Entrepreneurship

Chapter 5
Industry and Competitor Analysis

Prof. Ayesha Saeed

Introduction
 An industry is a group of firms producing a similar
product or service, such as music, fitness drinks, or
electronic games.
 Industry analysis is business research that focuses on
the potential of an industry.
 A competitor analysis is a detailed evaluation of a
firm’s competitors.
Studying Industry Trends
 Environmental Trends:
Environmental trends are very important. The
strength of an industry often surges not so much because
of the management skills of those leading firms in a
particular industry, but because environmental trends shift
in favor or against the products or services sold by firms in
the industry.
Studying Industry Trends(Continued)
Economic trends, social trends, technological
advances, and political and regulatory changes are the most
important environmental trends for entrepreneurs to
study.
For example, companies in industries selling products
to seniors such as the eyeglass industry and the hearing aid
industry benefit from the social trend of the aging of the
population.
Studying Industry Trends(Continued)
 Business Trends:
Other trends impact industries that aren’t
environmental trends per se but are important to mention.
For example, the firms in some industries benefit
from the increasing ability to outsource manufacturing or
service functions to lower-cost foreign labor markets,
while firms in other industries don’t share this advantage.
The Five Forces Model
 The framework for analyzing task or industry environment is a model known
as five forces model.
 Five competitive forces that determines the power of competition in an
industry.

1. The Threat of Substitutes

2. The Threat of New Entrants

3. Rivalry Among Existing Firms

4. Bargaining Power of Suppliers

5. Bargaining Power of Buyers

The Five Forces Model(Continued)
 The Threat of Substitutes:
The goods and services of different businesses or
industries that can satisfies similar customers needs.
Substitutes based on new technologies can be a
particularly potent threat.
The Five Forces Model(Continued)
 The Threat of New Entrants:
I. Barriers to Entry: Factors that make it costly for
competitors to enter an industry and compete with
firms already in the industry.
II. Brand Loyalty: The preference of consumers for the
products of established companies.
The Five Forces Model(Continued)
 Rivalry Among Existing Firms:

Last in the model is the intensity of rivalry between firms in

an industry.

A number of various factors that determines the intensity

of rivalry in an industry.

i. Commodity product: A product that is difficult to

differentiate from those produced by rivals.
The Five Forces Model(Continued)
ii. Demand and supply conditions: If overall
customers demand for a product or services is
growing, the task environment can be more favorable.
Firms will have the opportunity to expand sales and
raises prices, both of which may lead to higher profits.
The Five Forces Model(Continued)
 Bargaining Power of Suppliers:

Ability of suppliers to bargain up prices charged by firms in

an industry or to raise the costs by supplying lower quality
products and services.

Where there is only one supplier of an important product

or service, that supplier has substantial bargaining power over
the firm and can use this power to raise prices.
The Five Forces Model(Continued)
 Bargaining Power of Buyers:

Ability of buyers to bargain down prices charged by the

firms in the industry or to demand for better quality and
services from the firms.

Switching cost: The time, energy, and money required to

switch from the products offered by one firm to those offered by
another firms.
Industry Types and the Opportunities
They Offer
Industry Type Industry Characteristics Opportunities Examples of
Entrepreneurial Firms
Exploiting These
Opportunities
Emerging Industries Recent Changes in demand First-mover advantage • Apple with its iTunes
or technology; new industry Music Store
standard operating • Windspire in small-scale
procedures have yet to be wind-generated power
developed • PharmaSecure’s process
for detecting counterfeit
pharmaceutical products

Fragmented Industries Large number of firms of Consolidation • Starbucks in coffee

approximately equal size restaurants
• 1-800-GOT-JUNK? in
junk removal
• Geeks on Call in home
computer repairs.
Industry Types and the Opportunities
They Offer
Industry Type Industry Opportunities Examples of
Characteristics Entrepreneurial Firms
Exploiting These
Opportunities
Mature Industries Slow increases in demand, Process and after-sale • InstyMeds in
numerous repeat service innovation prescription drug sales
customers, and limited • Fresh Health Vending
product innovation in food vending
• Daisy Rock Guitars in
guitars

Declining Industries Consistent reduction in Leaders, niche, harvest • Nucor in steel

industry demand and divest • JetBlue in airlines
• Cirque du Soleil in
circuses
Global Industries Significant international Multinational and global • PharmaJet in needless
sales injection systems
• d.light in solar
powered lanterns
Identifying Competitors
 The challenges associated with each of these groups of
competitors are described here:
1. Direct Competitors:
These are business that offer products identical or similar
to those of the firm completing the analysis. These competitors
are the most important because they are going after the same
customers as the new firm.
A new firm faces winning over the loyal followers of its
major competitors, which is difficult to do, even when the new
firm has a better product.
Identifying Competitors
2. Indirect Competitors:
These competitors offer close substitutes to the product
the firm completing the analysis sells. These firms’ products are
also important in that they target the same basic need that is
being met by the new firm’s product.
For example, when people told Roberto Goizueta, the
late CEO of Coca-Cola, that Coke’s market share was at a
maximum, he encountered by saying that Coke accounted for
less than 2 percent of the 64 ounces of fluid that the average
person drinks each day.
“The enemy is coffee, milk, tea [and] water,” he
once said.
Identifying Competitors
3. Future Competitors:
These are companies that are not yet direct or
indirect competitors but could move into one of these
roles at any time.
Firms are always concerned about strong competitors
moving into their markets.