Industry Analysis[1]

BUSINESS PLAN DEVELOPMENTIndustry Analysis, Marketing & CompetitionProfessor Alan L. CarsrudThe Center for Global Entrepreneurship & InnovationFLORIDA INTERNATIONAL UNIVERSITYRemember Entrepreneurial Strategies and Business Plans build on a sound understanding of the external environment and the needs of customer groups in the market place. An understanding of the competitive landscape and the strategies employed by others is critical to the success of your own firm’s entrepreneurial growth plans.Defining The Firm’s Overall Business Plan StrategyOpportunitiesCompetitivePosition(Strong)CompetitivePosition(Weak)ThreatsTurnaroundDefensiveAggressiveNicheKey Issues in theIndustry Environment•New Entrants•Bargaining Power of Suppliers•Substitute Products /Services•Bargaining Power of Buyers•Rivalry Among Existing Firms(Yes this is Michael Porter of Harvard and yes you do need to use this as a way of looking at the competitive environment)In other words, don’t forget what you have already been taught about strategy and competitive intelligence.For those of you who are not MBA students, lets quickly review. New Entrants–Will new technology or market demand enable competitors to minimize the impact of traditional economies of scale?–Will customers accept our claims of product or service differentiation?–Will potential new entrants be able to match capital requirements that currently exist?–How permanent are the cost advantages?–Will conditions change so that competitors have equal access to marketing channels?–Is government policy toward competition in the industry likely to change?Bargaining Power of Suppliers–How stable are the size and composition of our supplier group?–Are there any suppliers likely to attempt forward integration into the industry?–How dependent will our suppliers be in the future?–Are substitute suppliers likely to become available?–Could we become our own supplier?Substitute Products /Services–Are new substitutes likely?–Will they be price competitive?–Could we fight off substitutes by price competition or by advertising to sharpen product differentiation?–What actions could we take to reduce the potential for having alternative products seen as legitimate substitutes?Bargaining Power of Buyers–Can we break free of over commitment to a few large buyers?–How would our buyers react to attempts by us to differentiate our products?–What possibilities exist that our buyers might vertically integrate backward?–Should we consider forward integration?–How can we make the value of our components greater in the products of our buyers? Rivalry Among Existing Firms–Are major competitors likely to undo the established balance of power in our industry?–Is growth in our industry slowing such that competition is becoming fiercer?–What excess capacity exists in our industry?–How capable are our major competitors of withstanding intensified price competition?–How unique are the objectives and strategies of our major competitors?TOWS Analysis Diagram+10+10-10-10EnvironmentalOpportunitiesInternalStrengthsInternalWeaknessesEnvironmentalThreatsRemember the Characteristics of an Effective StrategyKnow your Strengths.Know your Weaknesses.Understand where & how you make moneyKnow your Cash-Value chain.Know your distribution chain.Trends•Social•Political•Economic•Technological•Demographic•Global•LocalThe External EnvironmentFIRMCompetitionSuppliersCustomersSubstitutesSocialPolitical/LegalTechnologicalGlobalDemographicsIndustryEnvironmentEconomicMacro-Environment... and don’t forgetCounter-TrendsStrategically Important Environmental FactorsEconomicConditionsDemographicTrendsSocio-CulturalTrendsPolitical/LegalTechnologicalGNP TrendsPopulationGrowthLifestyleChangesLegislationGovt. SpendingAge DistributionFamilyFormationsWelfareInterest RatesPopulationShiftsHealth TrendsHousingUnemploymentLevelsImmigrationEnvironmentalConcernsAgricultureIncome LevelsBirth RatesEducationThinking StrategicallyBusiness PlanEnvironmentalAnalysisOrganizationalAssessmentExternalInternalMarket AnalysisPurpose of a Market AnalysisDeterminingthesizeandgrowthpotentialofamarketenablesafirmtopredictmanythingsaboutthemarket,particularlywithrespecttocompetition.Fromaventurecapitalperspective,largemarketsthataregrowingrapidly,orsmalleruntappedmarketswithgreatgrowthpotentialareideal.Marketsegmentationisusefulindeterminingwhichsegmentsandcustomerstoserve.What to Include in a Market AnalysisTerminologyMARKETThesetofallactualandpotentialbuyersofaproductPOTENTIAL MARKETThesetofconsumerswhoprofessasufficientlevelofinterestinthemarketofferAVAILABLE MARKETThesetofconsumerswhohaveinterest,income,andaccesstoaparticularmarketofferTARGET MARKETThepartoftheavailablemarketthecompanydecidestopursueMARKET DEMANDThetotalvolumeofaproductthatwouldbepurchasedbyadefinedcustomergroupinadefinedgeographicalareainadefinedtimeperiodinadefinedmarktingenvironmentunderadefinedmarketingprogramMarket SegmentationMarket Segmentation: Consumer MarketsGroupingcustomersisamorepracticalwayofmeetingneedsthanthinkingofcustomerseitherasindividualsorasonelargemass.Groupsshouldcomprisethosecustomersthatrespondtoyourproductsandservicesinsimilarways.Byplanningabusinessaroundthesecustomergroups,needscanbeservedeffectively.GeographicDemographicPsychographicBehavioralConsumer Markets: Geographic VariablesRegionCity ormetro sizeClimateDensityPacific,Mountain,WestNorthCentral,WestSouthCentral,EastNorthCentral,EastSouthCentral,SouthAtlantic,MiddleAtlantic,NewEnglandUnder 4,999; 5,000-19,999; 20,000-49,999 . . .1,000,000-3,999,999; 4,000,000 and overNorthern, southernUrban, rural, suburbanConsumer Markets: Demographic VariablesAgeGenderFamily sizeOccupationEducationNationalityReligionEthnicityIncomeLifestyleConsumer Markets:Psychographic VariablesClub membershipsSocial activitiesTV viewing habitsHobbiesVacation preferencesCompulsiveOutgoingAuthoritarianAmbitiousPersonalityConsumer Markets:Behavioral (Product Usage) VariablesOccasionsBenefitsUsage rateUser statusLoyalty statusBuyer-readiness stageAttitude toward productRegular occasion, special occasionQuality, service, economy, speedLight user, medium user, heavy userNonuser, ex-user, potential, first-time, regularNone, medium, strong, absoluteUnaware, aware, informed, interested, intends to buyEnthusiastic, positive, indifferent, negative, hostileConsumer Markets: Product AdoptionLate majorityEarly majorityEarly adoptersInnovatorsRate of adoptionLaggards2.5%13.5%34%34%16%Market Segmentation: Business MarketsBusinessmarketscanbesegmentedwithmanyofthesamevariablesemployedinconsumermarketsegmentation,suchasgeography,benefitssought,andusagerate.Yetbusinessmarketersalsouseseveralothervariables.DemographicvariablesOperating variablesPurchasing approachesSituational factorsPersonal characteristicsBusiness Market SegmentationDemographic VariablesOperating VariablesIndustryCompany sizeLocationTechnologyUser statusCustomer capabilitiesBusiness Market SegmentationPurchasing ApproachesPurchasing-function organizationPower structureNature of existing relationshipsGeneral purchase policiesPurchasing criteriaBusiness Market SegmentationSituational FactorsPersonal CharacteristicsUrgencySpecific applicationSize of orderBuyer-seller similarityAttitude toward riskLoyaltyChecklist For TheMarketing Plan1.List information on the industry that the business will compete in–Current Size–Growth Potential–Geographic Locations–Industry Trends–Seasonal Factors–Profit Potential–Sales Patterns (single, bulk, direct, etc.)Development of New Product /Customers/MarketsCustomers or MarketsOldNewNature of TechnologyOldNew“No Brainer”PromisingGreat PotentialRiskyChecklist For TheMarketing Plan2.What is the profile of the customer or various customer groups?–Include age, sex, profession, income, geographic location and other demographics.3.Describe the benefits provided to the customer?–What problems are you solving?Checklist For TheMarketing Plan4.Describe the customer’s need for the product /service.–How much will they save?–What return will the customer receive on the dollars they spend?–Will they have to change their ways of doing things?–Will they be required to purchase other goods /services to utilize yours?–Will they have to change their work habits?Checklist For TheMarketing Plan5.Describe the new venture’s market niche.–A particular appeal, identify, or place in the market that the product /service has.Checklist For TheMarketing Plan6.Describe the target market(s) and the potential dollar volume of each that the business has selected for penetration–Prioritize the list by naming the best target markets first.–Note that your target market might not be the end user but instead your distribution channels.Checklist For TheMarketing Plan7.Describe approach for selling the product /service to the end user.–Distribution channels, sales representatives, direct sales force, direct mail, telemarketing8.List the costs for penetrating each target market–Dollars and Time (sales, lead time needed, etc.)Checklist For TheMarketing Plan9.What advertising /promotion media will be used for the distribution system and for the end users?–Address each area that will be used:•radio, newspaper, trade journals & magazines, and /or television advertising–Include a sample of the advertising (if possible) and list costs.Checklist For TheMarketing Plan10.How will the packaging and labeling enhance name identification and brand loyalty?–If possible, include sample of packaging11.What kind of service, warranties, and guarantees will be offered?–How will these be promoted?–How many of these will affect profits?Checklist For TheMarketing Plan12.What are the reactions to the product /service from prospective customers?–Include any testimonials, market surveys, focus group studies, etc.13.State why the market efforts are unique or different from competitors–Avon pioneered door-to-door cosmeticsChecklist For TheMarketing Plan14.What is the role of trade show?–Which trade shows will be best for exhibiting the product /service?–Give name, location, date, booth size, etc15.Explain opportunities in future markets.–Include size, method of penetration, costs, etc.Checklist For Competition1.List direct competition by product and geographic market.–Who is directly seeking the same money you are?–Specialty retail stores compete with specialty stores, not department stores2.List the indirect competitors by product and geographic market.–Movie theaters are indirect competitors of video storesChecklist For Competition3.List emerging competitors entering the industry or market.–Video rental stores, supermarkets entering video business.4.Describe the competitors’ strengths and weaknesses by product and market segment–List in chart form, tie these back to your strengths and weaknesses.Checklist For Competition5.Describe the competitors’ share of the market by product.–List by percentages or in unit or dollar volume6.Discuss relevant background information concerning major competitors–Include profiles of their management team, company history, financials–Show where they are strong or weakChecklist For Competition7.On what basis will the product /service compete with them?–Product superiority, price, advertising, etc.8.How is this venture superior to that of the competition?–Operations, management, product /service, price, service, delivery, etc.Checklist For Competition9.How does this product /service compare with the competition in the eyes of customers?–Include some customer reactions from a small sample you have taken10.Does this venture threaten the major strategic objectives or self-image of the competition?–Will they attempt to destroy the venture at any cost?Checklist For Competition11.If the competition tries to destroy your position in the marketplace, how will you retaliate?–What marketing exclusionary tactics can you anticipate?12.List sources to evaluate product /services against competition–Agencies, ind. firms, publications, etc.–Include statements and testimonialsChecklist For Competition13.What is the basis upon which the industry competes?–Price, quality, promotion, personal selling, innovation, legal, franchises, etc.14.What has been the history of the industry treatment of new enterprises?–How easy is it to enter the industry?Checklist For Competition15.What has been the fate of new firms in the industry?–Have other new firms successfully entered the industry?16.What are the entry barriers?-What keeps others out?17.What are the exit barriers?-What will keep you and others from leaving