Session 9 Strategic Segmentation

Transcription

1 UNIVERSITA CATTANEO - LIUC Course Session 9 Strategic Segmentation 1

2 Limits of the 5 forces framework Static nature: industry structure drives intensity of competition, which in turn determines the level of industry profitability. However, strategy transforms industry structure (acquisitions, new ventures, new technologies, novel approaches to distribution and segmentation) Lack of empirical support as to the importance of industry environment as a determinant of firm profitability Year 2% Industry 19% Not explained 43% Corporate 4% 2 Competitive advantage 32%

3 Complements: a missing dimension of the 5 forces model? SUPPLIERS e.g., ink cartridges and ink-jet printers; Video game consoles and software INDUSTRY COMPETITORS COMPLEMENTS POTENTIAL ENTRANTS 1 st : Rivalry among existing firms SUBSTITUTES BUYERS 3

4 Complements: a missing dimension of the 5 forces model? Complementors are not a competitive force The closer their relationship to the products supplied by the industry, the greater the potential profit within the industry Need to manage relationships with complementors: where products are close complements, they have little value to customers individually 4

5 The external sources of competitive advantage: Identifying critical success factors Prerequisites for success What do customers want? How does the firm survive competition? Analysis of demand: Who are our customers? What do they want? Analysis of competition: What drives competition? What drives the main dimensions of competition? How intense is competition? How can we obtain a superior competitive position? CRITICAL SUCCESS FACTORS (CSF) 2) Segmentation analysis 1) Modeling profitability 5 3) Competitor intelligence 4) Strategic group analysis

6 Identifying key success factors: an example What do customers want? (analysis of demand) Low prices, convenient location, wide range of products, product range adapted to local customer preferences, freshness of produce, cleanliness, service, pleasant ambience. How does a firm survive competition? (Analysis of competition) Markets localized and concentration normally high. But customer price sensitivity encourages price competition. Exercise of bargaining power has an important influence on input cost. Scale economies in operation and advertising. KEY SUCCESS FACTORS: Low-cost operation requires operational efficiency, scale efficient stores, large aggregate purchases to maximize buying power, low wage costs. Differentiation requires large stores (to allow wide product range), convenient location, easy parking. 6

7 Identifying key success factors: 1) Modeling profitability The airline business Op.Income ASMs Revenues RPMs = X less RPMs ASMs Expenses ASMs profitability yield load factor unit cost How much do I make on each available seat mile? What are the revenues per each revenue passenger mile? What is the proportion of revenue passenger mile over all available seat miles? What are our costs for each available seat mile? What are the revenues for each available seat mile? ASM = Available seat miles RPM = Revenue passenger miles (a measure of capacity/scale) (a measure of capacity utilization) 7

8 Identifying key success factors: Modeling profitability The airline business Some of the primary determinants of profitability within airline industry YIELD (REVENUE/RPMs): Intensity of competition on routes flown (allows selectively higher prices) Effective yield management to permit quick price adjustment to changing market conditions (lowering prices only when needed) Ability to attract business customers (given price) Superior customer service (allows higher prices) LOAD FACTORS (RPMs/ASMs): Competitiveness of prices Efficiency of route planning (e.g., through hub-and-spoke systems) Building customer loyalty through quality of service, frequent-flier programs Matching airplane size to demand for individual flights UNIT COST (EXPENSES/ASMs): Wage rates and benefits level Fuel efficiency of aircraft Productivity of employees (job flexibility) Load factors Level of administrative costs 8

9 Identifying key success factors: 2) segmentation analysis Conventionally, industries are defined broadly (e.g., pharmaceutical industry) However, competition tends to occur at a localized level Hence, we need to disaggregate, in order to develop a carefully targeted competitive strategy Such segmentation is particularly important if the nature and intensity of competition varies among the different sub-markets (e.g., prescription vs. OTC pharmaceuticals), because this usually implies different attractiveness and different CSF Segmentation analysis usually follows 5 stages 9

10 Identifying key success factors: 2) five steps of segmentation analysis 1. Identify key segmentation variables (Identify possible segmentation variables; reduce the number of segmentation variables to the most significant, non correlated ones; identify discrete categories for each segmentation variable) 2. Construct a segmentation matrix 3. Analyze each segment s attractiveness (5 forces model for each segment) 4. Identify CSF in each segment (within each segment, how do customers choose, and what is needed to survive competition?) 5. Analyze attractions of broad vs. narrow segment scope (what is the potential to share costs and transfer skills across segments? How similar are CSF between segments? Are there benefits of segment specialization?) 10

11 Identifying key success factors: 2) five steps of segmentation analysis; the European metal can industry Food Fruit juice Pet food Soft drink Beer Oil Steel 3-piece Steel 2- piece ITALY GERMANY SPAIN/PORTUGAL FRANCE Aluminum 2- piece General cans Composite cans Aerosol cans 11

12 Identifying key success factors: 2) five steps of segmentation analysis; the European metal can industry Supplier power Strong labor union Competitive aluminum supply Barriers to mobility High cost of aluminum can lines Internal rivalry Few companies Low differentiation Little excess capacity Substitutes Steel cans not viable Plastic unattractive in small sizes Glass heavy Buyer power Influence of a few large soft drink bottlers 12

13 Identifying key success factors: 3) Competitor Intelligence Competitor intelligence involves the systematic collection and analysis of public information about rivals for informing decision making. It has three main purposes: To forecast competitors future strategies and decisions To predict competitors likely reactions to a firm s strategic initiatives To determine how competitors behavior can be influenced to make it more favorable 13

14 Identifying key success factors: 3) Competitor Intelligence, a framework STRATEGY How is the firm competing? OBJECTIVES What are competitors current goals? Is performance meeting these goals? How are its goals likely to change? ASSUMPTIONS What assumptions does the competitor hold about the industry and itself? PREDICTIONS: What strategy changes will the competitor initiate? How will the competitor respond to our strategic initiatives? How can we influence the competitor s behavior? RESOURCES AND CAPABILITIES What are the competitors key strengths and weaknesses? 14