Lecture #6
MARKETING STRATEGY.
Industry Analysis
Strategic Window?
Strategic Window?
The point of time at which the right environmental conditions exist for a particular
marketing opportunity
Industry analysis
Understanding the nature of the industry and how it changes is thus crucial to
understanding the process of how strategic-windows can be opened and closed by
external forces.
Industries and markets are different entities.
markets= groups of customers with similar buying needs
industries = collections of organizations with common products and technologies
Industry analysis
markets= groups of customers with similar buying needs
industries = collections of organizations with common products and technologies
Example: Vehicle makers - industry or market?
Industry analysis
Industry analysis
markets= groups of customers with similar buying needs
industries = collections of organizations with common products and technologies
Example: Vehicle makers - industry,
Car products represent a market—the products and services customers use to
maintain their cars.
Both a knowledge of markets and industries helps to identify competition.
Industry analysis. Industry life cycles
In the same way that products have life cycles so too do industries.
initially the concept of the product life cycle was based on the notion that
technologies have life cycles and that it was the technologies
incorporated in products that gave the latter life cycles.
Industries are about products and technologies - is natural to them to have life
cycle.
Stages?
Industry analysis. Industry life cycles
3 key stages: growth, maturity, decline
The relevant aspects of an industry—the amount of hostility that exists in an
industry and the amount of fragmentation that has taken place
Hostility?
Fragmentation?
Industry analysis. Industry life cycles
Hostility = unfriendly or aggressive behaviour towards people or ideas
Fragmentation = happens when there is no clear leader within an industry. This
means while many companies may operate in a specific industry, none of them have
enough market share to influence prices, production, investment, and their
competition.
Industry analysis. Analysis of emerging and developing
industries.
Emerging industries are either newly formed or reformed industries that
have been produced by technological innovations, shifts in cost relationships,
emergence of new consumer needs, or other economic and sociological
changes that make a new product or service a potentially viable business
opportunity (Porter, 1980a).
In such a situation, from the viewpoint of formulating strategy there are no
preconceived ideas on how to operate competitively.
Examples?
Industry analysis. Analysis of emerging and developing
industries.
Artificial Intelegence
Robotics
Self-driving cars
Biotechnology
Industry analysis. Analysis of emerging and developing
industries.
Considerable uncertainty exists about the technology and the strategic
approaches adopted by industry participants. There is little or poor
information about competitors, their customers and what is happening in
the industry. Often there is ignorance regarding which firms are actually
competitors and reliable industry sales and market share data are often
unavailable.
In the case of producers, the initial small production volume and lack of
experience with the product often combine to produce high costs relative to
those the industry can potentially achieve. Often there is a steep learning
curve in operation and ideas come rapidly in terms of improved procedures
Industry analysis. Analysis of emerging and developing
industries.
Learning curve = the rate of a person's progress in gaining
experience or new skills.
Industry analysis. Analysis of emerging and developing
industries.
Learning curve = the rate of a person's progress in gaining
experience or new skills.
Industry analysis. Analysis of emerging and developing
industries.
From the customer’s point of view, changeover costs from what they
currently use can be expensive.
There is also the cost of obsolescence.
= incurred when an item in inventory becomes obsolete before it is sold or used.
Inventory may become obsolete due to product design changes, changes in
customer demand, or by remaining unsold after an acceptable shelf life.
Industry analysis. Analysis of emerging and developing
industries.
For some buyers, where successive generations of technology in the emerging
industry will make early versions of products obsolete, all the benefits they
require may be obtained from the first generation. Others, however, will be
forced to acquire successive generations of the new product to remain
competitive.
Industry analysis. Analysis of emerging and developing
industries.
Industry analysis. Analysis of emerging and developing
industries.
The tech giant Apple Inc. is the master of this strategy. It employs built-in
obsolescence to compel consumers to buy iPhones every couple of years. As part of
its strategy, iPhones use batteries with 2-3 years of lifespan. After that, the battery
needs replacement which requires a substantial amount. Mobile users prefer
replacing their existing iPhone with a new model than coughing up a large sum for
just a battery.
Industry analysis. Analysis of emerging and developing
industries.
As per an NYP news report, Apple plans to update its vintage list with models like
iPhone 6 and iPhone 6 Plus. Apple places the old models in its vintage list first
before making them obsolete. As soon a product enters the vintage list, customers
find it difficult to get its spare parts, repairs, or software updates. Furthermore,
after the products enter the obsolescence phase, Apple removes all types of
support for the products.
Industry analysis. Analysis of emerging and developing
industries.
This act of planned obsolescence by Apple aims to entice and force the users to buy
its newer models of iPhone. Apple’s built-in obsolescence made headlines in 2017
when a French company filed a criminal case against it. The lawsuit claimed that
Apple had deliberately slowed down old iPhones through software updates to force
the users to buy the newer version of the iPhone.
After the investigations started against Apple in France, Apple apologized. It
clarified that it slowed down the iPhone to save battery. Later on, apple reduced the
price of the new lithium-ion battery to one-third to help the iPhone gain its previous
speed and performance.
Industry analysis. Analysis of emerging and developing
industries.
Industry analysis. Analysis of emerging and developing
industries. Characteristics Summary
Emerging industries are either newly formed or reformed industries that have
been produced by technological innovations, shifts in cost relationships,
emergence of new consumer needs, or other economic and sociological changes
that make a new product or service a potentially viable business opportunity.
2 Uncertainty exists about the technology and the strategic approaches adopted
by industry participants. There is little or poor information about competitors,
their customers and what is happening in the industry and reliable industry
sales and market share data are often unavailable.
Industry analysis. Analysis of emerging and developing
industries. Characteristics Summary
3 The initial small production volume and lack of experience with the product
often combine to produce high costs relative to those the industry can potentially
achieve.
4 From the customer’s point of view, changeover costs from what they currently
use can be expensive.
Important: Good marketing information systems need to be put in place to collect
and assimilate whatever sparse data can be collected about customers,
competitors and other relevant factors
Industry analysis. Analysis of maturing industries
Growth in evolving industries slows down with time, but maturity does not
occur at any fixed point in development.
It can be delayed by innovations or other events that maintain continued growth,
and strategic breakthroughs may even lead mature industries to recover rapid
growth.
Industries canexperience more than one transition to maturity. In many ways this is
similar to the concept of the product life cycle where the cycle can be extended by
product face-lifts and so on.
Industry analysis. Analysis of maturing industries
Clues concerning the transition to maturity may be obtained by studying
the significant changes that take place in the competitive environment during
this stage of development.
Analysis should try to identify those competitors that do not perceive the need for
such changes very clearly or may perceive
them but be reluctant to make the often substantial changes in strategy that
are required.
Industry analysis. Analysis of maturing industries
Examples: automotive, petrolium
Industry analysis. Analysis of maturing industries
IMPLICATIONS OF THE TRANSITION
TO MATURITY
Rationalization of the product mix and correct pricing become key issues
and place a considerable amount of emphasis on cost analysis.
Whereas broad product lines and the introduction of new varieties and options may
have characterized the growth phase, at the maturity phase this may no longer be
a viable strategy. Emphasis on cost control may accentuate the need to prune
and find less risky ways of maintaining market share. The maturity phase
puts pressure on the advantage of being able to measure costs of individual
items and to set the prices accordingly.
Industry analysis. Analysis of maturing industries
IMPLICATIONS OF THE TRANSITION
TO MATURITY
Rationalization of the product mix and correct pricing become key issues
and place a considerable amount of emphasis on cost analysis.
Whereas broad product lines and the introduction of new varieties and options may
have characterized the growth phase, at the maturity phase this may no longer be
a viable strategy. Emphasis on cost control may accentuate the need to prune
and find less risky ways of maintaining market share. The maturity phase
puts pressure on the advantage of being able to measure costs of individual
items and to set the prices accordingly.
Industry analysis. Analysis of maturing industries
Industry analysis. Analysis of maturing industries
Industry analysis. Analysis of maturing industries
New markets are characterized by moves into neglected or ignored market
segments with potential for new growth. Sometimes a dormant industry can
be revitalized by a new product that makes existing products obsolete and
accelerates the replacement cycle. A new application for a product can
stimulate new industry growth. A product class can be revived by a revitalized
marketing approach. Government-stimulated growth can take the form of
tax incentives or legislation giving rise to a new industry or market. Some
firms have been successful in declining or mature industries because they
have been able to focus on growth sub-areas, pockets of demand that are
healthy and even expanding
Industry analysis. Analysis of maturing industries
ANALYSIS OF FRAGMENTED INDUSTRIES
Many firms compete in industries where no one firm has a significant market
share and is able to impose a strong influence over the industry. Small and
medium-sized firms are often to be found in such industries. The essential
feature of such industries is the absence of a market leader having the power
to shape the industry. Fragmented industries occur across a broad section of
different types of busines
Industry analysis. Analysis of maturing industries
Industries are fragmented for a wide variety of reasons some of which
involve underlying economic causes. These include:
• low overall entry barriers
• absence of economies of scale or experience curve
• high transportation costs
• high inventory costs or erratic sales fluctuations
• no advantages of size in dealing with buyers or suppliers
• diseconomies of scale in some important aspect of business
• diverse market needs
• high product differentiation, particularly when based upon image
• exit barriers in place.
Industry analysis. Analysis of maturing industries
Overcoming fragmentation represents a very significant strategic opportunity.
The rewards can be high because entry costs are low and there tend to be
small and relatively weak competitors who offer little in the way of threats or
retaliation.
Industry analysis. Analysis of maturing industries
Overcoming fragmentation needs an attack on the fundamental
economic factors leading to the fragmented structure. Some common
approaches include:
•Creating economies of scale or experience curve benefits
—process innovations
may consolidate an industry.
•Standardizing diverse market needs—product or marketing innovations can
achieve this.
•Overcoming those aspects most responsible for fragmentation.
•Making acquisitions for a critical mass—
making many acquisitions of
neighbouring firms can be successful provided that the acquisitions can
be integrated and managed
Industry analysis.
Fragmented industries often produce products or services that are difficult
to differentiate from one another. An effective strategy can be to increase the
added value of the business by concentrating on the nature of the augmented
product or service
Examples?
Industry analysis.
Fragmented industries exapmles
Restaurants
Clinics
Kindergardens
Auto repairs
Industry analysis.
1. Is industry is fragmented?
2. Why is fragmented? Identify what causes a fragmentation?
3. Can fragmentation e overcomed? How?
4. Is it profitable?
Industry analysis. Analysis of maturing industries
Milk or harvest
This strategy aims to generate cash flow by reducing investment and operating
expenses, even if it causes a reduction in sales and market share.
It assumes
that the firm has better use for the funds and that the business is not crucial
to the firm in any way and that a milking strategy is feasible because sales
will decline in an orderly fashion.
Industry analysis. Analysis of maturing industries
Milk or harvest
Fast milking involves sharp reductions in operating expenditures and
even price increases to maximize short-term cash flow and to minimize
the possibility that any additional money will be invested in the business.
The strategy accepts the risk of a sharp sales decline that could precipitate
a market exit. Slow milking involves sharply reducing long-term
investment in plant, equipment and R&D, but only gradually reducing
expenditures in operating areas such as marketing and service. The latter
attempts to maximize the flow of cash over time by prolonging and slowing
the decline.
Industry analysis. Analysis of maturing industries
Milk or harvest
Fast milking involves sharp reductions in operating expenditures and
even price increases to maximize short-term cash flow and to minimize
the possibility that any additional money will be invested in the business.
The strategy accepts the risk of a sharp sales decline that could precipitate
a market exit. Slow milking involves sharply reducing long-term
investment in plant, equipment and R&D, but only gradually reducing
expenditures in operating areas such as marketing and service. The latter
attempts to maximize the flow of cash over time by prolonging and slowing
the decline.
Industry analysis. Analysis of maturing industries
The hold strategy
The strategy is a variant of the milking strategy and involves avoiding growth-
motivated investment but maintaining an adequate level of investment to
maintain product quality, production facilities and customer loyalty. It is
appropriate when an industry is declining in an orderly way, pockets of
enduring demand exist, price pressures are not extreme, the firm has
exploitable assets or skills, and a business contributes by its presence to
other business units in the firm.
One problem with the hold strategy is that if conditions change, reluctance
or slowness to reinvest may result in lost market share
Industry analysis. Analysis of maturing industries
