Lecture 4 Industry Analysis

Lecture 4 Industry Analysis - Lecture 4 Lecture Industry...

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Lecture 4 Lecture 4 Industry Analysis Industry Analysis Porter’s Five Forces Analysis Porter’s Five Forces Analysis
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Industry Analysis Supports the Identification of Threats & Opportunities Strengths & Weaknesses Opportunities & Threats Values Of Management Values Of Stakeholders Strategy Internal Factors External Factors Objectives Drivers Industry Analysis
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How do you define “Industry” Similar Products Auto Industry, Small Car Industry, Light truck/ SUV Industry, American Car Industry, Electric Car Industry NAICS/SIC Codes
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What is the purpose of doing an Industry Analysis? Understand if the industry is attractive Should a firm enter or exit the industry? Gather data to create a strategy Can the firm cope with the industry structure? Can the firm change the industry structure? Ocean-going tanker industry: buyers(major oil companies) Tire industry: powerful OEM buyers and tough competitors Steel industry: foreign competitors and substitute materials
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Porter’s Five Forces Industry Analysis Rivalry between Competitors Power of Suppliers Threat of Potential Entrants Threat of Substitutes Buyers’ Powers & Preferences The stronger the power, the smaller the possibility for profits
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What are the Five Forces? Automobile industry Rivals (industry firms) GM, Ford, Chrysler, Toyota, Honda… Suppliers Steel, parts, engine, tires, glass, labor (union) Buyers Dealers (distributors), customers (end users) Substitutes Bikes, train, bus, plane, IT Threat of new entrants Industry : a group of firms producing products that are close  substitutes
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High Entry Barriers = Low Threat of New Entrants Entry barriers: (1) make it costly and difficult to enter the industry, and (2) give new entrants a competitive dis advantage.
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You are starting a regional airline company What factors will make it costly and difficult for a newcomer? High capital requirements Economies of scale Lack of reputation and differentiation Incumbent firm retaliation Access to distribution channels
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High Capital Requirements and Economies of Scale Purchase and operation expenses for planes $75 M for medium jet (160), $35M for regional jet (70) Gate fees (if available) Cost of trip for RJ: $ 7,869 for short trip (500 miles) Cost per passenger= $225 for 35 passengers (50% capacity) Cost per passenger= $112 for 70 passengers (100% capacity) Spirit Airlines left Columbia as they only had 65% of its seats filled, vs. the 85% they needed. Pilots and cabin crew Experienced RJ pilot makes $68K, 737 captain earns $152K
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Access to Gates Exclusive use – leased exclusively to one airline (long- term) Preferential use – can be assigned to another carrier when it is not being used by the lessee Common use – assigned by the airport authority Incumbents have veto power over new facilities for future competitors 1998 Exclusive Preferential Common Atlanta 137 0 32 Dallas Ft. Worth 112 0 8 Los Angeles 73 0 55 Charlotte 44 0 15
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Cereal industry Big Three:
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