Session Industry Scanning Session Outline Macro-Environment Industry situation SWOT analysis Total market Intermediaries Competition

Session

Industry Scanning

Session Outline

Macro-Environment Industry situation SWOT analysis Total market Intermediaries Competition

This Session

Weekly Activity: Sample Marketing Plans There are a number of websites that offer sample

Marketing Plans: Go to: www.mplans.com/sample-marketing-

plans.php#.VZSPFk1-9fe and browse the range Consider the information provided in the plan Your own plan should be at least as

comprehensive

Note: Researching the additional information is part of the learning process in becoming intimately familiar with your business.

Environmental Scanning

Can be broken down into four significant areas:

General business (Strategic Analysis) (Mega-Environment) – eg. Country Scan

Industry business (Industry Analysis) (Macro-Environment) – eg. Industry Scan

Local business (Local Area Market Analysis) (Micro-Environment) – eg. Market/Competition Scan

Internal business (Operational Review) (if applicable) – eg. Organisational Analysis

THE FIRM

Operating Environment (Global and Domestic)•Competitors •Labor

•Suppliers•Customers

Industry Environment (Global and Domestic)•Entry barriers•Supplier power

•Buyer power•Substitute availability

•Competitiverivalry

•Creditors

Remote Environment (Global and Domestic)•Economic•Social•Political

•Technological•Ecological

Environmental Scanning

STEEP Analysis These are Trends, Patterns, Influences and

Events that shapes the environment which the industry that the organisation operates in, is a part of.

It is often referred to as a STEEP analysis. Socio-cultural Technological Economic Ecological (Climatic/Natural) Political/Legal.

Mega-Environment Conclusions

What conclusions and assumptions can be drawn from the Strategic Analysis?

How will these conclusions and assumptions impact on the general business environment that affects society and the nation as a whole?

Industry Business Scan

This phase assists in seeing the “big picture” of the industry

Analysis of the current industry situation where are we now and what are the likely developments in the

industry. Provides better understanding of

how the industry functions how the industry players interact and how the organisation fits into the picture.

Analysis Purpose

The purpose is to understand the industry in which the business operates in and needs to consider both supply and demand conditions.

Factors likely to affect supply conditions include: Nature and extent of competition Availability and terms of stock and raw materials Business resources required Barriers to enter industry

Factors that will affect demand conditions include: Level of economic activity Buyer characteristics and behaviour for industry Demand patterns in the industry

Topic Explanation Video

The following video explains industry analysis and how it also relates to market analysis.

Take note of the key points. http://www.youtube.com/watch?

v=ouh8ihu8tcE

Distribution, pricing, promotion, methods of selling, service/field support, R&D, legal tactics

FMCG - reliance on carrying & forwarding agent (C&A) - Industry practice

Textiles - Wholesalers - Semi wholesalers - retailers + retail showrooms (few players)

Industry Practices

Potential value of industry analysis seen by assessing the performance of different industries over time S&P’s monthly stock price index over a

long tome period shows industries perform differently over time

Stock performance affected by industry Industries in decline should be

avoided

Industry Performance Over Time

Consistency of industry performance Maintaining positions in growth industries

leads to better returns than otherwise Can industry performance be predicted

reliably on the basis past success? Rankings inconsistent over time Industries with recent poor performance

should not be ignored

Industry Performance Over Time

Historical Performance Historical record of sales and earnings

growth and price performance should be considered

Although past cannot be simply extrapolated into the future, does provide context

Competitive conditions in industry Competition determines an industry’s

ability to sustain above-average returns

Qualitative Aspects

Product life cycle, rate of growth, changes in buyer needs, innovations in products/ processes, entry & exit of firms, changes in regulatory environment governing the industry

Emerging Trends

Likely direction of interest rates and which industries most affected by a significant rate change should be considered

Industries most affected by possible political events, new technology, inflation should also be considered

Forecasting Industry Trends

Industry Trends

Marketing intelligence Monitor industry trends and, new

developments. Study population growth trends. Review of government publications,

industry periodicals, news releases. Attend exporting conferences and

exhibitions.

Industry Assumptions

What assumptions can be drawn from the Industry Analysis?

How will these assumptions affect the organisation and what opportunities does it offer the business?

Industry Situation

Size and Nature of the Industry Competitive Analysis Industry rivalry Entry Barriers Market Research (existing) Industry Assumptions and

Opportunities

Size and Nature of the Industry

Describe the industry as it is currently. Describe how it has developed and how it

is expected to develop over the life of the plan.

Describe how the industry is segmented and the rivalry between segments.

Provide information on the size of the industry, both in unit volume and dollar volume. Describe the main players in the industry - competitors and suppliers.

Size and Nature of the Industry

Describe what the outlook for the industry is, both short term and long term. Describe the market growth potential.

Describe any technological advances in the industry that are likely to occur.

Explain what "the barriers to entry" are for new players entering the industry.

Industry Boundaries Helps executives determine arena

in which their firm competes Focuses attention on firm’s

competitors Helps executives determine key

factors for success Gives executives another basis on

which to evaluate their firm’s goals

Evolution of industries over time creates new

opportunities and threats

Industry evolution creates industries within

industries

Industries are becoming global in scope

Industry Boundaries

Industry Issues

What part of the industry corresponds to our firm’s goals?

What are the key ingredients of success in that part of the industry?

Does our firm have the skills needed to compete in that part of the industry?

Will the skills enable us to seize emerging opportunities and deal with future threats?

Is our definition of the industry flexible enough to allow necessary adjustments to our business concept as the industry grows?

By stage in their life cycle Helps determine the health and

future prospects of the industry Pioneering stage

Rapid growth in demand Opportunities may attract other firms

and venture capitalists Difficult identify likely survivors

Analyzing Industries

Industry Life Cycles

Stage 1 Stage 2 Stage 3 Stage 4

Start-up Consolidation Maturity Decline

Beginning Rapid Stabilization and Deceleration

Development Growth Market Maturity of Growth

Expansion stage Survivors from the pioneering stage are

identifiable Firm operations more stable, dependable Considerable investment funds attracted Financial policies firmly established Dividends often become payable

Attractive to a wide group of investors


Stabilization or maturity stage Growth begins to moderate Marketplace is full of competitors Costs are stable rather than decreasing

Limitations of life cycle approach A generalization that may not always

apply Tends to focus on sales, market share,

and investment in the industry


Governmental effects Regulations and policies have significant

effects on industries Structural changes in how economy

creates wealth Western economies continue to move

from an industrial to an information/communication society

Structural shifts can occur even within relatively new industries


To forecast long-term industry performance you should ask: Which industries are obvious

candidates for growth and prosperity?

Which industries appear likely to have difficulties as the country’s economy changes, ie from industrial to an information-based economy?

Future Industry Prospects

Waste Recycling?

Analysis of industries by their operating ability in relation to the economy as a whole Some industries move closely with the

business cycle, others not Growth industries

Earnings expected to be significantly above the average of all industries

Growth stocks suffer less during a recession

Business Cycle Analysis

Defensive industries Least affected by recessions and

economic adversity Cyclical industries

Most affected by recessions and economic adversity

“Bought to be sold” Counter-cyclical industries exist as well


Interest-sensitive industries Particularly sensitive to expectations

about changes in interest rates Carefully analysis of business cycle

and likely movements in interest rates help make better buy/sell decisions

Industry knowledge is valuable in selecting or avoiding industries


Are industry classifications clear-cut?

Industries cannot be casually identified and classified Diversified lines of business cause

classification problems Industries continue to become more

mixed in their activities and less identifiable with on product or service

What is an Industry?

Competing in the Global Market

Global competition impacts: industry structure degree of competition firm’s national origin and the competitive

advantage of nations Competitive position

costs, market share, price quality, accumulated experience

Competitive forces - Five Forces Analysis

Fragmented Industries

‘Populated by a large number of Small Medium Enterprises’ Porter

‘Absence of market leaders with the power to influence events.’

Where: low barriers to entry transport costs are high local image important etc.

A fragmented industry may become consolidated with:

technological change standard product preferred over customised one large publishing companies with small ‘imprints’ Consolidate naturally with age

Without consolidation a firm can specialise and grow by:

offering a standard product or service dealing with particular customers Concentrating on a particular area

Fragmented Industries

Concentrated Industries

Dominated by a small number of large firms, exercising significant influence over the market

How does this happen? Cheap to produce in bulk Significant resources to stay in business High barriers to entry etc.

Always a main market leader influences the way business is done strong relationship with sources of supply control over distribution networks



Emerging Industries

New or reformed industry e.g electronic publishing and interactive

TV - FT, New York times, Digital TV. e.g Waste recycling - BMW, Winchester

City Council e.g Internet browsers - Netscape

Navigator e.g Road pricing systems - Toll systems

for bridges and motorway

lack of faith in technology innovative product where customer needs are as yet

unknown high initial start up costs potential customers need to be kept informed of

developments early barriers to entry e.g raw materials competition for components customer confusion Obsolescence Erratic quality Scepticism from bankers and investors

Emerging Industries Problems


The following video discusses the different competitive structures or as they are sometimes called market structures.


v=6yl9Ath6xrE

To understand how industry structure drives competition, which determines the level of industry profitability.

To assess industry attractiveness

To use evidence on changes in industry structure to forecast future profitability

To formulate strategies to change industry structure to improve industry profitability

To identify Key Success Factors

Competition Structure Objectives

Competition Structures

How an organisation markets themselves is influenced by four types of competitive structures. Pure competition. Monopolistic Competition. Oligopoly. Monopoly.

Pure competition

A market structure where a large number of sellers sell an undifferentiated product.

Pure competition is rarely, if ever, attained in the real world. It is a theoretical concept. An ideal.

eg: some agricultural products(fruits, etc)

Monopolistic Competition

Marketers attempt to gain differential advantage over its competitors.

Marketer aims to get the buyer to perceive an attractive difference in their offerings.

Marketers have more control over products and price due to perceived differences.

Oligopoly

A market structure in which only a few large sellers, marketing essentially similar products, account for almost all of an industry’s sales.

eg air travel, beer,cigarettes.

Monopoly

A market structure where there is only one supplier of a product, for which there no close substitutes.

eg: CSR (sugar refining), electricity and gas suppliers (usually government owned).

monopolies are becoming rare in Australia (eg: even Telstra now has competition).

sometimes patent protection can provide firms with something close to a monopoly.

Concentration

Entry and ExitBarriers

ProductDifferentiation

Information

Perfect Competition

Oligopoly Duopoly Monopoly

Many firms A few firms Two firms One firm

No barriers Significant barriers High barriers

HomogeneousProduct

Potential for product differentiation

PerfectInformation flow

Imperfect availability of information

Industry Structure Spectrum

Industry Analysis Questions

1. What are the industry dominant economic traits?2. What competitive forces are at work in the industry

and how strong are they?3. What are the forces of change in the industry and

what impact will they have?4. Which companies are in the strongest/weakest

competitive position?5. Who’s likely to make what competitive moves next?6. What key factors will determine success or failure?7. How attractive is the industry in terms of its

prospects for above average profitability?

Q1. Dominant Economic Traits?

Market size (Small markets don’t attract big fish) Scope of competitive rivalry Market/industry growth rate (life cycle)

Fast growth breeds new entry; slowdowns lead to increased competition.

Number of rivals and their size Number of buyers and their size Level of backward and forward integration Technological change (rate and scope) Level of differentiation between firms’ products Opportunities for economies of scale Ease of entry and exit Capital requirements

Market Size Scope Growth rate Growth cycle # & size of

competitors Distribution channels Structure

Forward Integration Backward Integration

Product Differentiation Potential for

economies of scale

Learning effects Entry / exit costs Technological

change

Q1. Dominant Economic Traits?

Q2. Competitive Forces

Porter’s Five Forces. Forces influencing industry and competitive advantage: Competitive Intensity (Rivalry Among Sellers) Barriers to Entry (Potential for New Entrants) Bargaining Power of Suppliers Bargaining Power of Customers Threat of Substitute Products

Q3. Forces of Change?

The most dominant forces the cause the industry to change are called driving forces

Task 1 - identify the driving forces

Task 2 - assessing their impact on the industry (few are important, generally)

Common Driving Forces

Changes in long term industry growth rate

Changes in who buy the products and for what reason

Product innovation Technological change Marketing innovation Increasing globalization Regulatory changes Changing societal concerns,

attitudes and lifestyles

Environmental scanning

Q4. Competitive Positions? Using the strategic group mapping: two dimensional

representation according to the competitive characteristics of the competitors in the industry:

Axes should not be correlated Size of circles proportional to combined sales The closer the circles, the stronger the rivalry See http://i.i.com.com/cnwk.1d/html/b/305,1,Competitive and

http://www.quickmba.com/strategy/pest/ for more information.

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Product line/merchandise mix

Q5. Likely Competitive Moves?

In order to outmaneuver your competition you have to evaluate the competitors’ future moves.

Identify competitors strategies

Evaluate who are the major players-- now

Who will be the major players

Evaluate what the major players are going to do

Q6. Key Success Factors?

Key success factors (KSF) are crucial elements that lead to success.

What are they now? What will they be? In beer production KSF can be brewing

skills In retail apparel KSF can be low cost,

superior service, superior design In your industry, KSF=????

Q7. Profitability Attractiveness?

Growth potential Driving forces Entry/exit Stability of demand Competitive forces Risk and uncertainty Competition and its

impact on the industry’s future


The following video is an interview with Dr Michael Porter about his 5 Forces Model.


v=mYF2_FBCvXw

Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1980, p. 4. Copyright by TheFree Press, a division of Macmillan Publishing Co., Inc. Reproduced with permission.

Threat ofThreat ofsubstitutessubstitutes

Potentialentrants

Threat ofThreat ofentrantsentrants

Suppliers

BargainingBargaining powerpower

Substitutes

Buyers

BargainingBargaining powerpower

COMPETITIVE RIVALRY

Porter’s 5 Forces Model

Newentrants

Buyers

Suppliers Substitutes

Industrycompetitors

Intensity of rivalry

Intensity of rivalry

Barriers toentry

Barriers toentry

Bargainingpower

Bargainingpower

Bargainingpower

Bargainingpower

Threat ofsubstitutes

Threat ofsubstitutes

Porter’s Five Forces Model

Extent of competitive pressure from producers of

substitutes depends upon:

Buyers’ propensity to substitute

The price-performance characteristics of substitutes.

Threat of Substitutes

Entrants’ threat to industry profitability depends upon the height of barriers to entry. The principal sources of barriers to entry are:

Capital requirements Economies of scale Absolute cost advantage Product differentiation Access to channels of distribution Legal and regulatory barriers Retaliation

The Threat to Entry

Buyer’s price sensitivity Relative bargaining power

• Cost of purchases as % of buyer’s total costs. • How differentiated is the purchased item? • How intense is competition between buyers? • How important is the item to quality of the buyers’ own output?

• Size and concentration of buyers relative to sellers. • Buyer’s information . • Ability to backward integrate.

Note: analysis of supplierpower is symmetric

Buyer’s Bargaining Power

The extent to which industry profitability is depressed by aggressive price competition depends upon:

Concentration (number and size distribution of firms)

Diversity of competitors (differences in goals, cost structure, etc.)

Product differentiation Excess capacity and exit barriers Cost conditions

Extent of scale economies Ratio of fixed to variable costs

Competitive Rivalry

Competitive Rivalry

Entry is likely Substitutes threaten Buyers or suppliers exercise control Competitors are in balance There is slow market growth Global customers increase competition There are high fixed costs in an industry Markets are undifferentiated There are high exit barriers

What is a SWOT Analysis?

A scan of the internal and external environment is an important part of the strategic planning process.

Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T).

Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT Framework

SWOT Analysis Framework Environmental Scan / \

Internal Analysis External Analysis / \ / \

Strengths Weaknesses Opportunities Threats

SWOT Matrix

Competitive AnalysisWho are my competitors?

How do I analyze them?

SWOT Porter’s Five Forces Strategic Group Maps PEST analysis

SWOT analysis and SWOT matrix

Strengths Weaknesses

Opportunities Strength-Opportunity strategies

Weakness-Opportunity strategies

Threats Strength-Threat strategies

Weakness-Threat strategies

A SWOT analysis helps you match your company’s resources and capabilities to threats and opportunities in the competitive environment.

SWOT analysis can be very subjective, but adding weighting and criteria to each factor increases the validity of the analysis. Also completing the SWOT matrix can help you pick the best strategy to implement.

Topic Example Video

The following video explains the SWOT – TOWS matrix and the differences between the two concepts.

Take note of the key points. http://www.youtube.com/watch?v=H8FANR-

2u2Q

Definition

Definition of strength: Capability, ability or activity that the

organisation does well which could be used to improve its competitive position as well as performance or a resource it controls.

Definition of weakness: Exists in any capacity as well as activities

that the organisation does not do well that may cause it to have a weaker competitive position or poorer financial performance or resources it needs but does not possess.

Definition

Definition of opportunity: Opportunities are positive external

environmental factors that an organisation can exploit.

Definition of threat: Threats are negative external environmental

factors to be faced by the organisation.

SWOT: external factors

Opportunities External attractive factors that represent the

reason for an organization to exist and develop. What opportunities exist in the environment which will propel the organization?

Identify them by their “time frames” Threats

External factors, beyond an organization’s control, which could place the organization’s mission or operation at risk. The organization may benefit by having contingency plans to address them should they occur

Classify them by their “seriousness” and “probability of occurrence”

Analysis Overview

Opportunities: Where organisation stands to gain market

share Where to reconsider organisational

priorities Threats: Where to refocus organisational efforts

defensively Where to defend from loss of market share

Definition

Definition of problems: Problems are those minor weaknesses that

the organisation can address in the short-term, such as obtaining needed resources.

Definition of vulnerabilities: Vulnerabilities are those minor threats that

the organisation has the resources and capability to control or minimise the impact of in the short-term, such as stockpiling of scarce resources.

Industry Analysis Opportunities, Vulnerabilities and Threats

that relate to the industry that the organization operates in:

Industry situation Industry composition Industry intermediaries (suppliers/agents) Substitute products Competition Type analysis (Industry

players) Industry Assumptions & Opportunities

SWOT / TOWS Matrix S-O strategies pursue opportunities that

fit well the company's strengths. W-O strategies overcome weaknesses

to pursue opportunities. S-T strategies identify ways that the

firm can use its strengths to reduce its vulnerability to external threats.

W-T strategies make a defensive plan to prevent the firm's weaknesses from making it susceptible to external threats.

STRENGTHS STRENGTHS

1.1.2.2.3.3.

WEAKNESSES WEAKNESSES

1.1.2.2.3.3.

OPPORTUNITIES OPPORTUNITIES

1.1.2.2.3.3.4.4.

(SO) Strategies Use (SO) Strategies Use strengths to take strengths to take advantage of advantage of opportunities opportunities

1.1.

2.2.

(WO) Strategies (WO) Strategies overcome overcome weaknesses by taking weaknesses by taking advantage of advantage of opportunities opportunities

1.1.

2.2.

THREATS THREATS

1.1.2.2.3.3.4. 4.

(ST) Strategies Use (ST) Strategies Use strengths to avoid strengths to avoid threats threats

1.1.

2.2.

(WT) Strategies (WT) Strategies Minimize weaknesses Minimize weaknesses and avoid threats and avoid threats

1.1.

2.2.

The SWOT matrix

SWOT Interactions

Organisation’sResources/Abilities

Organisation’sOpportunities

Opportunities inthe Environment

Opportunity Gaps

SWOT Diagnosis

Conducting a SWOT diagnosis means to assess the significance of the identified opportunity, influence or threat factors as to it’s level of impact on the organisation

Each factor is rated on a) its degree of significance and b) its probability of occurrence.

SWOT Factor Rating

PursuePursue ReviewReview

IgnoreIgnoreMonitorMonitor

HighHigh LowLowOpportunity SignificanceOpportunity Significance

HighHigh

LowLow

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Opportunity Matrix

Market Research – T.O.C.

2. Market Research & Analysis 2.1 Market Research 2.2 Current State of Industry 2.3 Market Size and Trends 2.4 Competitor SWOT Analysis 2.5 Customers 2.6 Competition & Competitive

Advantage 2.7 Marketing Intelligence

Industry Analysis

Industry Analysis This looks at how the industry operates, current

state and future forecasts. Such knowledge is important to identify future potential opportunities and threats

Description This is an explanation of the industry group your

proposed business would be a part of. For industry groups, consider ABS ANZSIC classifications

Conditions (current state) This focuses on the current state of health of the

identified industry group comparing where it is now in relation to past performance.

Industry Analysis

Trends (growth areas) This section highlights the future prospects for

the industry group as a whole. In other words, forecasting where the industry improvements will be given the extent and impact of change onto the industry

Size This should include information on

revenue/profits, number of operators, people employed, etc for the industry group. Specific ABS reports can provide this information,

eg. ABS - Mining Industry - 8414.0 - 1994/1995.

Industry Analysis

Dominant Operators This section states the significant or major

players in the industry and is often determined through a combination of industry experience, knowledge (industry association resources) and directory information (Yellow Pages listings)

Future (opportunities/threats) This section considers the trend information in

terms of growth potential and future viability of the industry. Specific innovations, improvements or changes may create the catalyst for potential opportunities or risk threats to your business.

Next Session Weekly Activity: ANZSIC Codes Visit the Australian Bureau of Statistics website

(www.abs.gov.au) and find out what are the 2 digit codes for each of the industry group categories

Also determine what are the additional digit codes for the particular industry

Using your business idea, match this with an industry code

Locate an ABS publication that lists these codes for you

If you have problems try searching under Catalogue number 1292.0

Report on your research (Word Count: 200 – 300).

Documents

Session Industry Scanning Session Outline Macro-Environment Industry situation SWOT analysis Total market Intermediaries Competition