Industry Analysis Essay

Submitted By jwang1234
Words: 715
Pages: 3

Chapter 3
Industry Analysis

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Five Forces Analysis

Five forces analysis: Technique for understanding an industry, by examining the interactions among:
– Competitors in an industry
– Potential new entrants to the industry
– Substitutes for the industry’s offerings
– Suppliers to the industry
– Industry’s buyers

Purpose of the analysis is to identify how much profit potential exists in an industry
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Porter’s Five Forces

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The Threat of New Entrants
• Profits of established firms in the industry may be eroded by new competitors
• High entry barriers lead to low threat of new entries

Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels – Cost disadvantages independent of scale (c) 2012 Flat World Knowledge


If we were to open our bowling alley in Carrollton, what would the threat of new entrants be? How would you evaluate Porter’s other forces for this industry? Explain.

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The Bargaining Power of Suppliers
• Suppliers exert power by threatening to raise prices or reduce the quality goods and services • A supplier group will be powerful when – It is dominated by a few companies and is more concentrated than the industry it sells to
– It is not obliged to contend with substitute products for sale to
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• Which suppliers do we need for our bowling alley?
• How can they exert power?

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The Intensity of Rivalry among
Competitors in an Industry

Jockeying for position

Price competition
– Rivals easily match price cuts

Advertising battles
– Expand overall demand or enhance level of product differentiation

Product introductions

Increased customer service or warranties (c) 2012 Flat World Knowledge


The Intensity of Rivalry among
Competitors in an Industry
• Interacting factors lead to intense rivalry –

Numerous or equally balanced competitors
Slow industry growth
High fixed or shortage costs
Lack of differentiation or switching costs
Capacity augmented in large increments
High exit barriers
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The Bargaining Power of Buyers
• Buyers threaten an industry
– Force down prices
– Bargain for higher quality or more services
– Play competitors against each other

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The Bargaining Power of Buyers

A buyer group is powerful when
– It is concentrated or purchases large volumes relative to seller sales – The products it purchases from the industry are standard or undifferentiated – The buyer faces few switching costs – It earns low profits
– The buyers pose a credible threat of backward integration
– The industry’s product is unimportant to the quality of the
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The Threat of Substitute
Products and Services
• Substitutes