Description
Competition analysis
Competition analysis
What Is Competition Like & How Strong Are the Competitive Forces?
Objective
•
To identify
– –
Main sources of competitive forces Strength of these forces
•
Key analytical tool
–
Five forces model of competition
Five Forces Model of Competition
Substitute Substitute Products Products
(of firms in (of firms in other industries) other industries)
Suppliers of Suppliers of Key Inputs Key Inputs
Rivalry Rivalry Among Among Competing Competing Sellers Sellers
Buyers Buyers
Potential Potential New New Entrants Entrants
Analysing the Five Competitive Forces: How to Do It
•
Assess strength of each competitive force (strong? Moderate? Weak? ) Explain how each force acts to create competitive pressure Decide whether overall competition is brutal, fierce, strong, normal/moderate, or weak
•
•
Rivalry Among Competing Sellers
•
•
Usually the most powerful of the five forces Check which weapons of competitive rivalry are most actively used by rivals in jockeying for position
– – – – – – –
Price Quality Performance features offered Customer service Warranties/guarantees Advertising/promotions Dealer networks
What Causes Rivalry to Be Stronger?
• • •
•
Lots of firms, more 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 brands
What Causes Rivalry to Be Stronger?
•
•
• •
One or more firms initiates moves to bolster their standing at expense of rivals 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
Competitive Force of Potential Entry
•
Seriousness of threat depends on
– –
Barriers to entry Reaction of existing firms to entry
•
Barriers exist when
–
–
Newcomers confront obstacles
Economic factors put potential entrant at a disadvantage relative to incumbent firms
Common Barriers to Entry
•
Economies of scale • Inability to gain access to specialized technology • Existence of learning/experience curve effects • Strong brand preferences and customer loyalty • Capital requirements and/or other specialized resource requirements • Cost disadvantages independent of size • Access to distribution channels • Regulatory policies, tariffs, trade restrictions
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 ? Plastic vs. Glass vs. Metal ? Newspapers vs. TV vs. Internet
How to Tell Whether Substitute Products Are a Strong Force
? ?
Sales of substitutes are growing rapidly Producers of substitutes are planning to add new capacity Their profits are up
?
Competitive Force of Buyers
•
Buyers are a strong competitive force when:
–
They are large and purchase a sizable percentage of industry’s product – They can integrate backward – Industry’s product is standardized – They can purchase from several sellers
Competitive Force of Suppliers
?
Suppliers are a strong competitive force when:
?
Item makes up large portion of product costs, is crucial to production process, and/or significantly affects product quality ? It is costly for buyers to switch suppliers ? They can supply a component cheaper than industry members can make it themselves ? They do not have to contend with substitutes
Strategic Implications of the Five Competitive Forces
•
Competitive environment is unattractive when:
–
Rivalry is strong
–
–
Entry barriers are low
Competition from substitutes is strong
–
Suppliers and customers have considerable bargaining power
Strategic Implications of the Five Competitive Forces
•
Competitive environment is ideal when:
– –
Rivalry is moderate Entry barriers are high
–
Good substitutes do not exist
Suppliers and customers are in a weak bargaining position
–
How Strong Is the Company’s Competitive Position?
•
•
Can the firm’s position be expected to improve or deteriorate if present strategy is continued How the firm ranks relative to key rivals on each industry KSF and relevant measure of competitive strength
Why Do a Competitive Strength Assessment ?
•
•
Reveals strength of firm’s competitive position Shows how firm stacks up against rivals, measure-by-measure -- pinpoints the company’s competitive strengths and competitive weaknesses
Why Do a Competitive Strength Assessment ?
•
•
•
Indicates whether firm is at a competitive advantage / disadvantage against each rival Identifies possible offensive attacks (pit company strengths against rivals’ weaknesses) Identifies possible defensive actions (a need to correct competitive weaknesses)
Assessing a Company’s Competitive Strength versus Key Rivals
1.
2. List industry key success factors and other relevant measures of competitive strength Rate firm and key rivals on each factor using rating scale of 1 - 10 (1 = weak; 10 = strong) Decide whether to use a weighted or unweighted rating system Sum individual ratings to get overall measure of competitive strength for each rival Determine whether the firm enjoys a competitive advantage or suffers from competitive disadvantage
3.
4.
5.
An Unweighted Competitive Strength Assessment
KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Technological skills Dealer network/distribution New product innovation Financial resources Relative cost position Customer service capability Overall strength rating ABC Co. 8 8 2 10 9 9 5 5 5 61 Rival 1 5 7 10 1 4 4 10 10 7 58 Rival 2 10 10 4 7 10 10 7 3 10 71 Rival 3 1 1 5 3 5 5 3 1 1 25 Rival 4 6 6 1 8 1 1 1 4 4 32
Rating Scale: 1 = Very weak; 10 = Very strong
A Weighted Competitive Strength Assessment
KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Weight 0.10 0.10 0.10 ABC Co. 8/0.80 8/0.80 2/0.20 Rival 1 5/0.50 7/0.70 10/1.00 Rival 2 10/1.00 10/1.00 4/0.40 Rival 3 1/0.10 1/0.10 5/0.50 Rival 4 6/0.60 6/0.60 1/0.10
Technological skills
Dealer network/distribution New product innovation Financial resources Relative cost position
0.05
0.05 0.05 0.10 0.35
10/0.50
9/0.45 9/0.45 5/0.50 5/1.75
1/0.05
4/0.20 4/0.20 10/1.00 10/3.50
7/0.35
10/0.50 10/0.50 7/0.70 3/1.05
3/0.15
5/0.25 5/0.25 3/0.30 1/0.35
8/0.40
1/0.05 1/0.05 1/0.10 4/1.40
Customer service capability
Sum of weights Overall strength rating
0.15
1.00
5/0.75
7/1.05
10/1.50
1/0.15
4/1.60
6.20
8.20
7.00
2.10
2.90
Rating Scale: 1 = Very weak; 10 = Very strong
doc_956743282.ppt
Competition analysis
Competition analysis
What Is Competition Like & How Strong Are the Competitive Forces?
Objective
•
To identify
– –
Main sources of competitive forces Strength of these forces
•
Key analytical tool
–
Five forces model of competition
Five Forces Model of Competition
Substitute Substitute Products Products
(of firms in (of firms in other industries) other industries)
Suppliers of Suppliers of Key Inputs Key Inputs
Rivalry Rivalry Among Among Competing Competing Sellers Sellers
Buyers Buyers
Potential Potential New New Entrants Entrants
Analysing the Five Competitive Forces: How to Do It
•
Assess strength of each competitive force (strong? Moderate? Weak? ) Explain how each force acts to create competitive pressure Decide whether overall competition is brutal, fierce, strong, normal/moderate, or weak
•
•
Rivalry Among Competing Sellers
•
•
Usually the most powerful of the five forces Check which weapons of competitive rivalry are most actively used by rivals in jockeying for position
– – – – – – –
Price Quality Performance features offered Customer service Warranties/guarantees Advertising/promotions Dealer networks
What Causes Rivalry to Be Stronger?
• • •
•
Lots of firms, more 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 brands
What Causes Rivalry to Be Stronger?
•
•
• •
One or more firms initiates moves to bolster their standing at expense of rivals 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
Competitive Force of Potential Entry
•
Seriousness of threat depends on
– –
Barriers to entry Reaction of existing firms to entry
•
Barriers exist when
–
–
Newcomers confront obstacles
Economic factors put potential entrant at a disadvantage relative to incumbent firms
Common Barriers to Entry
•
Economies of scale • Inability to gain access to specialized technology • Existence of learning/experience curve effects • Strong brand preferences and customer loyalty • Capital requirements and/or other specialized resource requirements • Cost disadvantages independent of size • Access to distribution channels • Regulatory policies, tariffs, trade restrictions
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 ? Plastic vs. Glass vs. Metal ? Newspapers vs. TV vs. Internet
How to Tell Whether Substitute Products Are a Strong Force
? ?
Sales of substitutes are growing rapidly Producers of substitutes are planning to add new capacity Their profits are up
?
Competitive Force of Buyers
•
Buyers are a strong competitive force when:
–
They are large and purchase a sizable percentage of industry’s product – They can integrate backward – Industry’s product is standardized – They can purchase from several sellers
Competitive Force of Suppliers
?
Suppliers are a strong competitive force when:
?
Item makes up large portion of product costs, is crucial to production process, and/or significantly affects product quality ? It is costly for buyers to switch suppliers ? They can supply a component cheaper than industry members can make it themselves ? They do not have to contend with substitutes
Strategic Implications of the Five Competitive Forces
•
Competitive environment is unattractive when:
–
Rivalry is strong
–
–
Entry barriers are low
Competition from substitutes is strong
–
Suppliers and customers have considerable bargaining power
Strategic Implications of the Five Competitive Forces
•
Competitive environment is ideal when:
– –
Rivalry is moderate Entry barriers are high
–
Good substitutes do not exist
Suppliers and customers are in a weak bargaining position
–
How Strong Is the Company’s Competitive Position?
•
•
Can the firm’s position be expected to improve or deteriorate if present strategy is continued How the firm ranks relative to key rivals on each industry KSF and relevant measure of competitive strength
Why Do a Competitive Strength Assessment ?
•
•
Reveals strength of firm’s competitive position Shows how firm stacks up against rivals, measure-by-measure -- pinpoints the company’s competitive strengths and competitive weaknesses
Why Do a Competitive Strength Assessment ?
•
•
•
Indicates whether firm is at a competitive advantage / disadvantage against each rival Identifies possible offensive attacks (pit company strengths against rivals’ weaknesses) Identifies possible defensive actions (a need to correct competitive weaknesses)
Assessing a Company’s Competitive Strength versus Key Rivals
1.
2. List industry key success factors and other relevant measures of competitive strength Rate firm and key rivals on each factor using rating scale of 1 - 10 (1 = weak; 10 = strong) Decide whether to use a weighted or unweighted rating system Sum individual ratings to get overall measure of competitive strength for each rival Determine whether the firm enjoys a competitive advantage or suffers from competitive disadvantage
3.
4.
5.
An Unweighted Competitive Strength Assessment
KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Technological skills Dealer network/distribution New product innovation Financial resources Relative cost position Customer service capability Overall strength rating ABC Co. 8 8 2 10 9 9 5 5 5 61 Rival 1 5 7 10 1 4 4 10 10 7 58 Rival 2 10 10 4 7 10 10 7 3 10 71 Rival 3 1 1 5 3 5 5 3 1 1 25 Rival 4 6 6 1 8 1 1 1 4 4 32
Rating Scale: 1 = Very weak; 10 = Very strong
A Weighted Competitive Strength Assessment
KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Weight 0.10 0.10 0.10 ABC Co. 8/0.80 8/0.80 2/0.20 Rival 1 5/0.50 7/0.70 10/1.00 Rival 2 10/1.00 10/1.00 4/0.40 Rival 3 1/0.10 1/0.10 5/0.50 Rival 4 6/0.60 6/0.60 1/0.10
Technological skills
Dealer network/distribution New product innovation Financial resources Relative cost position
0.05
0.05 0.05 0.10 0.35
10/0.50
9/0.45 9/0.45 5/0.50 5/1.75
1/0.05
4/0.20 4/0.20 10/1.00 10/3.50
7/0.35
10/0.50 10/0.50 7/0.70 3/1.05
3/0.15
5/0.25 5/0.25 3/0.30 1/0.35
8/0.40
1/0.05 1/0.05 1/0.10 4/1.40
Customer service capability
Sum of weights Overall strength rating
0.15
1.00
5/0.75
7/1.05
10/1.50
1/0.15
4/1.60
6.20
8.20
7.00
2.10
2.90
Rating Scale: 1 = Very weak; 10 = Very strong
doc_956743282.ppt