1. ANALYZING THE INDUSTRY AND MARKET
CHAPTER Six

2. Some Definitions Industry:
A group of companies with common interests along the value chain, such as manufactures, suppliers, distributors, retailers.
Is the environment in which the business operates – its context
Market: A grouping of customers that the entrepreneur targets
Primary Customer: The most likely customer to purchase the product or service.

3. The Industry Life Cycle
Birth
Growth and adaptation
Differentiation and competition
Shakeout
Maturity and decline

4. Figure 5.1: Industry Growth Cycle
Inset Semiconductor industry on next slide

5. Changes in the Placement of the Window of Opportunity
Need graphic

6. Microcomputer Industry: Cumulative Number of Startup Companies and Industry Shipments

7. Frameworks for Understanding Industries
Starbuck Framework – Uncertainty, Complexity, Density
Law’s and Postulates - Moore’s Law; Peter Drucker’s Postulate; Gilder's Law
STEP analysis
Strategic Management perspective
Macro environment
Industry: Porter’s Five Forces
Competitive environment

8. STEP Analysis

9. Strategic Management Perspective of External Environment: Macro, Industry, Competitive10

10. Components of the Macro Environment
Demographic Segment
¨       Population size
¨       Age structure
¨       Geographic distribution
¨       Ethnic mix
¨       Income distribution
Economic Segment
¨       Inflation rates
¨       Interest rates
¨       Trade deficits or surpluses
¨       Budget deficits or surpluses
¨       Personal savings rate
¨       Business savings rates
¨       Gross domestic product
Political/Legal Segment
¨       Antitrust laws
¨       Taxation laws
¨       Deregulation philosophies
¨       Labor training laws
¨       Educational philosophies and policies
Sociocultural Segment
¨       Women in the workforce
¨       Workforce diversity
¨       Attitudes about work life quality
¨       Concerns about the environment
¨       Shifts in work and career preferences
¨       Shifts in preferences regarding product and service characteristics
Technological Segment
¨       Product innovations
¨       Applications of knowledge
¨       Focus of private and government-supported R&D expenditures
¨       New communication technologies
Global Segment
¨       Important political events
¨       Critical global markets
¨       Newly industrialized countries
¨       Different cultural and institutional attributes 10

11. Porter’s Five Forces Model Industry Analysis
Classifying industry structure so that a strategy for entry and sustained growth can be developed
Barriers to entry
Threat from substitute products
Threat from buyers’ bargaining power
Threat from suppliers’ bargaining power
Rivalry among existing firms

12. Porter’s Five Forces Model (continued)
Barriers to entry:
Economies of scale
Brand loyalty
Capital requirements
Switching costs for the buyer
Access to distribution channels
Proprietary factors
Government regulations
Industry hostility

13. Porter’s Five Forces Model (continued)
Threats:
Threats from substitute products: Products/services which accomplish the same function in a different way or at a different price.
Threats from buyers’ bargaining power: The more large buyers understand the nature of the industry and the more products are standardized, the greater the likelihood that these buyers will have significant bargaining power.

14. Porter’s Five Forces Model (continued)
Threat’s (continued)
Threats from suppliers’ bargaining power: If the number of these suppliers is few relative to the size of the industry or the industry is not the primary customer of the suppliers, the suppliers’ potential power to raise prices or change the product quality of goods/services supplied to manufactures and distributors is greater.

15. Porter’s Five Forces Model (continued)
Rivalry among existing firms
In general, a highly competitive industry will drive down profits and ultimately the rate of return on investment.
Determinants of cut-throat competition
Slow industry growth
Lack of Switching costs
High fixed costs
High storage costs
Numerous or equally balanced competitors

16. Characterizing the Target Market
Key questions to answer:
Who is most likely to purchase the product or service at market introduction?
What do these customers typically buy, how do they buy it, and how do they hear about it?
How often do they buy? What is their buying pattern?
How can the new venture meet customers’ needs?

17. Characterizing the Target Market (ctd)
Steps in Market Research:
Assess your information needs
Research secondary sources first
Measure the target market with primary research
Forecast demand for the product/service

18. Conducting Industry Analysis (ctd.)
Primary data sources:
Industry observers
Suppliers and distributors
Customers
Employees of key firms in the industry
Professionals from service organizations
Trade shows

19. Characterizing the Target Market (cntd)
Primary research techniques
Mail and phone surveys
Interviews
Focus groups
The Internet
Immediate-response surveys

20. Gathering Competitive Intelligence
Elements of Competitive Intelligence analysis:
Identify the competition
Find information about competitors
Look for the less obvious
Employ a niche strategy to compete

21. Forecasting New Product/Service Demand
Elements of forecasting:
Use historical analogy or substitute products
Interview prospective end-users and intermediaries
Go into limited production
Do a formal test market

22. STOP

23. Semiconductor Industry: Cumulative Number of Venture Capital Investments and Industry Shipments

24. Conducting Industry Analysis
SECONDARY SOURCES and questions to address:
Is the industry growing?
Where are the opportunities?
What is the status of any new technology?
How much does the industry spend on research and development?
Who are the major competitors?
Are there young, successful firms in the industry?
What does the future look like?
Are there any threats to the industry?
What are the typical margins in the industry?