In the textbook there are 21 questions provided regarding items to consider when conducting an industry analysis. Review the questions listed on pages 169 and 170. Choose three that you think are the most important of all questions provided. Discuss why those three items are important when conducting an industry analysis. Participate in follow-up discussion by reviewing classmates’ posts and discussing whether the cost leadership or differentiation competitive strategy would be the most effective approach based on the three items provided.
Industry Analysis
The most popular approach to industry analysis is known as the “5‐forces” or “Porter” model, as described by Michael Porter in his book Competitive Strategy(1998).
The Porter 5‐forces model provides a systematic approach to studying the economic structure of an industry by analyzing the five basic competitive forces that affect industry returns. Any of these forces, if strong enough, can reduce or even eliminate industry profits.
At the center of the model is rivalry among existing firms, because it may be affected by each of the other forces. The term “rivalry” is used to reflect the jockeying for market share by firms within the industry. Questions then need to be posed, including
- How fast is the industry growing?
- Is it stagnant or declining?
- How many competitors are there?
- Do firms compete mainly on price or differentiation?
- Is there a history of cooperative pricing or is price competition more “cut‐throat”?
- What are the key economic and regulatory issues faced by companies in this industry?
For example, slow growth, a large number of competitors, and intense price‐based competition exert downward pressure on profit margins
The threat of new entrants looks beyond existing rivalries and considers how the industry’s competitive landscape might unfold in the future. Here we ask the following:
- Who are the potential competitors and how might their entry affect competitive rivalry?
- Are there strong barriers (such as patents, economies of scale, access to distribution channels, strong branding, legal constraints, or high capital needs) that limit the threat of new entrants?
- Does government policy protect incumbents?
- Are there first‐mover advantages, such as an experience curve, that might put new entrants at a cost disadvantage and thus strongly favor existing businesses
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