should not be highly
correlated
¡ Variables chosen as axes should expose big
differences in how rivals compete
¡ Variables do not have to be either quantitative or
continuous
¡ Drawing sizes of circles proportional to combined
sales of firms in each strategic group allows map to
reflect relative sizes of each strategic group
¡ If more than two good competitive variables can be
used, several maps can be drawn

32
 Interpreting Strategic Group Maps
¡ Driving forces and competitive pressures often favor
some strategic groups and hurt others
¡ Profit potential of different strategic groups varies due
to strengths and weaknesses in each group’s market
position
¡ The closer strategic groups are on map, the stronger
the competitive rivalry among member firms tends to
be

Question 5: What Strategic Moves Are Rivals

Likely to Make Next?

¡ A firm’s own best strategic moves are affected by

Î Current strategies of competitors
Î Future actions of competitors
¡ Profiling key rivals involves gathering
competitive intelligence about their
Î Current strategies
Î Most recent moves
Î Resource strengths and weaknesses
Î Announced plans

33
 Competitor Analysis
¡ Successful strategists take great pains in
scouting competitors to
Î Understand their strategies
Î Watch their actions
Î Evaluate their vulnerability to driving forces and
competitive pressures
Î Size up their resource strengths and
weaknesses and their capabilities
Î Try to anticipate rivals’ next moves

Table 3.3: Categorizing Objectives

and Strategies of Competitors
Competitive Strategic Market Share Competitive Strategic Competitive
Scope Intent Objective Position Posture Strategy

• Local • Be dominant • Aggressive • Getting • Mostly • Striving for

leader expansion stronger; on offensive low-cost
via the move leadership
acquisition
• Regional • Overtake & internal • Well- • Mostly • Focusing on
industry growth entrenched defensive market niche
leader

• National • Be among • Expansion • Stuck in the • Combination • Pursuing

industry via internal middle of the of offensive differentiatio
leaders growth pack & defensive n based on
¨Quality
• • Move into • Expansion • Going after a • Aggressive ¨Service
Multicountry top 10 via different risk-taker
acquisition position
¨Technology
superiority
• Global • Move up a • Hold on to • Struggling; • Conservativ ¨Breadth of
notch in present losing e follower product line
rankings share ground ¨Image &
reputation
• Maintain • Give up • Retrenchin ¨More value
current present g to a for the
position share to position money
achieve that can be ¨Other
• Just survive short-term defended attributes
profits

34
 Predicting Moves of Rivals
¡ Predicting rivals’ next moves involves
Î Analyzing their current competitive positions
Î Examining public pronouncements about what it
will take to be successful in industry
Î Gathering information from grapevine about
current activities and potential changes
Î Studying past actions and leadership
Î Determining who has flexibility to make major
strategic changes and who is locked into
pursuing same basic strategy

Question 6: What are the Key Factors for Competitive

Success?

¡ Competitive elements most affecting every

industry member’s ability to prosper
Î Specific strategy elements
Î Product attributes
Î Resources
Î Competencies
Î Competitive capabilities
¡ KSFs spell the difference between
Î Profit and loss
Î Competitive success or failure

35
 Identifying Industry
Key Success Factors

¡ Answers to three questions pinpoint KSFs

Î On what basis do customers choose between
competing brands of sellers?

Î What resources and competitive capabilities does a

seller need to have to be competitively successful?

Î What does it take for sellers to achieve a sustainable

competitive advantage?
¡ KSFs consist of the 3 - 5 really major determinants of
financial and competitive success in an industry

Table 3.3: Common Types of

Key Success Factors
Technology- Scientific research expertise; Product innovation capability; Expertise in a
given technology; Capability to use Internet to conduct various business
related
activities

Manufacturing- Low-cost production efficiency; Quality of manufacture; High use of fixed

assets; Low-cost plant locations; High labor productivity; Low-cost product
related
design; Flexibility to make a range of products

Distribution- Strong network of wholesale distributors/dealers; Gaining ample space on

retailer shelves; Having company-owned retail outlets; Low distribution
related
costs; Fast delivery

Marketing- Fast, accurate technical assistance; Courteous customer service; Accurate

filling of orders; Breadth of product line; Merchandising skills; Attractive
related
styling; Customer guarantees; Clever advertising

Skills-related Superior workforce talent; Quality control know-how; Design expertise;

Expertise in a particular technology; Ability to develop innovative products;
Ability to get new products to market quickly

Organizational Superior information systems; Ability to respond quickly to shifting market

conditions; Superior ability to employ Internet to conduct business; More
capability
experience & managerial know-how

Other types Favorable image/reputation with buyers; Overall low-cost; Convenient

locations; Pleasant, courteous employees; Access to financial capital; Patent
protection

36
 Example: KSFs for Beer Industry

¡ Utilization of brewing capacity -- to keep

manufacturing costs low
¡ Strong network of wholesale distributors --
to gain access to retail outlets
¡ Clever advertising -- to induce beer
drinkers to buy a particular brand

Example: KSFs for Apparel Manufacturing Industry

¡ Fashion design -- to
create buyer appeal
¡ Low-cost manufacturing
efficiency -- to keep selling
prices competitive

37
 Example: KSFs for Tin and
Aluminum Can Industry

¡ Locating plants close to end-use

customers -- to keep costs of shipping
empty cans low
¡ Ability to market plant output within
economical shipping distances

Strategic Management Principle

A sound strategy incorporates

efforts to be competent on all
industry key success factors and
to excel on at least one factor!

38
 Question 7: Is the Industry
Attractive or Unattractive and Why?

Objective
Develop conclusions about whether the industry
and competitive environment is attractive or
unattractive, both near- and long-term, for
earning good profits

Principle
A firm uniquely well-suited in an otherwise
unattractive industry can, under certain
circumstances, still earn unusually good profits

Things to Consider in
Assessing Industry Attractiveness
¡ Industry’s market size and growth potential
¡ Whether competitive conditions are conducive to
rising/falling industry profitability
¡ Will competitive forces become stronger or weaker
¡ Whether industry will be favorably or unfavorably
impacted by driving forces
¡ Potential for entry/exit of major firms
¡ Stability/dependability of demand
¡ Severity of problems facing industry
¡ Degree of risk and uncertainty in industry’s future

39
 Conducting an Industry and
Competitive Situation Analysis

¡ Two things to keep in mind

1. Evaluating industry and competitive
conditions cannot be reduced to a
formula-like exercise--thoughtful
analysis is essential
2. Sweeping industry and competitive
analyses need to done every 1 to 3
years

40