Strategy Session 2 - Industry Analysis & Evolution

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Questions and Answers

What differentiates an industry from a market?

Industries comprise firms; markets consist of customers. (correct)

Industries focus on specific customers; markets focus on product types.

Industries are defined by geographical boundaries; markets are not.

Industries provide specific products; markets provide a variety of products.

Which characteristic is common across industries?

Industries exist in specific geographic locations.

Industries have similar performance characteristics. (correct)

All industries have high net profit margins.

Industries produce identical products and services.

Which of the following industries has the highest net profit margin according to the data provided?

Tobacco

Oil and gas (distribution)

Oil and gas (production)

Banks (regional) (correct)

What does inelastic demand imply about consumers?

Consumers are unaffected by price changes. Signup and view all the answers

Which market segment is NOT explicitly mentioned in the content?

Electric vehicles Signup and view all the answers

What is true about industries with high net profit margins?

They usually have significant barriers to entry. Signup and view all the answers

How is industry attractiveness often assessed?

Through the evaluation of consumer price sensitivity. Signup and view all the answers

What was the percentage decline of the European newspaper industry from 2012 to 2022?

11% Signup and view all the answers

Which of the following factors does NOT drive ILC?

Consumer location Signup and view all the answers

What is the expected worldwide newspaper advertising revenue in USD for 2029?

19.51 billion Signup and view all the answers

How much did digital banner advertising revenue increase from 2017 to the expected amount in 2029?

152.10 billion USD Signup and view all the answers

Which customer group dominates each stage of the ILC?

Different customer groups Signup and view all the answers

What leads to increased bargaining power for buyers in an industry?

Low switching costs Signup and view all the answers

What is a common practice among similar competitors in a market?

Collusive pricing practices Signup and view all the answers

Why might firms with high fixed costs compete aggressively on price?

To alleviate the burden of fixed costs Signup and view all the answers

Which factor does NOT contribute to economies of scale?

Rapid technological advancement Signup and view all the answers

In markets with highly differentiated products, what is the primary competition based on?

Quality, brand, and service Signup and view all the answers

How does the concentration ratio impact industry rivalry?

Higher concentration indicates lower rivalry Signup and view all the answers

What is a contributing factor to customer loyalty for established firms?

Shelf space accessibility Signup and view all the answers

What is the Return on Equity for Food Consumer Products compared to Food Production?

21.7% for Food Consumer Products, 5.9% for Food Production Signup and view all the answers

What impact does buyer's information access have on their bargaining power?

Increases bargaining power Signup and view all the answers

What is a primary reason for the higher Return on Equity in the Food Consumer Products industry compared to Food Production?

Economies of scale Signup and view all the answers

Which factor is NOT associated with the attractiveness of Food Consumer Products industry?

Limited distribution Signup and view all the answers

What does a high concentration ratio, such as CR3: 70.5%, indicate?

High market dominance by a few firms Signup and view all the answers

The role of complements in an industry is to:

Increase the value of an industry’s product Signup and view all the answers

What is a characteristic of the buyer power versus supplier power dynamic in the Food Consumer Products industry?

Buyers have more power than suppliers Signup and view all the answers

Which market concentration ratio would indicate a low concentration?

CR4 of 30% Signup and view all the answers

In the analysis of competitive forces, what does differentiation entail?

Providing unique features that distinguish products from competitors Signup and view all the answers

Which of the following best describes the threat of entry in the Food Consumer Products industry?

Minimal due to strong brand loyalty Signup and view all the answers

What is a key aspect of buyer power in the Food Consumer Products industry?

Buyers can easily switch to different products Signup and view all the answers

What is the significance of brand recognition in the Food Consumer Products industry?

It creates a barrier to entry for new competitors Signup and view all the answers

What characterizes the introduction stage of the industry life cycle?

Low sales, high start-up costs, and few customers Signup and view all the answers

During which phase of the industry life cycle do technical improvements and efficiency allow access to the mass market?

Growth Signup and view all the answers

What is typically observed in the shakeout stage of the industry life cycle?

Sales growth slows and peaks Signup and view all the answers

Which statement accurately describes the decline phase of the industry life cycle?

Encountered when new industries present superior substitute products Signup and view all the answers

What type of customers are primarily targeted during the introduction stage?

Affluent, innovation-oriented, and risk-tolerant customers Signup and view all the answers

In which stage of the industry life cycle are companies most likely to experience losses?

Introduction Signup and view all the answers

What happens to the profit margins during the maturity stage of the industry life cycle?

Profit margins decrease Signup and view all the answers

Which of the following correctly describes the shakeout phase in terms of market dynamics?

Sales growth slows down, and the market reaches its peak Signup and view all the answers

What is a defining characteristic of the growth stage?

Rapid growth in sales and positive cash flow Signup and view all the answers

Which phase of the industry life cycle follows the growth phase?

Shakeout Signup and view all the answers

Study Notes

Lecture 3 - Industry Analysis & Evolution

Lecture 3, Industry Analysis & Evolution, taught by Prof. Dr. Eva Niesten
Use Edusign QR code to register attendance

Industries Defined

Industry analysis evolves from environmental analysis
Industry encompasses firms producing similar products/services
Market defines customers for specific products/services
Key criteria for industries include similar product performance characteristics, use occasions, and/or geographical markets

Industries Defined (What is an Industry?)

Firms compete for customers
Benchmarking against competitors is essential regarding cost and product quality
Competitors share similar product performance, usage, and geographic markets

Industries Defined (Industry vs Market)

Industry is a group of firms producing similar products/services (e.g., automobile, airline industry)
Market is a customer group for products/services (e.g., luxury car market in Germany, family car market in the US)
Standard Industrial Classification (SIC) code can be used to categorize industries

Industries Defined (Product)

Motor vehicles and equipment
Automobile industry
Luxury cars
Global market, Regional (EU), National market

Industries Defined (Net Margin)

Significant differences across industries in net profit margins
High net profit margins: Banks (e.g., 30.89%), Oil and gas (production), etc.

Industry Analysis

Porter's Five Forces of competition framework
Threat of new entrants
Bargaining power of suppliers
Rivalry among existing firms
Bargaining power of buyers
Threat of substitutes

Industry Analysis (Inelastic/Elastic Demand)

Inelastic demand: Goods without close substitutes, consumers insensitive to price
Elastic demand: Goods with close substitutes, consumers sensitive to price
Examples: energy drinks vs. coffee; videoconferencing vs. business travel; email vs. express mail

Industry Analysis (Threat of Entry)

Large capital-intensive investments leading to economies of scale
Brand recognition, customer loyalty, shelf space, licenses, and environmental regulations are important factors
Aggressive price-cutting, increased advertisement can affect competition

Industry Analysis (Buyer Power)

Lower number of buyers and bigger purchases → more bargaining power
Low switching costs → more bargaining power
More buyer information leads to more bargaining power
Buyer's capacity to produce inputs → increases bargaining power

Industry Analysis (Industry Rivalry)

Number and size of firms competing in a market (concentration ratio)
More similar competitors are likely to have collusive pricing practices
Companies with high fixed costs compete aggressively on price

Industry Analysis (Industry Competitive Structures)

Form	Features	Profit Potential
Perfect Competition	Many buyers and sellers, homogeneous product, low entry barriers, price takers	Low
Monopolistic Competition	Many firms, some pricing power, differentiated product, medium entry barriers	Medium
Oligopoly	Few (large) firms, some pricing power, differentiated product, high entry barriers	High
Monopoly	One firm, considerable pricing power, unique product, high entry barriers	High

Industry Attractiveness

Return on equity of food consumer products: higher than food production (e.g., 21.7% vs. 5.9%)

Industry Analysis (Data Collection)

Available online databases (e.g., Statista, Scopus, and company databases)

Industry Life Cycle

Different stages of industry's development (Introduction, Growth, Shakeout, Maturity, Decline)
Market size, sales, cash, and profits change across these stages
Understand stage of evolution to adapt to different customer segments

Innovation in ILC

Consumer differences (education, age, income, aversion to tech, uncertainty, interest and trust) drive ILC
Diffusion of innovation theory (Rogers 1962) looks at different attitudes towards technology across segments (innovators, early adopters, early majority, late majority, and laggards)
Crossing the chasm: understand customer segments
Companies must understand these different customer groups to survive

Innovation in ILC (Types of Innovation)

Architectural innovation: combining different markets and technologies
Radical innovation: substantial changes
Incremental Innovation: small but continuous changes
Disruptive Innovation: emerging technology disrupts existing markets

Innovation in ILC (The Incumbent's Curse)

New entrants introduce innovative technologies, incumbents struggle to survive
Incumbents' organizational structures mostly facilitate incremental innovations

What's Next?

Case study on the automobile industry (analysis in Excel, video tutorial)
Upload case study answers on the dedicated online platform

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Description

Explore the fundamental concepts of industry analysis in this lecture led by Prof. Dr. Eva Niesten. Understand the differences between industries and markets, and learn how firms compete and benchmark against each other. This session provides insights into defining industries and analyzing their evolution over time.