1. New Venture Creation and an Industry Structures
&
Competitor Analysis
Diane M. Sullivan (2011)

2. Industry Structures
An industry’s structure indicates the stage of an industry its life cycle
Suggests types of firms that will likely be successful in the industry
Helps us determine if the window of opportunity is open for new entrants
Suggests strategic moves that new entrants or existing firms can take to capitalize on opportunities created as a result of industry characteristics
5 general structures an industry can take (these are not mutually exclusive):
Emerging
Fragmented
Mature
Declining
Global

3. Industry Structures: Emerging
Indicated by: Newly created or re-created industries
Primary causes: technological innovations, changes in demand, the emergence of new customer needs, etc.
Examples: microprocessors, digital music, cell phones, biotechnology
Entrepreneurial opportunities present in emerging industries:
Gain a first-mover advantages via:
Technology leadership: can create the technology standard (e.g., Microsoft), gain low-cost position due to economies of scale (Wal-Mart), obtain patent protection
Caution: second-mover advantages may occur where imitators can duplicate the first movers’ patents—research shows imitators can do this for 65% of the cost of the first-mover
Strategically valuable assets (e.g., required resources to compete in industry): access to raw materials (e.g., mining industries), favorable geographic locations (Wal-Mart in medium-sized cities before competition), valuable product market positions (breakfast manufacturers; luxury vehicles)
Create customer switching costs: create a cost for customers to change to another firm’s offerings (e.g., software, pharmaceuticals, even some grocery stores)

4. Industry Structures: Fragmented
Indicated by:
A large number of small to SME firms in the industry
No one has dominant market share
No one creates a dominant technology
Primary causes: few barriers to entry, no economies of scale, may need close local control over enterprises to ensure quality
Examples: service industries like retailing, commercial printing, dry cleaning, local movie houses
Entrepreneurial opportunities present in fragmented industries:
Consolidation: firms can consolidate (e.g., purchase firms) the industry to move create a smaller number of larger firms
Examples:
Blockbuster consolidated the video rental industry
Service Corporation International (SCI) in the funeral industry (found new economies of scale)
Midas has consolidated muffler repair shops

5. Industry Structures: Mature
Indicated by:
Slowing industry growth
Development of repeat customers
Slowing of production capacity
Slowdown in new product/service introductions
Increased international competition
Overall reduction in profitability of firms in industry
Primary causes: technology diffusion, reduction in innovation rate
Examples: fast food; motor oil, large discount retailers; laundry detergents, kitchen appliances
Entrepreneurial opportunities present in mature industries:
Product refinement: focus on extending/improving current products and technologies (e.g., additives to motor oil, more concentrated laundry detergents; front-loading washing machines; Silk Soymilk)
Investment in service quality: increase customer service quality (e.g., restaurant industry and the casual dining segment—Applebee's; Chili's—versus fast-food service)
Process Innovations: activities used to design, product and sell products/services (e.g., US automobile industry; Dell and supply-chain management in PC industry)

6. Industry Structures: Declining
Indicated by: An industry that has experienced an absolute decline in unit sales over a sustained period of time.
Example: Traditional video rental industry
Entrepreneurial opportunities present in declining industries:
Market Leadership: wait out shakeout period; facilitate shakeout by purchasing competitors’ product lines, then try to gain majority of market share
Market Niche: reduce scope of operations and focus on narrow segments in industry (e.g., Polaroid with instant photography)
Cost Reduction: reduce operating costs to remain competitive
Harvest or Divestment: withdrawal from industry after industry decline pattern is established so no additional costs incurred (e.g., can sell product lines to competitors)

7. Industry Structures: Global
Indicated by: industry experiencing significant international sales
Examples: athletic shoes; internet auctions; fast food
Entrepreneurial opportunities present in global industries:
Pursue Multidomestic Strategy: customize product/service offerings per each market’s specific needs/wants (fast food; eBay)
Pursue Global Strategy: approach each market with the same offerings (e.g., Nike)
Determine which strategy appropriate by similarity of consumers’ tastes across markets

8. Industry Structures: Assignment Requirements
Due for Checkpoint #4
Due Thur., April 7th for Teams #3and #4
Due Tues, April 12th for Teams #1 and #2
Determine the structure of the industry within which your firm will compete
Provide evidence to support your conclusions
Discuss if your firm capitalizes on opportunities present in that industry
Describe if your firm capitalizes on the opportunities that are presented as a consequence of the structure of the industry
If you do not, discuss if can you modify your approach to launching the venture so you can more likely capitalize on the opportunity(ies) presented?
If the venture cannot be modified, discuss if it is not timely to enter this market?

9. Competitor Analysis
Involves a detailed analysis of a firm’s competition and is conducted to
Understand the positions of major competitors
Understand opportunities for a competitive advantage
Identify trouble-spots for the new venture
3 Main Steps:
Identify competitors
Collect competitive intelligence
Complete and interpret a Competitive Analysis Grid (CAG)

10. Step 1: Identifying Competitors
Determine who the competition is
Requires understanding what “business” your are in (e.g., problems/needs your business fulfills for customers)
Example 1: flowers is in the flower and gift business
Question: What business is eBay in?
Types of Competitors:
Direct Competitors: firms that offer identical offerings
Indirect Competitors: firms that offer substitutes
Future Competitors: firms positioned to enter the industry

11. Step 2: Competitive Intelligence
Competitive intelligence (CI) is information gathered about competitors
Sources of CI must be reliable
Annual reports for publically traded companies on company websites and on the SEC website (
Conferences
Industry-related books
Customers information
Purchasing competitors offerings
Competitors’ websites

12. Step 3: Competitive Analysis Grid (CAG)
Firm Name
Key Success Factors
Pitchmeasure
(new venture under study)
Nike
Adidas
Rawlings
Baseball Technological Sophistication
Technologically Advanced Baseball
N/A
Quality Baseballs
Brand-name
Recognition
Not Existent
High
Compatibility of
Products with
Popular Technology Platforms
Compatible with Laptops, PDA’s, PCs
Nature/Efficiency of Logistical Distribution
FedEx will Distribute
Products
Efficient Global
Distribution
Number of Distribution Channels Accessed
Few
All
Most
Quality of
Price
Varies
Low
Marketing Support
Low Marketing Budget
Highly Funded
Marketing Efforts
Moderately Funded
Customer Service
Moderate/High
N/A = that company does not offer/address this component.
Green cells = areas where Pitchmeasure has an advantage—could be a source of a competitive advantage.
Red cells = areas where Pitchmeasure has a disadvantage.
Cells not highlighted = areas where Pitchmeasure at a competitive parity.

13. Competitor Analysis: Assignment Requirements
Due for Checkpoint #4
Due Thur., April 7th for Teams #3and #4
Due Tues, April 12th for Teams #1 and #2
Identify and discuss the main direct and indirect competitors for your firm
Describe their main characteristics (e.g., size, offerings, position in the industry, market share, notable characteristics, etc.)
Construct a CAG to assess your firm relative to competitors
Discuss firm attributes that are especially favorable
Discuss the implications of this
Discuss firm attributes that are particularly problematic