Session Industry Scanning.

Session Industry Scanning

Session Outline Macro-Environment Industry situation SWOT analysis
Total market Intermediaries Competition

This Session Weekly Activity: Sample Marketing Plans
There are a number of websites that offer sample Marketing Plans: Go to: and browse the range Consider the information provided in the plan Your own plan should be at least as comprehensive Note: Researching the additional information is part of the learning process in becoming intimately familiar with your business.

Environmental Scanning
Can be broken down into four significant areas: General business (Strategic Analysis) (Mega-Environment) – eg. Country Scan Industry business (Industry Analysis) (Macro-Environment) – eg. Industry Scan Local business (Local Area Market Analysis) (Micro-Environment) – eg. Market/Competition Scan Internal business (Operational Review) (if applicable) – eg. Organisational Analysis

Environmental Scanning
Remote Environment (Global and Domestic) Economic Social Political Technological Ecological Industry Environment (Global and Domestic) Entry barriers Supplier power Buyer power Substitute availability Competitive rivalry Operating Environment (Global and Domestic) Competitors Labor Suppliers Customers Creditors THE FIRM

STEEP Analysis These are Trends, Patterns, Influences and Events that shapes the environment which the industry that the organisation operates in, is a part of. It is often referred to as a STEEP analysis. Socio-cultural Technological Economic Ecological (Climatic/Natural) Political/Legal.

Mega-Environment Conclusions
What conclusions and assumptions can be drawn from the Strategic Analysis? How will these conclusions and assumptions impact on the general business environment that affects society and the nation as a whole?

Industry Business Scan
This phase assists in seeing the “big picture” of the industry Analysis of the current industry situation where are we now and what are the likely developments in the industry. Provides better understanding of how the industry functions how the industry players interact and how the organisation fits into the picture.

Analysis Purpose The purpose is to understand the industry in which the business operates in and needs to consider both supply and demand conditions. Factors likely to affect supply conditions include: Nature and extent of competition Availability and terms of stock and raw materials Business resources required Barriers to enter industry Factors that will affect demand conditions include: Level of economic activity Buyer characteristics and behaviour for industry Demand patterns in the industry

Topic Explanation Video
The following video explains industry analysis and how it also relates to market analysis. Take note of the key points.

Industry Practices Distribution, pricing, promotion, methods of selling, service/field support, R&D, legal tactics FMCG - reliance on carrying & forwarding agent (C&A) - Industry practice Textiles - Wholesalers - Semi wholesalers - retailers + retail showrooms (few players)

Industry Performance Over Time
Potential value of industry analysis seen by assessing the performance of different industries over time S&P’s monthly stock price index over a long tome period shows industries perform differently over time Stock performance affected by industry Industries in decline should be avoided

Industry Performance Over Time
Consistency of industry performance Maintaining positions in growth industries leads to better returns than otherwise Can industry performance be predicted reliably on the basis past success? Rankings inconsistent over time Industries with recent poor performance should not be ignored

Qualitative Aspects Historical Performance
Historical record of sales and earnings growth and price performance should be considered Although past cannot be simply extrapolated into the future, does provide context Competitive conditions in industry Competition determines an industry’s ability to sustain above-average returns

Emerging Trends Product life cycle, rate of growth, changes in buyer needs, innovations in products/ processes, entry & exit of firms, changes in regulatory environment governing the industry

Forecasting Industry Trends
Likely direction of interest rates and which industries most affected by a significant rate change should be considered Industries most affected by possible political events, new technology, inflation should also be considered

Industry Trends Marketing intelligence
Monitor industry trends and, new developments. Study population growth trends. Review of government publications, industry periodicals, news releases. Attend exporting conferences and exhibitions.

Industry Assumptions What assumptions can be drawn from the Industry Analysis? How will these assumptions affect the organisation and what opportunities does it offer the business?

Industry Situation Size and Nature of the Industry
Competitive Analysis Industry rivalry Entry Barriers Market Research (existing) Industry Assumptions and Opportunities

Size and Nature of the Industry
Describe the industry as it is currently. Describe how it has developed and how it is expected to develop over the life of the plan. Describe how the industry is segmented and the rivalry between segments. Provide information on the size of the industry, both in unit volume and dollar volume. Describe the main players in the industry - competitors and suppliers.

Size and Nature of the Industry
Describe what the outlook for the industry is, both short term and long term. Describe the market growth potential. Describe any technological advances in the industry that are likely to occur. Explain what "the barriers to entry" are for new players entering the industry.

Industry Boundaries Helps executives determine arena in which their firm competes Focuses attention on firm’s competitors Helps executives determine key factors for success Gives executives another basis on which to evaluate their firm’s goals

Industry Boundaries Evolution of industries over time creates new opportunities and threats Industry evolution creates industries within industries Industries are becoming global in scope

Industry Issues What part of the industry corresponds to our firm’s goals? What are the key ingredients of success in that part of the industry? Does our firm have the skills needed to compete in that part of the industry? Will the skills enable us to seize emerging opportunities and deal with future threats? Is our definition of the industry flexible enough to allow necessary adjustments to our business concept as the industry grows?

Analyzing Industries By stage in their life cycle Pioneering stage
Helps determine the health and future prospects of the industry Pioneering stage Rapid growth in demand Opportunities may attract other firms and venture capitalists Difficult identify likely survivors

Industry Life Cycles Stage 1 Stage 2 Stage 3 Stage 4
Start-up Consolidation Maturity Decline Beginning Rapid Stabilization and Deceleration Development Growth Market Maturity of Growth

Analyzing Industries Expansion stage
Survivors from the pioneering stage are identifiable Firm operations more stable, dependable Considerable investment funds attracted Financial policies firmly established Dividends often become payable Attractive to a wide group of investors

Analyzing Industries Stabilization or maturity stage
Growth begins to moderate Marketplace is full of competitors Costs are stable rather than decreasing Limitations of life cycle approach A generalization that may not always apply Tends to focus on sales, market share, and investment in the industry

Analyzing Industries Governmental effects
Regulations and policies have significant effects on industries Structural changes in how economy creates wealth Western economies continue to move from an industrial to an information/communication society Structural shifts can occur even within relatively new industries

Future Industry Prospects
To forecast long-term industry performance you should ask: Which industries are obvious candidates for growth and prosperity? Which industries appear likely to have difficulties as the country’s economy changes, ie from industrial to an information-based economy?

Waste Recycling?

Business Cycle Analysis
Analysis of industries by their operating ability in relation to the economy as a whole Some industries move closely with the business cycle, others not Growth industries Earnings expected to be significantly above the average of all industries Growth stocks suffer less during a recession

Defensive industries Least affected by recessions and economic adversity Cyclical industries Most affected by recessions and economic adversity “Bought to be sold” Counter-cyclical industries exist as well

Interest-sensitive industries Particularly sensitive to expectations about changes in interest rates Carefully analysis of business cycle and likely movements in interest rates help make better buy/sell decisions Industry knowledge is valuable in selecting or avoiding industries

What is an Industry? Are industry classifications clear-cut?
Industries cannot be casually identified and classified Diversified lines of business cause classification problems Industries continue to become more mixed in their activities and less identifiable with on product or service

Competing in the Global Market
Global competition impacts: industry structure degree of competition firm’s national origin and the competitive advantage of nations Competitive position costs, market share, price quality, accumulated experience Competitive forces - Five Forces Analysis

Fragmented Industries
‘Populated by a large number of Small Medium Enterprises’ Porter ‘Absence of market leaders with the power to influence events.’ Where: low barriers to entry transport costs are high local image important etc.

Fragmented Industries
A fragmented industry may become consolidated with: technological change standard product preferred over customised one large publishing companies with small ‘imprints’ Consolidate naturally with age Without consolidation a firm can specialise and grow by: offering a standard product or service dealing with particular customers Concentrating on a particular area

Concentrated Industries
Dominated by a small number of large firms, exercising significant influence over the market How does this happen? Cheap to produce in bulk Significant resources to stay in business High barriers to entry etc.

Always a main market leader influences the way business is done strong relationship with sources of supply control over distribution networks

Emerging Industries New or reformed industry
e.g electronic publishing and interactive TV - FT, New York times, Digital TV. e.g Waste recycling - BMW, Winchester City Council e.g Internet browsers - Netscape Navigator e.g Road pricing systems - Toll systems for bridges and motorway

Emerging Industries Problems
lack of faith in technology innovative product where customer needs are as yet unknown high initial start up costs potential customers need to be kept informed of developments early barriers to entry e.g raw materials competition for components customer confusion Obsolescence Erratic quality Scepticism from bankers and investors

The following video discusses the different competitive structures or as they are sometimes called market structures. Take note of the key points.

Competition Structure Objectives
To understand how industry structure drives competition, which determines the level of industry profitability. To assess industry attractiveness To use evidence on changes in industry structure to forecast future profitability To formulate strategies to change industry structure to improve industry profitability To identify Key Success Factors 18 2

Competition Structures
How an organisation markets themselves is influenced by four types of competitive structures. Pure competition. Monopolistic Competition. Oligopoly. Monopoly.

Pure competition A market structure where a large number of sellers sell an undifferentiated product. Pure competition is rarely, if ever, attained in the real world. It is a theoretical concept. An ideal. eg: some agricultural products (fruits, etc)

Monopolistic Competition
Marketers attempt to gain differential advantage over its competitors. Marketer aims to get the buyer to perceive an attractive difference in their offerings. Marketers have more control over products and price due to perceived differences.

Oligopoly A market structure in which only a few large sellers, marketing essentially similar products, account for almost all of an industry’s sales. eg air travel, beer, cigarettes.

Monopoly A market structure where there is only one supplier of a product, for which there no close substitutes. eg: CSR (sugar refining), electricity and gas suppliers (usually government owned). monopolies are becoming rare in Australia (eg: even Telstra now has competition). sometimes patent protection can provide firms with something close to a monopoly.

Industry Structure Spectrum
Perfect Competition Oligopoly Duopoly Monopoly Concentration Many firms A few firms Two firms One firm Entry and Exit Barriers No barriers Significant barriers High barriers Product Differentiation Homogeneous Product Potential for product differentiation Information Perfect Information flow Imperfect availability of information 2 6

Industry Analysis Questions
1. What are the industry dominant economic traits? 2. What competitive forces are at work in the industry and how strong are they? 3. What are the forces of change in the industry and what impact will they have? 4. Which companies are in the strongest/weakest competitive position? 5. Who’s likely to make what competitive moves next? 6. What key factors will determine success or failure? 7. How attractive is the industry in terms of its prospects for above average profitability?

Q1. Dominant Economic Traits?
Market size (Small markets don’t attract big fish) Scope of competitive rivalry Market/industry growth rate (life cycle) Fast growth breeds new entry; slowdowns lead to increased competition. Number of rivals and their size Number of buyers and their size Level of backward and forward integration Technological change (rate and scope) Level of differentiation between firms’ products Opportunities for economies of scale Ease of entry and exit Capital requirements

Q1. Dominant Economic Traits?
Product Differentiation Potential for economies of scale Learning effects Entry / exit costs Technological change Market Size Scope Growth rate Growth cycle # & size of competitors Distribution channels Structure Forward Integration Backward Integration

Q2. Competitive Forces Porter’s Five Forces. Forces influencing industry and competitive advantage: Competitive Intensity (Rivalry Among Sellers) Barriers to Entry (Potential for New Entrants) Bargaining Power of Suppliers Bargaining Power of Customers Threat of Substitute Products

Q3. Forces of Change? Common Driving Forces
Changes in long term industry growth rate Changes in who buy the products and for what reason Product innovation Technological change Marketing innovation Increasing globalization Regulatory changes Changing societal concerns, attitudes and lifestyles The most dominant forces the cause the industry to change are called driving forces Task 1 - identify the driving forces Task 2 - assessing their impact on the industry (few are important, generally) Environmental scanning

Q4. Competitive Positions?
Using the strategic group mapping: two dimensional representation according to the competitive characteristics of the competitors in the industry: Axes should not be correlated Size of circles proportional to combined sales The closer the circles, the stronger the rivalry See and for more information. Competitive characteristics Product line/merchandise mix

Q5. Likely Competitive Moves?
Identify competitors strategies Evaluate who are the major players-- now Who will be the major players Evaluate what the major players are going to do In order to outmaneuver your competition you have to evaluate the competitors’ future moves.

Q6. Key Success Factors? Key success factors (KSF) are crucial elements that lead to success. What are they now? What will they be? In beer production KSF can be brewing skills In retail apparel KSF can be low cost, superior service, superior design In your industry, KSF=????

Q7. Profitability Attractiveness?
Growth potential Driving forces Entry/exit Stability of demand Competitive forces Risk and uncertainty Competition and its impact on the industry’s future

The following video is an interview with Dr Michael Porter about his 5 Forces Model. Take note of the key points.

Porter’s 5 Forces Model Potential entrants Threat of entrants
Suppliers COMPETITIVE RIVALRY Buyers Bargaining power Bargaining power Threat of substitutes Substitutes Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1980, p. 4. Copyright by The Free Press, a division of Macmillan Publishing Co., Inc. Reproduced with permission.

Porter’s Five Forces Model
Business-level: Porter’s competitive strategy This material relates to on pp and corresponds to Figure 8-6 on p. 294. Porter’s Five Forces Model New entrants Buyers Porter’s competitive strategy framework Some of the most forward thinking on strategic planning comes from Michael Porter at Harvards Graduate School of Business. Porter believes that management can create and sustain a competitive advantage. To do that they need to select the right strategy. Before selecting the strategy management must analyse the industry and to do this the need to consider 5 competitive forces which impact on competition. These 5 forces determine industry profitability because they can directly influence prices charged, cost structure and investment requirements. Managers need to assess the industry attractiveness by evaluating it using these 5 forces. Industry analysis Porter observes that some industries are inherently more profitable than others. But for all industries, five forces dictate how companies compete: 1. Barriers to entry. The ease with which competitors can enter the industry. 2. Threats of substitution. The ease with which buyers can choose competitor’s products. 3. Bargaining power of buyers. Buyer power affects profitability and the range of competitive action available. 4. Bargaining power of suppliers. Factors include the degree of buyer concentration and the availability of substitutes. 5. Rivalry among existing competitors. Industry growth and product differences are key factors in determining rivalry. Barriers to entry Industry competitors Bargaining power Intensity of rivalry Bargaining power Threat of substitutes Substitutes Suppliers

Threat of Substitutes Extent of competitive pressure from producers of
substitutes depends upon: Buyers’ propensity to substitute The price-performance characteristics of substitutes. 8

The Threat to Entry Entrants’ threat to industry profitability depends upon the height of barriers to entry. The principal sources of barriers to entry are: Capital requirements Economies of scale Absolute cost advantage Product differentiation Access to channels of distribution Legal and regulatory barriers Retaliation 9

Buyer’s Bargaining Power
Buyer’s price sensitivity Relative bargaining power Cost of purchases as % of buyer’s total costs. How differentiated is the purchased item? How intense is competition between buyers? How important is the item to quality of the buyers’ own output? Size and concentration of buyers relative to sellers. Buyer’s information . Ability to backward integrate. Note: analysis of supplier power is symmetric 12

Competitive Rivalry The extent to which industry profitability is depressed by aggressive price competition depends upon: Concentration (number and size distribution of firms) Diversity of competitors (differences in goals, cost structure, etc.) Product differentiation Excess capacity and exit barriers Cost conditions Extent of scale economies Ratio of fixed to variable costs 10

Competitive Rivalry Entry is likely Substitutes threaten
Buyers or suppliers exercise control Competitors are in balance There is slow market growth Global customers increase competition There are high fixed costs in an industry Markets are undifferentiated There are high exit barriers

What is a SWOT Analysis? A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

SWOT Analysis Framework
The SWOT Framework SWOT Analysis Framework Environmental Scan / \ Internal Analysis External Analysis / \ / \ Strengths Weaknesses Opportunities Threats SWOT Matrix

SWOT analysis and SWOT matrix
Competitive Analysis Who are my competitors? How do I analyze them? SWOT Porter’s Five Forces Strategic Group Maps PEST analysis SWOT analysis and SWOT matrix Strengths Weaknesses Opportunities Strength-Opportunity strategies Weakness-Opportunity strategies Threats Strength-Threat strategies Weakness-Threat strategies A SWOT analysis helps you match your company’s resources and capabilities to threats and opportunities in the competitive environment. SWOT analysis can be very subjective, but adding weighting and criteria to each factor increases the validity of the analysis. Also completing the SWOT matrix can help you pick the best strategy to implement. "The Corporate Learning Factbook: Benchmarks and Analysis of U.S. Corporate Learning and Development."The value of the U.S. corporate training market is estimated to be approximately $46.6B. Source: Bowker (book publishing research company) Source International Coach Federation, the field's professional association membership has grown from 2,000 to 10,800 coaches with credentials working in 80 countries National Association of Speakers Source: Nielsen NetRatings, November 2006 ASAE: American Society of Association Executives, 2004 On 21 March 2006 the Berin & Associates announced the Source: 50 million online, MRI Spring 2006 Search Results for: business speakers SOURCES:

Topic Example Video The following video explains the SWOT – TOWS matrix and the differences between the two concepts. Take note of the key points.

Definition Definition of strength: Definition of weakness:
Capability, ability or activity that the organisation does well which could be used to improve its competitive position as well as performance or a resource it controls. Definition of weakness: Exists in any capacity as well as activities that the organisation does not do well that may cause it to have a weaker competitive position or poorer financial performance or resources it needs but does not possess.

Definition Definition of opportunity: Definition of threat:
Opportunities are positive external environmental factors that an organisation can exploit. Definition of threat: Threats are negative external environmental factors to be faced by the organisation.

SWOT: external factors
Opportunities External attractive factors that represent the reason for an organization to exist and develop. What opportunities exist in the environment which will propel the organization? Identify them by their “time frames” Threats External factors, beyond an organization’s control, which could place the organization’s mission or operation at risk. The organization may benefit by having contingency plans to address them should they occur Classify them by their “seriousness” and “probability of occurrence”

Analysis Overview Opportunities:
Where organisation stands to gain market share Where to reconsider organisational priorities Threats: Where to refocus organisational efforts defensively Where to defend from loss of market share

Definition Definition of problems: Definition of vulnerabilities:
Problems are those minor weaknesses that the organisation can address in the short-term, such as obtaining needed resources. Definition of vulnerabilities: Vulnerabilities are those minor threats that the organisation has the resources and capability to control or minimise the impact of in the short-term, such as stockpiling of scarce resources.

Industry Analysis Opportunities, Vulnerabilities and Threats that relate to the industry that the organization operates in: Industry situation Industry composition Industry intermediaries (suppliers/agents) Substitute products Competition Type analysis (Industry players) Industry Assumptions & Opportunities

SWOT / TOWS Matrix S-O strategies pursue opportunities that fit well the company's strengths. W-O strategies overcome weaknesses to pursue opportunities. S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. W-T strategies make a defensive plan to prevent the firm's weaknesses from making it susceptible to external threats.

The SWOT matrix STRENGTHS 1. 2. 3. WEAKNESSES OPPORTUNITIES
(SO) Strategies Use strengths to take advantage of opportunities 1. 2. (WO) Strategies overcome weaknesses by taking advantage of opportunities THREATS (ST) Strategies Use strengths to avoid threats (WT) Strategies Minimize weaknesses and avoid threats

SWOT Interactions

Opportunity Gaps Organisation’s Opportunities Opportunities in
the Environment Organisation’s Resources/Abilities

SWOT Diagnosis Conducting a SWOT diagnosis means to assess the significance of the identified opportunity, influence or threat factors as to it’s level of impact on the organisation Each factor is rated on a) its degree of significance and b) its probability of occurrence.

SWOT Factor Rating

Opportunity Significance Occurrence Probability
Opportunity Matrix Pursue Review Ignore Monitor High Low Opportunity Significance Occurrence Probability

Market Research – T.O.C. 2. Market Research & Analysis
2.2 Current State of Industry 2.3 Market Size and Trends 2.4 Competitor SWOT Analysis 2.5 Customers 2.6 Competition & Competitive Advantage 2.7 Marketing Intelligence

Industry Analysis Industry Analysis
This looks at how the industry operates, current state and future forecasts. Such knowledge is important to identify future potential opportunities and threats Description This is an explanation of the industry group your proposed business would be a part of. For industry groups, consider ABS ANZSIC classifications Conditions (current state) This focuses on the current state of health of the identified industry group comparing where it is now in relation to past performance.

Industry Analysis Trends (growth areas)
This section highlights the future prospects for the industry group as a whole. In other words, forecasting where the industry improvements will be given the extent and impact of change onto the industry Size This should include information on revenue/profits, number of operators, people employed, etc for the industry group. Specific ABS reports can provide this information, eg. ABS - Mining Industry /1995.

Industry Analysis Dominant Operators
This section states the significant or major players in the industry and is often determined through a combination of industry experience, knowledge (industry association resources) and directory information (Yellow Pages listings) Future (opportunities/threats) This section considers the trend information in terms of growth potential and future viability of the industry. Specific innovations, improvements or changes may create the catalyst for potential opportunities or risk threats to your business.

Next Session Weekly Activity: ANZSIC Codes
Visit the Australian Bureau of Statistics website ( and find out what are the 2 digit codes for each of the industry group categories Also determine what are the additional digit codes for the particular industry Using your business idea, match this with an industry code Locate an ABS publication that lists these codes for you If you have problems try searching under Catalogue number Report on your research (Word Count: 200 – 300).

Session Industry Scanning.

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