PPT 6 Lecture.ppt

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall 1-1
Entrepreneurship and Small
Business Management

Chapter 5: Industry and
Competitor Analysis (Market
Research for Entrepreneurs)

Learning Objectives
 Explain the purpose of an industry analysis.
 Identify and discuss the five competitive
forces that determine industry profitability.
 Explain the value that entrepreneurial firms
create by successfully using the five forces
model.
 Identify the five primary industry types and
the opportunities they offer.

Learning Objectives
 Explain the purpose of an industry analysis.
 Explain the purpose of a competitor
analysis and a competitive analysis grid.

 It is important to know that some industries
are simply more attractive than others in
terms of their annual growth rate and other
factors.
 For example, e-book publishing is expected
to grow at an annual rate of 7.5 percent
and traditional book publishing is expected
to grow at an annual rate of 0.7 percent
over the next five years.
Purpose of an industry
analysis

 The important technique that an
entrepreneur has available to detect the
attractiveness of an industry is to study
industry trends. There are the two most
important trends for entrepreneurs to
evaluate.
 Environmental Trends
 Business Trends
Studying industry trends

 Environmental Trends (environmental trends shift in favor
or against the products or services sold by firms in the industry).
 Business Trends
Studying industry trends
(Contin)

 The five forces model is a framework
entrepreneurs use to understand an
industry’s structure.
 Forces that determine industry profitability
Five Forces Model

 Threat of substitute
 Threats of New entrants
 Rivalry among Existing Firms
 Bargaining Power of Suppliers
 Bargaining Power of Buyers
Five Forces Model (cont..)

 In general, industries are more attractive
when the threat of substitutes is low. This
means that products or services from other
industries can’t easily serve as substitutes
for the products or services being made
and sold in the focal firm’s industry.
Threat of substitute

 Industries are more attractive when the
threat of entry is low. This means that
competitors cannot easily enter the
industry.
Threat of New Entrants

 In most industries, the major determinant
of industry profitability is the level of
competition among the firms already
competing in the industry.
 Some industries are fiercely competitive to
the point where prices are pushed below
the level of costs. When this happens,
industry-wide losses occur.
Rivalry among Existing Firms

bargaining power of suppliers is low. In
some cases, suppliers can suppress the
profitability of the industries to which they
sell by raising prices or reducing the quality
of the components they provide.
Bargaining Power of the
Suppliers

bargaining power of buyers (a start-up’s
customers) is low. Buyers can suppress the
profitability of the industries from which
they purchase by demanding price
concessions or increases in quality.
Bargaining Power of the
Buyers

 The five forces model can be used in two
ways;
 To help a firm determine whether it
should enter a particular industry.
 Whether it can carve out an
attractive position in that industry.
Value of the Five Forces
Model.

 The five forces model can be used in two
ways;
 To help a firm determine whether it
should enter a particular industry.
 Whether it can carve out an
attractive position in that industry.
Model.

 The five forces model can be used to assess
the attractiveness of an industry or a
specific position within an industry.
 In the restaurant industry, for example,
the threat of substitute products, the threat
of new entrants, and the rivalry among
existing firms are high.
Model (Conti..).

 For certain restaurants, such as fresh-
seafood restaurants, the bargaining power
of suppliers may also be high (the number
of seafood suppliers is relatively small
compared to the number of beef and
chicken suppliers).
Model (Conti..)

 Emerging industries
 Fragmented industries
 Mature industries
 Declining industries
 Global industries
Five Primary Industry Types and the opportunities they
offer.

 An emerging industry is a new industry in
which standard operating procedures have
yet to be developed. The firm that pioneers
or takes the leadership of an emerging
industry often captures a first-mover
advantage.
Emerging industries

 A fragmented industry is one that is
characterized by a large number of firms of
approximately equal size. The primary
opportunity for start-ups in fragmented
industries is to consolidate. In which one
firm starts acquiring similar firms that are
located in different geographic areas.
Fragmented industries

 A mature industry is an industry that is
experiencing slow or no increase in
demand, has numerous repeat (rather than
new) customers, and has limited product
innovation.
Mature Industries

 A declining industry is an industry or a part
of an industry that is experiencing a
reduction in demand. The renting of DVDs
and video games and producing and
distributing hard copy textbooks are
examples of products associated with
industries or segments of an industry that
are in some state of decline.
Declining Industries

 A global industry is an industry that is
experiencing significant international sales.
Many start-ups enter global industries and
from day one try to appeal to international
rather than just domestic markets.
Global Industries

Identifying competitors
 Direct competitors
 In Direct competitors
 Future competitors
Purpose of a competitor analysis

PPT 6 Lecture.ppt

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