McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Five Industry Analysis and Competitive Advantage

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Exhibit 5.2 The Major Forces that Determine Industry Attractiveness Rivalry among existing industry firms Threat of substitute products Bargainingpower of buyers Bargainingpower of suppliers Source: Adapted from Michael E. Porter, “Industry Structure and Competitive Strategy: Keys to Profitability,” Financial Analysts Journal, July-August 1980, p. 33. Threat of new entrants entrants

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Categories of Innovation Adopters Early majority 34% Late majority 34% Early adopters 13.5% 16% 2.5% Innovators Laggards and nonadopters Risk takers Young Well educated Mobile Sophisticated Opinion leaders Young Mobile Smaller social net than innovators Cautious Require much information before purchasing Suspicious of new ideas Older Look to preceding groups for information Very suspicious Lower social class Hard to reach Source: Adapted with permission from Marketing, 11/e, Acetate 8-8, by Michael J. Etzel, Bruce J. Walker, and William J. Stanton. The McGraw-Hill Companies, Inc. © All rights reserved.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Exhibit 5.8 Generalized Product Life Cycle Source: Reprinted with permission from p. 60 of Analysis for Strategic Marketing Decisions, by George Day. Copyright © 1986 by West Publishing Company. All rights reserved. Product category sales (real dollars) Profit per unit (real dollars) Profit/unit Sales Life cycle extension Growth Competitive turbulence MaturityDecline or extension Time (years) Introduction

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Exhibit 5.9 Common Product Life-Cycle Curves Source: Adapted from J.E. Swann and D.R. Rink, “Effective Use of Industrial Product Life Cycle Trends,” in Marketing in the ‘80s (New York, American Marketing Association, 1980), pp Unit sales Unit sales Unit sales Unit sales Time I. Growth-decline-plateauII. Cycle-recycle IV. ClassicalIII. Innovative-maturity Intro. Growth Maturity Decline

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Exhibit 5.10 Expected Characteristics and Responses by Major Life-Cycle Stages (1 of 2) Stage characteristics Stages in Product Life Cycle IntroductionGrowthShakeoutMatureDecline Market growth rate (constant dollars) Technical change in product design Segments Competitors Profitability Moderate High Few Small Negative High Moderate Few to many Large High Leveling off Limited Few to many Decreasing Low Insignifi- cant Limited Few to many Limited High for market-share leaders Negative Limited Few Low

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Exhibit 5.10 Expected Characteristics and Responses by Major Life-Cycle Stages (2 of 2) Firm’s Normative Responses Stages in Product Life Cycle IntroductionGrowthShakeoutMatureDecline Strategic marketing objectives Product Product line Price Channels Communi- cations Stimulate primary demand Quality Narrow Skimming vs. penetration Selective High Build share Cont. qlty. improv. Broad Reduce Intensive High Build share Rationalize Reduce Intensive High Hold share Concentrate on features Hold length of line Hold or cut selectively Intensive High to declining Harvest No change Cut length of line Reduce Selective Reduce

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Exhibit 5.13 Relationship of Strategic Market Position Objective, Investment Levels, Profits, and Cash Flow to Individual Stages in the Product Life Cycle StageStrategic market objectives Growth Introduction For both innovators and followers, accelerate overall market growth and product acceptance through awareness, trial, and product availability Mod. to high for R&D, capacity, working cap., and marketing (sales and advertising) Profits Highly negative Cash Flow Highly negative Increase competitive position High to very high HighNegative Improve/solidify competitive position ModerateLow to mod. Maintain positionLowModerateHigh Growth Shakeout Mature