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INDUSTRY EVOLUTION

Sushil Khanna
Dec. 2016
INDUSTRY EVOLUTION

 Industry Structures Undergo Change,


Affecting the Competitive Forces
 Understanding and Forecasting Changes in
Structures Critical to Strategist
 Cost of Strategic Response Increase As Need for
Change Becomes Obvious
 Benefit From the Best Strategy Highest for the
First Firm to Select It (First Mover Advantage)
EVOLUTION : KEY
QUESTIONS
 Will The Industry Changes Affect The Five
Competitive Forces?
 Does The Trend Imply An
Increase/Decrease In Mobility/Entry
Barriers?
 Can We Identify A Strategy That Can
Build An These Trends?
PRODUCT LIFE CYCLE
THEORY
 Introduction Phase (Overcoming Buyer
Inertia)
 Growth Phase (Buyers Rush in Once
Product Successful)
 Maturity Phase (Penetration High,
Growth Declines)
 Decline Phase (Decline in Sales As
Substitute/new Products Appear)
•Decline
•Maturity

•Growth Ph

•Intro Phase
INTRO GROWTH MATURITY DECLINE

BUYERS *High Income *Changing Buyer *Mass Market *Sophisticated


*Buyer Inertia Group *Saturation Buyers
*To be convinced *Accepts Uneven *Choosing Amongst
Quality Brands

PRODUCTS *Poor Quality *Tech & Performance *Superior Quality * Little Product
*No Standards Differences *Standardization Differences
*Design & *Good Quality *Less Product
Development Key *Improvements Differences
Activity

MARKETIN *High Advtzg/Sales *Lower Advtzg/Sales *Market Segmntn * Low


G *Cream Price Strat Response Extend Life Cycle Advtzg/Sales
*High Mrktg. Costs *Advtzg./Distributn. Service/Packaging Key
Key in Non-Tech Activity
Products
INTRO GROWTH MATURITY DELCLINE

MANUFCTG. & * Overcapacity * Under-capacity * Some Overcapacity * Substl.


DESTBTN. * Short Production *Mass Production * Process Stable Overcapacity
Runs * Distribution * Lower Skills * Mass Prodn
* High Prodn Costs Scramble * High Distribution Costs * Special
* High Skill Due to Broad lines Channels
Required

COMPETITION * Few Firms * Entry: Many Firms * Price Competition * Exits


* Mergers & *Shakeouts * Fewer Firms
Causalities * Increase in Pvt. Brands

STRATEGY * Time to Increase * Change P/Q * Bad Time to Increase * Key : Cost
Market Share Relation share/cap Control
* R&D : Or Quality Image * Bad Time Change P/Q
Engineering * Marketing Key * Competitive Costs &
Key Activity Marketing - Key
CRITIQUE OF PLC. THEORY

 Duration Of The Stages Varies From Industry To


Industry -- Makes Plc Useless For Planning
 Industry Growth Not Always S - Shaped.
Sometimes Industry Moves From Growth To
Decline Or Growth Picks Up After Decline.
 (E.G., Car In India, Motorcycle/bicycle In West)
 Firms Affect The Shape Of Growth Curve Through
Product Innovation & Repositioning
CRITIQUE OF PLC. THEORY

 Nature Of Competition Varies (At Each


Stage) With Economic & Structural
Characteristics Of Industries
 (Concentration Or Fragmentation Does Not
Change)
 PLC Emphasizes One Pattern Of Evolution
That Must Invariably Occur
FORECASTING EVOLUTION

 INDUSTRIES CHANGE BECAUSE


INDUSTRY SPECIFIC FORCES CREATE
INCENTIVES OR PRESSURES FOR
CHANGE

 Initial Str-----------------------Potential Str.


INITIAL INDUSTRIAL
STRUCTURE
 Shaped By :
 Underlying Economic/ & Technological
Characteristics
 Small Size Of Market
 Skill Availability
 Resources Of Entrants
 With Time These Undergo Change
INDUSTRY EVOLUTION

 Shaped By:
 Investment Decisions
 Pressures and incentives -- to take
advantage of new possibilities with
changing technology, market, etc.
 Shift in Entry Barriers
 Despite Potential For Structural
Change Industry May Not Change, As
No Firm Discovers A Strategy To Push
Industry Towards A New Structure.
EVOLUTIONARY PROCESSES
 EVOLUTION SHAPED BY RELATIVE
STRENGTH OF FOLL. PROCESSES:
 1.LONG RUN CHANGES IN GROWTH
 DEMOGRAPHIC FACTORS
 (AGE STRUCTURE, INCOMES, EDUCATION,
GEOGRAPHICAL LOCATION)
 TRENDS IN NEEDS
 (LIFESTYLES, TASTES, URBANISATION,
SOCIAL CONDITIONS, CRIME)
 CHANGES IN RELATIVE POSITION OF
SUBSTITUTES
LONG RUN CHANGES

 CHANGES IN POSITION OF
COMPLEMENTARY PRODUCTS
 EFFECTIVE COST SHAPED BY QUALITY &
AVAILABILITY OF COMPLEMNRY
PRODUCTS E.g. MUSIC TAPES/DISCS,
COMPACT DISC, DATABASE, STEREO FOR
CARS).
 PENETRATION OF CUSTOMER GROUP
 i) HIGH GROWTH DUE TO NEW
CUSTOMERS TILL COMPLETE
PENETRATION; THEN DROP
 ii) PRODUCT & MARKETING CHANGES CAN
SOMETIMES RE-NEW EXPANSION)
LONG RUN CHANGES
 CHANGES IN THE BUYER SEGMENT
SERVED
 LEARNING BY BUYERS
 REDUCTION OF UNCERTAINTY
 UNCERTAINTY ABOUT MARKET SIZE,
PRODUCT CONFIGURATION, STANDARDS,
NATURE OF BUYERS AND CHANNELS etc.
LEADS TO DIFFERENT STRATEGIES.
 b. OVER TIME, WITH MORE INFO,
SOME STRATEGIES WIN OUT & ARE
IMITATED. OTHERS ABANDONED
EVOLUTIONARY
PROCESSES
 DIFFUSION OF PROPRIETARY
KNOWLEDGE
 EXPANSION/CONTRACTION OF
SCALE
 CHANGES IN INPUT COSTS &
EXCHANGE RATES
 PRODUCT INNOVATION
EVOLUTIONARY
PROCESSES
 MARKETING/INNOVATIONS
 PROCESS INNOVATIONS
 STRUCTURAL CHANGES IN
ADJACENT INDUSTRIES
 ENTRY & EXIT
KEY RELATIONSHIPS

 INDUSTRY CONSOLIDATION OR
FRAGMENTATION ???
 CONSOLIDATION IF:
 MOBILITY BARRIERS RISING
 FRAGMENTATION IF:
 MOBILITY BARRIERS FALLING OR
EXIT BARRIERS DETER
CONSOLIDATION
 LONG RUN PROFIT DEPENDS ON
FUTURE STRUCTURE
KEY RELATIONSHIPS

 WILL ENTRY BARRIERS RISE OR


FALL?

 WILL THE INDUSTRY BECOME MORE


ATTRACTIVE TO POTENTIAL
ENTRANTS?

 WHAT WILL SHAPE COMPETITION?