Industry Analysis

Chapter 03
Chapter Objectives

 To Analyze Market factors

 To Examine competitive factors

 To identify environmental factors

Category (industry) Attractiveness
Summary
 1- Market Factors
Such factors are critical, they are related to consumers and their buying
patterns reflected in market size and growth, sales cyclicality, and
seasonality,…………
 Market size – large markets attractive to large retail firms

 Growth – typically more attractive than mature or declining

 Seasonality – can be an issue as resources are necessary during peak

season only. The high seasonality the less attractiveness.
 Business cycles.
1- Market factors
1. Category size
2. Category growth
3. Stage in product life cycle
4. Sales cyclicity
5. Seasonality
6. Profits: food manf. Vs. drugs is
7.1% versus 19.8%
A) Category size
 It is measured in both units and money
value.
 Large markets are better than smaller
ones
 Large markets attract big competitors
with good financial resources making it
unattractive for the small firms.
 Ex: which category size is
bigger :desks vs. left handed desks?
B) Category growth
 Both Current and future growth
projections are important.
 Fast growing categories are desirable
worldwide as they support high margins
and sustain profit in future years. BUT,
they attract competitors! Ex P&G
developed the mkt for diapers but the
high growth rates invited others such
as, baby fine…(more than other 50
brands)
 Ex: what is a growing GPS vs. walkman
market?
C) Product Life-Cycle
Product Life Cycle
C) Product Life-Cycle
 Product development
 Sales are zero and investment costs mount
 Introduction
 Slow sales growth and profits are nonexistent
 e.g: online movie viewing software
 Growth
 Rapid market acceptance and increasing profits.
 e.g:MP3 players
 Maturity
 Slowdown in sales growth and profits level off or decline
 e.g: bottled water
 Decline
 Sales fall off and profits drop
 e.g: video tape players
Category Attractiveness over the
Product Life Cycle
D) Sales Cyclicity
 Many categories have inter-year variation in
demand. Ex cars and steel are related to
general conditions of the country. What
happened after the revolution?
 Ex; agricultural products are affected by the
yearly climatic conditions.
 This is NOT attractive characteristic of category
as these sales swings affect profits,
employment levels and cash available for new
product development.
 Many firms try to develop new products and
acquire other businesses to eliminate inter-year
sales cyclicity.
E) Seasonality
 It is inter-year cycles in sales:
increase sales in certain time of the
year only.
 Ex: kamar el dine in ramadan/
karasia has vitamin C.
 Ex: cold remedies as penadol cold
and flu
 Ex ice cream sells more in summer
 Karasia in ramadan and vitamin C
F) Profits
 While profit vary from a product to a product, also it
varies from an industry to another.
Ex food manf. Vs. drugs is 7.1% versus 19.8% due to
labor vs machine capital, prices of raw materials, price
of the technology needed, amount of competitive
rivalry (which ll need amount of many ads)
 Also, profit varies over times.
 Variance in profits is an industry risk.
Ex: semiconductors may have high returns when demand is
high and very poor returns when there is no demand.
Ex food related business has relatively steady profit …
So mktg managers must make a risk return trade off
evaluating the expected returns against the variability
in these returns.
Attractiveness of Market Variables
 2- Competitive factors
 Such factors are related to the nature of the competition which is affected
mainly by barriers to entry, the bargaining power of vendors, and
competitive rivalry. Markets are more attractive when competitive entry is
costly.

 Barriers to entry-are conditions in a market that make it difficult for firms

to enter the market. These conditions include scale economies, customer
loyalty, and availability of locations.

 Bargaining power of vendors (suppliers)

 Markets are less attractive when only a few vendors control the
merchandise sold within it.
Competitive factors
 Competitive rivalry (Current category
rivalry)
 Defines the frequency and intensity of
reactions to actions undertaken by
competitors. The high competitive rivalry, the
less market attractiveness.
 Conditions leading to intense rivalry: a large
number of same size retailers, slow growth
and a lack of perceived differences between
competing retailers.
Competitive Factors
1. Threat of new entrants (barriers to
entry)
2. Bargaining power of buyers
3. Bargaining power of suppliers
4. Current category rivalry
5. Pressure from substitutes
6. Category capacity
1) Threat of new entrants (barriers
to entry)
1. Economies of Scale: large factory size to operate efficiently,
discounts on raw materials. Ex auto industry (producing big
quantities cheaper than others)
2. Product Differentiation: strong brand names and reputation. ex
coca & pepsi in black cola.
3. Capital Requirements: large capital to establish factories, store
chain locations and ads Ex MacDonald's and Burger king
4. Switching Costs Gillete and its shaving razors, online banking
make it very time consuming to switch banks, Fedex and its
monitoring software.
5. Distribution: new products find difficulties in obtaining shelf
space ( slotting allowance ; payments from manufacturers for
placing their goods on shelves., refrigerators of pepsi)
 2) Buyer Bargaining Power is High
When:
 Product bought is a large percentage of the buyer’s
cost :cars replace steel by plastics
 Product bought is undifferentiated: chemicals
 Buyers earn low profits: farm equipments vs. healthy
industries
 Buyer threatens to backward integrate. IBM purchased
part of intel, consumers do their furniture
 Buyer has full information: thanks to the net, car dealers
negotiate price
 Substitutes exist for the seller’s product or service.
soft drinks , detergents, cheese
3) Supplier Bargaining Power is High
When:
 Suppliers are highly concentrated, that
is, dominated by a few firms: Ezz steel
 There is no substitute for the product
supplied ex: egyptian gas to israel
 Supplier has differentiated its product or
built in switching costs. AK steel delayed
the payment plan for GM.
 Supply is limited. Private jets
4) Competitive rivalrly
 Many or balanced competitors: fast
food , automobile
 Slow growth: mature juhayna & enjoy
 High fixed costs: papers, chemicals
 Lack of product differentiation: price
warfare
 Personal rivalries: between CEO and
managers of different companies, Bill
Gates and Scott Mc Nealy of Sun
5) Pressure from substitutes
 Less attractive when there are lots
of substitutes that satisfy customers
needs.
6) Capacity
 Chronic over capacity (unused capacity)
isnt a positive sign for long term
profitability.
 When a category is operating at
capacity, its costs stay low its bargaining
power with buyers is high.
 Ex: during recession, consumers
spending on travel service is low,
resulting in overcapacity at many resorts
making buyers bargain down rates on
cruises and other vacations.
Impact of Competitive factors on
Attractiveness ( from the PRODUCER
point)
When u r strong, threats of new entrants
is low (econ of scales, differentiation,
3- Environmental Factors (outside the
control of firm and industry) (PESTR)
 Political
 Economic
 Social
 Technological
 Regulatory
Political
 Is any foreign business investing now in egypt
after revolution?
 Vodafone (British %) was attacked after
revolution due to cutting communication in
revolution
 Mobinil was attacked in Algeria after the match
in Sudan..
 After 9/11 industries supplying defense and
security related products boomed. In Egypt after
revolution?
 Starbucks had problem opening in egypt as said
it helped Israel, boycott??
Economic Factors
 Interest rate fluctuation: machines have high
cost and financed by short term interest rates.
Consumer durables are also tied to interest
rates.
 Currency exchange rate dollar now after
revolution is 6 LE and used to be 5.5 before
revolution so it is cheaper now for foreign
business but expensive for us to import.
 Employment conditions (imp to know as ur
labors and their wages)
 Fluctuation in GDP growth, when the country
is in recession , consumer durables sales
decrease ( egypt after the revolution)
Social factors
 More divorced women
 More working women (freshly prepared food in
super mkt, ready made meals)
 Poor are getting poorer and rich are getting richer
 More emphases on lifestyle
 Increase importance of children as consumers:
banning the manufacturing or imports of toys gun
 The shrinking day, (after work, less time spent for
cooking so more money in restaurants and fast
food)
 Connectedness: facebook getting buyers and
sellers in seconds
 Individualism: dell made- to- order personal
computers, Nike
Example of Demographics of the
Egyptians
Age

The person’s age shapes the media he chooses, where he shops, how he uses the
product, and how we think and feel about MKTG activities.
Cognitive age: the age one perceives one’s self to be. It is measured how people feel
and act, and perceive their looks.
 Egyptian Age structure:
 Less than 5 years: 8 millions
5-10 years:9.6 millions
 10-15 years: 9.9 millions
 15-20 years:8.8 millions
 20- 25 years:6.7 millions
 25- 30 years: 5.6millions
 30-35 years: 5.5 millions
 35-40 years: 5.4 millions
 40-45 years: 4.5 millions
 45-50 years: 5 millions
 50-55 years: 3.3 millions
 55-60 years: 2.6 millions
 60-65 years: 2.5 millions
 65-70 years: 1 million
 75+: 527000


Technology
 You have to examine whether the
needed technology for your
business is present in the needed
country.
Regulatory Factors
 Restricted media in tobacco
industry
 Pharmaceutical companies are
subject to testing requirements
 U.S government restriction on
Japanese auto imports
Category Attractiveness: Retail Coffee

Product diff, capital req, switching

cost
Category Attractiveness: MP3 Phones