1. Industry Analysis/Mkt Definition
Analysis of customers, competitors and industry are interdependent.
Require balance between identifying too many and too few competitors.
Many bases for competition.
Different levels of competition.

2. Industry Analysis/ Mkt Definition
Bases of Competition
1. Customer oriented (Who they are; When they use it; Why they use it)
2. Marketing oriented (Theme/copy strategy; Media; Distribution; Price)
3. Resource oriented (Raw materials; Employees; Financial resources)
4. Geographic
Levels of Competition- 1. Product form; Product category; 3. Generic; 4. Budget

3. Industry Analysis/Mkt Definition
Methods of determining competition:
1. Existing categories
2. Technical feasibility of substitution
3. Managerial judgement

4. Industry Analysis/Mkt Definition
Methods for determining competition (contd.):
4. Customer behavior based
- Brand switching
- Interpurchase times
- Cross elasticity of demand
5. Customer judgement based
- Overall similarity
- Similarity of consideration sets
- Product deletion
- Substitution in use

5. Competitor Identification
Identifying competitors by identifying substitutes
Substitutes are products whose cross-price elasticities of demand are positive
There is a distinction between direct and indirect competitors
Similar products in different geographic markets may not be substitutes

6. Market Definition
Market definition describes the market in which a firm competes
Two firms are in the same market if they constrain each others ability to raise price
Suppose all firms collectively set prices to maximize combined profits. Would they choose to raise prices by a least 5%?

7. Market definition
If the own-price elasticity of a group of firms collectively is small, then this group of firms constitutes a well-defined market
Antitrust agencies (Dept of Justice) looks at the above

8. Market Structure and Competition
Market structure refers to the number and distribution of firms in a market
Common measures are N-firm concentration ratio and Herfindahl index
The Herfindahl index of an industry depends on the nature of competition in the industry

9. A typology of competition
Perfect competition:
- many sellers
- homogenous products
-well-informed consumers can costlessly shop around

10. A typology of competition
Monopoly:
-no competition for output
Monopolistic competition:
-many sellers
-each sells a differentiated product
Oligopoly:
-few sellers, so the actions of one firm materially affects the others

11. A Tool for Assessing Industry Attractiveness: Porter’s Five Forces
Threat of new
entrants
Bargaining
power
of suppliers
Rivalry among
existing industry
firms
Bargaining
power
of buyers
Have students consider industry attractiveness for the cellular phone service industry.
Five Forces Analysis of the Worldwide Cell Phone Service Industry In Early 2004
Rivalry is high leading to high customer churn: unfavorable
Products are differentiated through new features and services, customer switching costs are low.
Threat of new entrants is low: moderately favorable
While rapid pace of technological change may bring new entrants based on new technologies (i.e.packet switching, satellites) new service providers must purchase a bandwidth licence by spending billions.
Supplier power is high: moderately unfavorable
Governments have raised the price of additional bandwidth through auctions.
Buyer power is low: very favorable
Even large customers have little power to set terms and conditions in this oligopolistic industry.
Threat of substitutes is high: moderately unfavorable
PDAs or new multimedia devices could replace cell phones.
Overall conclusion: only 2 out of 5 forces are favorable. Thus the cellular phone industry is not particularly attractive at this time.
Threat of substitute
products

12. Performing the 5-forces analysis
Assess each force by asking “Is it sufficiently strong to reduce/eliminate industry profits?”
Internal rivalry
-begin by defining market
-price competition drives down prices
-non price competition drives up costs
-industry prices do not fall by themselves, so you ask “Who will reduce it and why?”