Unit17.CompetitiveIndustryEnvironment AnalysisTheFiveFotcesThatShapeindustryConpetitionThressofNwEeranseRivalryBargsiningAmoogBargaininPowroExistingPoworotSappliersBuyeraCoanpetiltorsThroatofSubtisutoPredacsorServices
Unit 17. Competitive Industry Environment Analysis
CompetitiveIndustryEnvironmentAnalysisThere seems littledoubt that an industry'sstructure changes affect not only the degree ofcompetitive intensity but the bases of competitionas well.Industry evolution best be judged byanalyzing an industry's long-term attractiveness,itscharacteristics,itsdriving forces,itssuccessdeterminants,and especiallythemajorcompetitive forces:present competitors,potentialcompetitors,the bargainingpowerof suppliersand buyers,and substitute products.Beforefocusing on these subjects,it is necessarytobriefly discussindustry competitionand strategicgroups
Competitive Industry Environment Analysis ◼ There seems little doubt that an industry’s structure changes affect not only the degree of competitive intensity but the bases of competition as well. Industry evolution best be judged by analyzing an industry’s long-term attractiveness, its characteristics, its driving forces, its success determinants, and especially the major competitive forces: present competitors, potential competitors, the bargaining power of suppliers and buyers, and substitute products. Before focusing on these subjects, it is necessary to briefly discuss industry competition and strategic groups
IndustryIdentification andStrategicGroups Industry evolution can best bejudged byanalyzing those conditions that areresponsible forchange.Before dong so, however, it is necessaryto define the relevant industry and its strategicgroups:Industries comprise firms that producesimilar products.This does not mean that allproducts in an industryare close substitutes forone another.Different market segments needdifferent benefits bundles---and,thus,differentproducts.Industry membership alone does notindicate which firms compete with each other,northe extent of rivalry.Much depends on how theindustry is defined andthe level of aggregationused
Industry Identification and Strategic Groups ◼ Industry evolution can best be judged by analyzing those conditions that are responsible for change. Before dong so, however, it is necessary to define the relevant industry and its strategic groups. Industries comprise firms that produce similar products. This does not mean that all products in an industry are close substitutes for one another. Different market segments need different benefits bundles-and, thus, different products. Industry membership alone does not indicate which firms compete with each other, nor the extent of rivalry. Much depends on how the industry is defined and the level of aggregation used
For example,the carbonated soft drink industryproduces colas,root beers, ginger ales,and fruitflavors.These products come in diet or regularform, and some are caffeine free.There aresome 5o soda concentrate producing andmarketing firms in the UnitedStates,but Coca-Cola and Pepsi-Cola dominate the industry withtheir full lines.A different alignment of productsand firms emerges if we add non-carbonatedproducts to our industry definition. This definitionadds fruit juices,and bottled water,whichareproduced by several hundred firms,includingCampbell's,Kraft,GeneralFoods,DelMonte,andPerrier
◼ For example, the carbonated soft drink industry produces colas, root beers, ginger ales, and fruit flavors. These products come in diet or regular form, and some are caffeine free. There are some 50 soda concentrate producing and marketing firms in the United States, but CocaCola and Pepsi-Cola dominate the industry with their full lines. A different alignment of products and firms emerges if we add non-carbonated products to our industry definition. This definition adds fruit juices, and bottled water, which are produced by several hundred firms, including Campbell’s, Kraft, General Foods, Del Monte, and Perrier
This level of aggregation is so huge thatidentifying competitors and analyzing competitivechangessimplyonindustrymembershipis almostmeaninglessThe identification of strategicgroups makes iteasier to learn more about industry's dynamics.Astrategic group consists of firms pursuing similarstrategies ---that is, employing a similar mix ofstrategy elements.For example,Coke and Pepsifollow much the same strategy with respecttomarket served,products and product line,price,channels advertising,in-storepromotions,andpersonal selling,and,thus,constitute a strategiogroup
◼ This level of aggregation is so huge that identifying competitors and analyzing competitive changes simply on industry membership is almost meaningless. ◼ The identification of strategic groups makes it easier to learn more about industry’s dynamics. A strategic group consists of firms pursuing similar strategies -that is, employing a similar mix of strategy elements. For example, Coke and Pepsi follow much the same strategy with respect to market served, products and product line, price, channels advertising, in-store promotions, and personal selling, and, thus, constitute a strategic group