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External Analysis, G2 (DICE4 Becky, DFLL3 Keely, DFLL4 Cathy, IBS3 Lizzie,…
External Analysis
PESTEL
Economic
International trade
Market routes
Ecological
Pollution
Conservation
Political
Regulatory bodies and processes
Wars and conflicts
Ecological / Environmental issues
Legal
International treaties and laws
Labor
Socio-cultural
Values and culture
Aspirations and Expectations
Demographic trends
Technological
Trends in R&D and innovation
Disruptioon and new business models
Soft drink
Conduct experiments with students
Do blind taste test
⭕️People who regularly drink cola
Drink
Coca-Cola
Difficult to distinguish
Pepsi
❌People who don't usually drink cola
The sound of opening a bottle or can
Drink cola？
No
Why do we feel like we drank coke？
Our sense of taste and smell is not completely objective
What the brain expects
Product secret
We begin to taste before we taste
Use for products, branding, and advertising
Recipe
Unique taste that cannot be imitated
Competitiors
Pepsi
Coca Cola
Few Entrants
High Profitability
Entry Barriers
Geographical Issues and Barriers
Lack Suitable Locations
Retail Relationships
High Brand Loyalty and Large Marketing Budgets
Suppliers
Bargaining Power
Volume Discounts
Long-Term Contracts
Buyers
Brand Strength
Market Dominance
Product Differentiation
Classic Sodas
Healthier Alternatives
Substitutes
Brand Loyalty
Heritage
Emotional Connection
Distribution Channels
Online Platforms
Vending Machines
Five forces
Threat of substitutes
What are substitutes :question:
Essentially neighboring industries to the focal industry
Consist of product / services that customers may buy instead of purchasing from the industry
The higher the similarity ➡️ the greater the threat
Innovative or value providing
E.g. Ride apps v.s. taxicab
Improving rapidly in costs or performance
E.g. Electric car companies v.s. mainstream automobile industry
Better cost structure
E.g. Room sharing industry v.s. hotel industry
Bargaining power of suppliers
Mainly same as buyers
:star:
The only difference
Suppliers must look at whether their are any substitutes for the products they make
The greater a supplier relies on the other, the lower the bargaining power
Potential entrants
What will reduce the chances of new entry :question:
(Entry barriers)
Main(Natural) entry barriers
Learning curve economies
Costs decline with total cumulative production over time
E.g. Boeing, Airbus
Capital requirements
E.g. New semiconductor plants
Product differentiation
Customers are loyal to existing products & brands
Intangible product attributes and emotional attachment
Access to distribution channels
Shelf space may be limited
Logistics of distribution may be difficult
Other advantages
Raw materials access
Regulations that make entry difficult
Proprietary technologies and processes.
Favorable location
Scale economies
Costs decline with scale of production
E.g. Oil refining, semiconductors, steel, software
Scope economies
Costs decline when multiple products
E.g. Car models built on same platfrom, online retailing
Expected retaliation
(Strategic entry barriers)
Aggressive pricing, advertisements, new products, etc.
Slow industry growth and high exit costs price
Firms with resources and excess capacity are more possibly able to
retaliate
Bargaining power of buyers
The more concentrated the buyer’s industry, the better they are able to bargain
When do buyers have higher bargaining powers :question:
Have fewer switching cost to move to another product
Able to integrate backward easily and make the product themselves
When the product isn't particularly important to them
Competitors
Rivalry among industry
Threats of new entrants :arrow_down_small:
Above average profitability
Lower the industry's profitability
Dynamic industry analysis
Step
:one:
Clearly identify the boundary of industry
( What the 5 forces are )
:two:
Examine the structural attributes of each force
( Assess the strength of each force, like strong,moderate, or weak.)
:three:
Combine with overall assessments of profitability
:FOUR:
Examine changes in structural attributes over time
Pivotal force
Definition
:star:
Force presents great threat from 5 force , and will directly impact on profitability.
Strategically intervene
E.g
Airline consolidation
Reduce rivalry among existing competitors
Slash prices of air ticket :arrow_heading_down:
:money_with_wings:
Co-opetition
Image：dam
5 forces moderate > 4 forces strong, 1 weak
10 common error in 5 force analysis
Not being clear about industry definition
Assessing profitability as an average of the 5 forces
Confusing short-run industry profits with long-run profitability
Using too broad or too narrow an industry definition
Not examining dynamics or implications for managerial action
Stopping with the 5 forces, and not evaluating overall profitability
Not keeping track of actors in each force
Not being clear about industry definition
Using too broad or too narrow an industry definition
Not keeping track of actors in each force
Simply describing the actors in each force, ignoring structural attributes
Using one force to explain another
Structure, Conduct and Performance
Industry analysis
NESTED layers
Profitable
Relatively
Attractive
Foundation
The Five Forces Framework
Competitor
Driving down profits?
Substitute
Entrants
Supplier / Buyer
Bargaining poewer
Industry structure
Definition
The features make it different.
Industry structure
Differenciation
Cost
Firm's conduct
Pricing
Capital Investment
Performance
Economics Profits
The application of five forces
Pharmaceuticals
Unable to bargain for producers
Because consumers are hard to try a different drug
No substitutes
Because of patent protection
The high barriers to entry
Patent protection
Requiring significant and risky R&D investment
Medicines are highly differentiated products
:!:High profitability
Unable to bargain for consumers
The drug purchasing decision is highly fragmented
Health insurance
Airlines
The low barriers to entry
Airplane and crew can be easily hired
Gates and landing slots are easy to get at most airports
No scale or scope economies
Rivalry
Airline seats are a perishable commodity
Facing pressure to fill their seats
:warning: Resulting in lowering prices and
price wars
Airline service is quite undifferentiated
:!:Low profitability
G2
DICE4 Becky
DFLL3 Keely
DFLL4 Cathy
IBS3 Lizzie
IPCM3 Vivian
DSEAS3 Dora
DFLL3 Tina
IBS3 Cyndy