Intra-Industry Analysis

1
Intra-Industry Analysis
OUTLINE

• Game theory
• Competitor Analysis
• Segmentation
• Strategic Groups

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The Contribution of Game Theory to Competitive
Analysis

• Main value
• Framing strategic decisions as interactions
  between competitors
• Predicting outcomes of competitive situations
  involving a few
• players

• Some key concepts
• Competition and CooperationGame theory can show
  conditions where cooperation is more advantageous
  than competition P.D.
• Deterrencechanging the payoffs in the game in
  order to deter
• a competitor from certain actions
• Commitmentirrevokable deployments of resources
  that
• give creditability to threats
• Signallingcommunication to influence a
  competitors decision

Problems of game theory Useful in explaining
past competitive behaviorweak in predicting
future competitive behavior. SCENARIOS Whats
the problem? Multitude of models, outcomes
highly sensitive to small changes in assumptions
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Complementors Competitors

• Complementor customer values your product MORE
  when they have the other players product than
  when they have yours alone.
• Competitor customer values your product LESS
  when they have the other players product than
  when they have yours alone. May cooperate to
  develop market infrastructure.

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From Thinking Strategically

• Prisoners Dilemma Competitor pricing, MAD,
  Employer/Union, Hostage Dilemma.
• To lead or not to lead If in lead, can imitate
  as soon as followers intentions are known, or
  when followers success as been assessed.
• Look before you leap - use your bargaining power
  when youve got it.
• Mix your plays
• Opponents choices actions tell you information
  Monty Halls Lets Make a Deal.
• Pride irrationality cant be ignored - people.
• Moving first being intransigent.
• Moving second after seeing what your opponent
  did.
• 2 kinds of interaction sequential
  simultaneous.
• For sequential, Rule 1 look forward reason
  backward. Draw a game tree.
• For simultaneous, build table, check for dominant
  strategies, (Rule 2 if you have one, use it!),
  then dominated strategies (Rule 3 eliminate
  dominated strategies), Rule 4 look for an
  equilibrium, a pair of strategies in which each
  players action is the best response to the
  others.

Thinking Strategically, Dixit Nalebuff, 1991
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Newcleaners game

• If Newcleaners (N) enters and Fastcleaners
  accomodates, N makes 100k.
• If N enters and Fastcleaners starts price war, N
  loses 200k.
• What should N do?

Thinking Strategically, Dixit Nalebuff, 1991,
p. 38
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Newcleaners game map
Thinking Strategically, Dixit Nalebuff, 1991,
p. 38
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Larrys choice

• Larry, Mo, Curly are in a duel and will shoot
  once in that order for 2 rounds.
• Outcome ranking sole survivor, then one of 2
  survivors, then noone gets killed, then ( worst)
  you get killed.
• Larry hits 30 of time, Mo 80, Curly 100.
• What should Larry do?

Thinking Strategically, Dixit Nalebuff, 1991,
p. 329
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David Goliaths choices.

• David produces 1 slingshot per quarter, Goliath
  2, no flexibility in output.
• Once exit industry, cant come back in.

Thinking Strategically, Dixit Nalebuff, 1991,
p. 340
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Thinking Strategically, Dixit Nalebuff, 1991,
p.343
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What Price a Dollar?

• Bidding proceeds at 5 cent increments.
• Highest bidder gets the dollar.
• The highest AND the second highest bidder must
  pay their bid.

Thinking Strategically, Dixit Nalebuff, 1991,
p. 349
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From Co-opetition

• Players when you enter a game, you change it.
  Get paid to play.
• Added Value Size of the pie when you are in
  MINUS size of pie when you are out. Red Black
  card pair 100.
• Rules w/ customers, suppliers, government sets
  many, changing. Most Favored Customer clause.
• Tactics Actions to your benefit.
• Scope Boundaries of the game.

Co-opetition, Brandenburger Nalebuff, 1996
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Value Net
Co-opetition, Brandenburger Nalebuff, 1996
13
University Value Net
Co-opetition, Brandenburger Nalebuff, 1996
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Co-opetition, Brandenburger Nalebuff, 1996
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A Framework for Competitor Analysis
OBJECTIVES What are competitors current
goals? Is performance meeting there goals? How
are its goals likely to change?
STRATEGY How is the firm competing?

• PREDICTIONS
• What strategy changes
• will the competitor
• initiate?
• How will the competitor
• respond to our strategic
• initiatives?

ASSUMPTIONS What assumptions does the
competitor hold about the industry and itself?
RESOURCES CAPABILITIES What are the
competitors key strengths and weaknesses?
Sources of information
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Segmentation Analysis The Principal Stages

• Identify key variables
• and categories.
• Construct a segmentation matrix
• Analyze segment attractiveness
• Identify KSFs in each segment
• Analyze benefits of
• broad vs. narrow scope.

Identify segmentation variables Reduce to 2 or 3
variables Identify discrete categories for each
variable
Potential for economies of scope across
segments Similarity of KSFs Product
differentiation benefits of segment focus
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The Basis for Segmentation Customer and Product
Characteristics
Size Technical sophistication OEM/replacemen
t
Industrial buyers
Characteristics of the Buyers
Demographics Lifestyle Purchase occasion
Household buyers
Size Distributor/broker Exclusive/
nonexclusive General/special list
Distribution channel
Opportunities for Differentiation
Geographical location
Physical size Price level Product
features Technology design Inputs used (e.g.
raw materials) Performance characteristics Pre-s
ales post-sales services
Characteristics of the Product
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Segmenting the European Metal Can Industry
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Segmenting the World Automobile Market
REGION US Canada W.Europe
E.Europe Asia Lat America Australia
Africa Luxury Cars Full-size sedans Mid-size
sedans Small sedans Station wagons Passenger
minivans Sports cars Sport-utility Pick-up
trucks
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Vertical Segmentation Industry Profit
Pools The US Auto Industry
25





20
Service repair
Leasing
Operating margin

15
Warranty
Aftermarket parts

Auto manufacturing
10
Auto rental
Auto insurance
Auto loans
New car dealers
5
Used car dealers
0
Gasoline
100
0
Share of industry revenue
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Segmentation and Key Success Factors in the U.S.
Bicycle Industry
SEGMENT
KEY SUCCESS FACTORS
Low-costs through global sourcing of components
low-wage assembly. Supply contract with
major retailer. Leading competitors Taiwanese
Chinese assemblers, some U.S manufacturers, e.g.
Murray Ohio, Huffy
Low price bicycles sold primarily through
department and discount stores, mainly under the
retailers own brand (e.g. Sears Free Spirit)
Cost efficiency through large scale operation
and either low wages or automated
manufacturing. Reputation for quality
(durability, reliability) through effective
marketing to dealers and/or consumers.
International marketing distribution. Leading
competitors Raleigh, Giant, Peugeot, Fuji
Medium-priced bicycles sold primarily under
manufacturers brand name and distributed mainly
through specialist bicycles stores
Focus vs. Broad, Branding
Quality of components and assembly, Innovation
in design (e.g. minimizing weight and wind
resistance). Reputation (e.g. through success in
racing, through effective brand
management). Strong dealer relations.
High-priced bicycles for enthusiasts.
Childrens bicycles (and tricycles)
sold primarily through toy retailers (discount
toy stores, department stores, and specialist
toy stores).
Similar to low-price bicycle segment.
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Strategic Group Analysis

• A strategic group is a group of firms in an
  industry following the same or similar strategy.
  

• Identifying strategic groups
• Identify principal strategic
• variables which distinguish
• firms.
• Position each firm in relation
• to these variables.
• Identify clusters.

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Strategic Groups in the World Automobile Industry
Broad
GLOBAL, BROAD-LINE PRODUCERS e.g., GM, Ford,
Toyota, Nissan, Honda, VW, Daimler Chrysler
REGIONALLY-FOCUSED BROAD-LINE PRODUCERS e.g.
Fiat, PSA, Renault,
GLOBAL SUPPLIERS OF NARROW MODEL RANGE e.g.,
Volvo, Subaru, Isuzu, Suzuki, Saab, Hyundai
NATIONALLY FOCUSED, INTERMEDIATE LINE PRODUCERS
e.g. Tofas, Kia, Proton, Maruti
PRODUCT RANGE
LUXURY CAR MANUFACTURERS e.g., Jaguar, Rolls
Royce, BMW
NATIONALLY- FOCUSED, SMALL, SPECIALIST PRODUCERS
e.g., Bristol (U.K.), Classic Roadsters (U.S.),
Morgan (U.K.)
PERFORMANCE CAR PRODUCERS e.g., Porsche,
Maserati, Lotus
Narrow
National
GEOGRAPHICAL SCOPE
Global
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Strategic Groups Within the World Petroleum
Industry
INTERNATIONAL UPSTREAM COMPANIES
INTEGRATED OIL MAJORS INTERNATIONAL UPSTREAM, REGI
ONALLY FOCUSED DOWNSTREAM
Premier Oil
Enterprise
Kuwait Petroleum
PDVSA
INTEGRATED DOMESTIC OIL COMPANIES
NATIONAL PRODUCTION COMPANIES
Iran NOC
0 0.5 1.0 1.5 2.0
Exxon -Mobil
Statoil
BP-Amoco
Vertical Balance
INTEGRATED INTERNATIONAL MAJORS
Chevron
Petronas
Pemex
Royal Dutch -Shell Gp.
Phillips ENI Elf-Fina-Total Repsol
YPF
Indian Oil
Phillips
Petrobras
Texaco
ENI
INTERNATIONAL DOWNSTREAM OIL COMPANIES
Repsol
Nippon
E.g. Neste
Tosco
0 10 20 30 40 50 60 70 80
NATIONALLY-FOCUSED DOWNSTREAM COMPANIES
Geographical Scope