Slide 1Marketing Planning SequenceContinuing from Ch. 2Bases for Industry AnalysisI. Market Factors for Industry Analysis*Category Attractiveness over the Product Life CycleII. Competitive Factors for Industry AnalysisIndustry Concentration MeasuresCharacteristics of Intensive RivalryBuyer Power Is Higher WhenSupplier Power Is Higher WhenIndustry Attractiveness based on Market FactorsIndustry Attractiveness based on Competitive FactorsIII. (Macro) Environmental FactorsTypology of Technical DevelopmentsProjected Change in U.S. Population 1995-2005U.S. Income InequalityBusiness Implications of Social ChangesExamples for Evaluating Category AttractivenessEnergy Bars: Category Attractiveness SummaryEnergy Bars: Attractiveness Summary (cont)Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Slide 34Slide 35Slide 36Slide 37Slide 38Slide 39Category Attractiveness: Retail CoffeeCategory Attractiveness: MP3 PhonesMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.C H A P T E R Industry Analysis3Key Issue: Analyzing a Market’s Trends andAttractivenessKey Assumption: Level of Competition Has Been SetMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Marketing Planning SequenceMarketing Planning SequenceCollect dataAnalyze dataDevelop objectives, strategies, programsDevelop financial documentsNegotiate final plan*Measure progress toward objectivesAuditMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Continuing from Ch. 2Continuing from Ch. 2•Choose the Level of CompetitionEx) Product Category Level Soft Drinks; Snack/Health Bar•Industry Analysis = (Product) Category AnalysisMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.BasesBases for Industry for Industry AnalysisAnalysis•Market Factors (at the Aggregate Level)**•Competitive Factors*•Michael Porter’s Framework*•Environmental FactorsMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.I. Market FactorsI. Market Factors for for Industry Industry Analysis*Analysis*•Category Size: Sales Volume or $$  two sources of info•http://www.beerinsights.com•http://www.dfcint.com/•http://www.autonews.com•http://www.gartner.com/technology/home.jsp•Growth Rate•Stage in Product Life Cycle* •Cyclicity & Seasonality•Marketing Mix (General Trends on 4Ps)•Product differentiation: Macro (http://www.census.gov) and Micro(advertising $$ or number of product lines or skus)•Profits & Financial Ratios •Source of Information: ISU library database (marketline information center; mergent online & million dollar database)McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Category Attractiveness over Category Attractiveness over the Product Life Cyclethe Product Life CycleStage of product life cycleCategory sizeCategory growthCategory attractivenessIntroductionSmallLowLowGrowthModerateHighHigh MaturityLargeLow Low/highDeclineModerate NegativeLowSalesTimeMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.II. CompetitiveII. Competitive Factors for Industry Analysis Factors for Industry Analysis•Industry Concentration*•Intensity of Rivalry*•Power of Buyers & Suppliers*•Pressure from Substitutes•Threat of Entries and Exits•Capacity UtilizationMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Industry Concentration MeasuresIndustry Concentration Measures1. The share of the largest firm2. The combined shares of the three largest firms3. The number of firms with at least x percent of the market (e.g., 1 percent) 4. The share of the largest firm divided by the share of the next three largest competitors5. Herfindahl-Hirschman Index (HHI):-The Sum of Squared Shares of the Firms in the Industry-Use-Thresholds: below 1000; 1,000 to 1,800; above 1,800http://www.census.gov/econ/census02/McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Characteristics of Characteristics of Intensive RivalryIntensive Rivalry Many or Balanced Competitors Slow Growth High Fixed Costs Lack of Product DifferentiationAny Example?McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Buyer PowerBuyer Power Is Is HigherHigher When When  Buyer accounts for a large percentage of the industry’s output. Product is undifferentiated. Threat of backward integration. Buyer has full information.  Example:McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Supplier PowerSupplier Power Is Is HigherHigher When When  Suppliers are concentrated. No or few Substitute for the product. Differentiated product/high switching cost. Limited Supply.Example: Video Game Machine (Nintendo!)McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Industry Attractiveness based on Industry Attractiveness based on Market FactorsMarket FactorsHigh LowSize Large SmallGrowth High SlowStage in life cycle Early LateCyclicity Low HighSeasonality Low HighMarketing spending Low HighProfits High LowFinancial ratios High LowAttractivenessMarket FactorsMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Industry Attractiveness based on Industry Attractiveness based on Competitive FactorsCompetitive FactorsHigh LowConcentration Low HighPower of buyers Low HighPower of suppliers Low HighRivalry Low HighPressure from substitutes Low HighCapacity utilization High LowThreat of entry Low HighAttractivenessCompetitive FactorsMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.III. (Macro) III. (Macro) Environmental Environmental FactorsFactors Technological* Economic Social* Political Regulatory*For your project, pick only “important and relevant” onesMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Typology of Typology of Technical Technical DevelopmentsDevelopmentsWelfareDiffusionInnovationInventionInformationMaterialsTransportationEnergyGenetic*CommercialDefenseTechnologyProcessImpetus* Includes agronomic and biomedical developments.McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Projected Change in U.S. Projected Change in U.S. Population Population 1995-20051995-20055,584,488-5,467,3328,042,83611,155,3592,352,954679,4191,925,310749,4980-9 10-19