Slide 1Levels of Competition*What You Need to Do/Know FirstBases for Industry Analysis**I. Market Factors for Industry Analysis*II. 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 FactorsMajor Topics for Consumer BehaviorWhat We Need to Know about Current and Potential Customers*For competitor analysis, you need to knowExample) Energy Bars: Competitor Feature/Strategy Matrix*McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Industry AnalysisKey Issue: Analyzing a Market’s Trends andAttractivenessKey Assumption: Level of Competition has been set*McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.LevelsLevels of Competition*of Competition*Diet lemon limesBaseball cardsFruit flavored colasCoffeeDietCokeDietPepsiDiet-Rite colaBottled waterLemon limesRegularcolasBeerJuicesWineFast foodTeaVideo rentalsIcecreamProduct form competition: Diet colasProduct category competition: Soft drinksGeneric competition: BeveragesBudget competition: Food and entertainmentMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.What You Need to Do/Know FirstWhat You Need to Do/Know First•Choose the “Right” Level of CompetitionEx) Product Category Level Soft Drinks; Snack/Health Bar•Industry Analysis = (Product) Category Analysis•Level of Discussion for Industry Analysis: An industry (not an individual firm)McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.BasesBases for Industry for Industry Analysis**Analysis**1. Market Factors (at the Aggregate Level)*2. Competitive Factors*Michael Porter’s Framework*3. Environmental FactorsMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.I. Market FactorsI. Market Factors for Industry Analysis* for Industry Analysis*•Category Size: Sales Volume or $$  two sources of info•http://www.beerinsights.com•http://www.npd.com•http://www.autonews.com•http://www.beverage-digest.com/•Growth Rate•Stage in Product Life Cycle* •Cyclicity & Seasonality•Marketing Mix (General Trends)•Product differentiation: Macro (http://www.census.gov) and Micro(advertising $$ or number of product lines or skus)•Profits & Financial Ratios (http://www.sec.gov) SIC: 5600http://www.hbsp.harvard.edu• Library source of information:• http://www.marketlineinfo.com.proxy.lib.iastate.edu:2048/library/Default.aspxMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.II. II. Competitive FactorsCompetitive Factors for Industry Analysis for Industry AnalysisIndustry Concentration*1. Intensity of Rivalry*2. Power of Buyers (Two Types) 3. Power of Suppliers4. Pressure from Substitutes5. Threat of Entries and ExitsCapacity 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/epcd/www/econ97.htmlMcGraw-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: LCD in the pastMcGraw-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, choose 1 or 2 only the most relevant factors from aboveMcGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.Major Topics for Consumer BehaviorMajor Topics for Consumer Behavior1. Consumer Decision Process2. Types of Buying Decisions 3. Influences on the Rate of New Product Adoption (RCCDC)McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.What We Need to Know about Current and What We Need to Know about Current and Potential Customers*Potential Customers*•Who buys and uses the product?•What customers buy and how they use it?•Where customers buy?•When customers buy?•How customers choose?•Why they prefer a product over others?•How do they respond to marketing programs?•Will they buy it (again)?McGraw-Hill/Irwin© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.For competitor analysis, you need to knowFor competitor analysis, you need to knowWho are Your Major Competitors? Analyzing Product Features*Major Competitors’