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Industry & Competitive Forces Analysis There are at least five competitive forces that determine the long-term attractiveness of an industry from a profitability perspective. Industry Competitors - Intensity of Rivalry Rivalry within an industry will be intense if it already contains numerous, strong, or aggressive competitors. This rivalry will be further exacerbated if any of the following conditions exist:  The industry is in decline;  Fixed costs are high;  Exit barriers are high; and  Competitors have high stakes in staying in the industry. Potential Entrants - Threat of Mobility An industry will be unprofitable if it is likely to attract new competitors who will bring in new capacity, substantial resources, and a desire to win market share. The threat of new entrants is diminished by the following conditions: A. Sharp retaliation from incumbents. B. High barriers to entry, such as the need for:  economies of scale experience curve significant capital investments brand identity access to distribution channels government licensing Low exit barriers, which allow poorly performing firms to exit the industry without suffering harsh losses, increase its attractiveness. When exit barriers are high, such firms are apt to stay in and battle it out, creating intense rivalry and economic losses for all. Substitutes - Threat of Substitute Products An industry is unattractive if there are substitutes or potential substitutes for the product or service. Substitutes limit the profit potential of an industry by placing a ceiling on the prices it can charge for the products. Buyers - Bargaining Power An industry is unattractive if its buyers have strong bargaining power. Price-sensitive buyers can lower profits by forcing down prices, or demanding higher quality or more services. Buyers are powerful under the following conditions: they are organized, or concentrated (a few companies control a large market share)  they purchase in large volumes  the product they buy represents a significant portion of their costs  the industry product is standard or "undifferentiated" buyers' cost of switching suppliers is low  buyers' profits are low, making them price-sensitive  buyers are able to integrate backward (supply the materials or make the components themselves) Suppliers - Bargaining Power An industry is unattractive if its suppliers have strong bargaining power. Strong suppliers can squeeze profits out of an industry by raising prices, or reducing the quality or quantity of ordered goods and services. Suppliers are powerful under the following conditions: they are organized and fewer in number than the industry buyers to whom they sell  there are few substitutes for their product  the product supplied is an important input to the industry  the cost to the industry buyer of switching suppliers is high  suppliers are able to integrate forward (make the component or finished product themselves) Critical Success Factors Critical success factors are those activities that a company must do well in order to cope with the competitive forces within its industry. Once you've done a Competitive Forces Analysis at work within your industry, you will want to identify the factors that are critical to your business success. Analysis Matrix The following Analysis matrix may help you to assess your competitors' competencies against those of your company, with respect to critical success factors. The list of competencies provided is a general guide covering the main areas of an organization, and should serve as a checklist only. Analysis Matrix to Assess Competitors' Competencies against your Company’s Competency/Success Factor (in order of importance) Performance Rating vs. Competition Much Worse Worse Equal Better Much Better Marketing Company reputation Market share Quality reputation Service reputation Manufacturing costs Distribution costs Promotion effectiveness Sales force effectiveness R&D and innovation Geographical coverage Finance Cost/availability of capital Profitability Financial stability Manufacturing Facilities Economies of scale Capacity Able, dedicated workforce Ability to deliver on time Technical manufacturing skill Organization Visionary capable leadership Dedicated employees Entrepreneurial orientation Flexible/responsive Opportunities/Threats Analysis The following Analysis Matrix may be helpful in assessing threats and opportunities relevant to your business or market segment. The list of threats and opportunities provided is a general guide covering some common examples to consider, and should serve as a checklist only. Threats to Business or Market Segment Success Threat Magnitude Very Small Small Large Very Large Reactions from existing competition New competitors likely to enter Competition by vertical integration Channel co- operators being competing Decreased entry costs Price and promotion war Change in consumer tastes and values Increasing power of buyers Increasing segmentation Technological change Material availability and supplier prices Economic stagnation Inflation Regulatory changes Foreign exchange fluctuation Political/social changes Environmental pollution Takeover or merger Business and Market Segment Opportunities: Opportunity Magnitude Very Small Small Large Very Large Merger Technological change Political, economic or social trends Size of market Growth of market Unfulfilled customer needs Gaps in existing product positions Market not segmented High margins Few or weak competitors Stable price structure Vulnerability to entry Low entry cost Low exit barriers High response to sales, advertising, promotion Transfer cost experience Low investment Low risk Matches our strength