Barringer E3 PPT 05

Chapter 5
Industry and
Competitor Analysis
Bruce R. Barringer
R. Duane Ireland
©2010 Prentice Hall 5-1

Opening Case
BusinessesAtoZ
www.businessatoz.com
• Example of conscious positioning of a new
business to offer the advantages that large
competitors offer (reliability of webhost like
Yahoo)…but the responsiveness of a
small competitor.
©2010 Prentice Hall

Chapter Objectives
1 of 2
1. Explain the purpose of an industry analysis.

2. Identify the five competitive forces that determine
industry profitability.
3. Explain the role of “barriers to entry” in creating
disincentives for firms to enter an industry.
4. Identify the nontraditional barriers to entry that are
especially associated with entrepreneurial firms.
5. List the four industry-related questions to ask
before pursuing the idea for a firm.

Chapter Objectives
2 of 2
6. Identify the five primary industry types and the

opportunities they offer.
7. Explain the purpose of a competitor analysis.
8. Identify the three groups of competitors a new firm
will face.
9. Describe ways a firm can ethically obtain
information about its competitors.
10. Describe the reasons for completing a competitive
analysis grid.

What is Industry Analysis?
• Industry
– An industry is a group of firms producing a similar product
or service, such as airlines, fitness drinks, furniture, or
electronic games.
• Industry Analysis
– Is business research that focuses on the potential of an
industry.

What is Industry Analysis Important?
Importance
• Once it is determined that a new
venture is feasible in regard to the
Industry Analysis industry and market in which it
will compete, a more in-depth
analysis is needed to learn the ins
and outs of the industry.
• The analysis helps a firm determine
if the niche market it identified
during feasibility analysis is
favorable for a new firm.
Three Key Questions
When studying an industry, an entrepreneur must answer
three questions before pursuing the idea of starting a firm.
Question 1 Question 2 Question 3
Is the industry Are there positions in

Does the industry
accessible—in other the industry that avoid
contain markets that
words, is it is realistic some of the negative
are ripe for innovation
place for a new attributes of the
or are underserved?
venture to enter? industry as a whole?

How Industry and Firm-Level Factors
Affect Performance
• Firm Level Factors
– Include a firm’s assets, products, culture, teamwork among
its employees, reputation, and other resources.
• Industry Level Factors
– Include threat of new entrants, rivalry among existing
firms, bargaining power of buyers, and related factors.
• Conclusion
– In various studies, researchers have found that from 8% to
30% of the variation in firm profitability is directly
attributable to the industry in which a firm competes.

Techniques Available to Assess Industry
Attractiveness
Assessing Industry Attractiveness
Study Environmental The Five Competitive

and Business Trends Forces Model

Studying Industry Trends
• Environmental Trends
– Include economic trends, social trends, technological
advances, and political and regulatory changes.
– For example, industries that sell products to seniors are
benefiting by the aging of the population.
• Business Trends
– Other trends that impact an industry.
– For example, are profit margins in the industry increasing
or falling? Is innovation accelerating or waning? Are input
costs going up or down?

The Five Competitive Forces Model
1 of 3
• Explanation of the Five Forces Model

– The five competitive forces model is a framework for
understanding the structure of an industry.
– The model is composed of the forces that determine
– They help determine the average rate of return for the firms
in an industry.

2 of 3
• Explanation of the Five Forces Model (continued)

– Each of the five-forces impacts the average rate of return
for the firms in an industry by applying pressure on
– Well managed firms try to position their firms in a way that
avoids or diminishes these forces—in an attempt to beat the
average rate of return of the industry.

3 of 3

Threat of Substitutes
1 of 3
• Threat of Substitutes
– The price that consumers are willing to pay for a product
depends in part on the availability of substitute products.
– For example, there are few if any substitutes for
prescription medicines, which is one of the reasons the
pharmaceutical industry is so profitable.
– In contrast, when close substitutes for a product exist,
industry profitability is suppressed, because consumers will
opt out if the price gets too high.

2 of 3
• Threat of Substitutes (continued)

– The extent to which substitutes suppress the profitability of
an industry depends on the propensity for buyers to
substitute between alternatives.
– This is why firms in an industry often offer their customers
amenities to reduce the likelihood that they will switch to a
substitute product, even in light of a price increase.

3 of 3
• A customer could easily get

a cup of coffee cheaper at
one of Starbuck’s competitors.
• To decrease the likelihood of
this, Starbucks offers high-
quality fresh coffee, good
service, and a pleasant
atmosphere.
• Starbucks has therefore
reduced the threat of
substitutes.

Threat of New Entrants
1 of 6
• Threat of New Entrants

– If the firms in an industry are highly profitable, the industry
becomes a magnet to new entrants.
– Unless something is done to stop this, the competition in
the industry will increase, and average industry profitability
will decline.
– Firms in an industry try to keep the number of new entrants
low by erecting barriers to entry.
• A barrier to entry is a condition that creates a disincentive for a new
firm to enter an industry.

2 of 6
Barriers to Entry
Barrier to Entry Explanation
Industries that are characterized by large economies

Economies of Scale
of scale are difficult for new firms to enter, unless they
are willing to accept a cost disadvantage.
Industries such as the soft drink industry that are

Product
characterized by firms with strong brands are difficult
differentiation
to break into without spending heavily on advertising.
Capital The need to invest large amounts of money to gain

requirements entrance to an industry is another barrier to entry.

3 of 6
Barriers to Entry (continued)

Existing firm may have cost advantages not related to
Cost advantages size. For example, the existing firms in an industry
independent of size may have purchased land when it was less expensive
than it is today.
Distribution channels are often hard to crack. This is

Access to distribution particularly true in crowded markets, such as the
channels convenience store market.
Government and Some industries, such as broadcasting, require the

legal barriers granting of a license by a public authority to compete.

4 of 6
• Non Traditional Barriers to Entry

– It is difficult for start-ups to execute barriers to entry that
are expensive, such as economies of scale, because money
is usually tight.
– Start-ups have to rely on nontraditional barriers to entry to
discourage new entrants, such as assembling a world-class
management team that would be difficult for another
company to replicate.

5 of 6
Nontraditional Barriers to Entry
If a start-up puts together a world-class management

Strength of
team, it may give potential rivals pause in taking on
management team
the start-up in its chosen industry.
If a start-up pioneers an industry or a new concept

First-mover
within an industry, the name recognition the start-up
advantage
establishes may create a barrier to entry.
If the employees of a start-up are motivated by the

Passion of the
unique culture of a start-up, and anticipate large
management team
financial reward, this is a combination that cannot be
and employees
replicated by larger firms.

6 of 6
Nontraditional Barriers to Entry (continued)
If a start-up is able to construct a unique business

Unique Business model and establish a network of relationships that
Model makes the business model work, this set of advantages
creates a barrier to entry.
Some Internet domain names are so “spot-on” that

Internet Domain they give a start-up a meaningful leg up in terms of e-
Name commerce opportunities.
Inventing a new If a start-up invents a new approach to an industry

approach to an and executes it in an exemplary fashion, these factors
industry create a barrier to entry for potential imitators.

Rivalry Among Existing Firms
1 of 3
• Rivalry Among Existing Firms

– In most industries, the major determinant of industry
profitability is the level of competition among existing
firms.
– Some industries are fiercely competitive, to the point where
prices are pushed below the level of costs, and industry-
wide losses occur.
– In other industries, competition is much less intense and
price competition is subdued.

2 of 3
Factors that determine the intensity of the rivalry among

existing firms in an industry.
Number and The more competitors there are, the more likely it
balance of is that one or more will try to gain customers by
competitors cutting its price.
Degree of The degree to which products differ from one

difference product to another affects industry rivalry.
between products

3 of 3
Factors that determine the intensity of the rivalry among existing

firms in an industry (continued)
The competition among firms in a slow-growth

Growth rate of an
industry is stronger than among those in fast-
industry
growth industries.
Firms that have high fixed costs must sell a higher

Level of fixed
volume of their product to reach the break-even
costs
point than firms with low fixed costs.

Bargaining Power of Suppliers
1 of 3
• Bargaining Power of Suppliers

– Suppliers can suppress the profitability of the industries to
which they sell by raising prices or reducing the quality of
the components they provide.
– If a supplier reduces the quality of the components it
supplies, the quality of the finished product will suffer, and
the manufacturer will eventually have to lower its price.
– If the suppliers are powerful relative to the firms in the
industry to which they sell, industry profitability can suffer.

2 of 3
Factors that have an impact on the ability of suppliers to

exert pressure on buyers
Supplier When they are only a few suppliers that supply a

concentration critical product to a large number of buyers, the
supplier has an advantage.
Switching costs are the fixed costs that buyers

Switching costs encounter when switching or changing from one
supplier to another. If switching costs are high, a
buyer will be less likely to switch suppliers.

3 of 3
Factors that have an impact on the ability of suppliers to exert

pressure on buyers (continued)
Attractiveness of Supplier power is enhanced if there are no

substitutes attractive substitutes for the product or services
the supplier offers.
Threat of The power of a supplier is enhanced if there is a

forward credible possibility that the supplier might enter
integration the buyer’s industry.

Bargaining Power of Buyers
1 of 3
• Bargaining Power of Buyers

– Buyers can suppress the profitability of the industries from
which they purchase by demanding price concessions or
increases in quality.
– For example, the automobile industry is dominated by a
handful of large companies that buy products from
thousands of suppliers in different industries. This allows
the automakers to suppress the profitability of the
industries from which they buy by demanding price
reductions.

2 of 3
Factors that have an impact on the ability of suppliers to exert

pressure on buyers
If there are only a few large buyers, and they buy

Buyer group from a large number of suppliers, they can
concentration pressure the suppliers to lower costs and thus
affect the profitability of the industries from which
they buy.
The greater the importance of an item is to a

Buyer’s costs buyer, the more sensitive the buyer will be to the
price it pays.

3 of 3
Factors that have an impact on the ability of buyers to exert

pressure on suppliers (continued)
Degree of The degree to which a supplier’s product

standardization differs from its competitors affect the buyer’s
of supplier’s bargaining power.
products
Threat of The power of buyers is enhanced if there is a

backward credible threat that the buyer might enter the
integration supplier’s industry.

First Application of the Five Forces Model
1 of 2
• First Application of the Model

– The five forces model can be used to assess the
attractiveness of an industry by determining the level of
threat to industry profitability for each of the forces.
– If a firm fills out the form shown on the next slide and
several of the threats to industry profitability are high, the
firm may want to reconsider entering the industry or think
carefully about the position it would occupy.

First Application of the Five Forced Model
2 of 2
Assessing Industry Attractiveness Using the Five Forces Model

Second Application of the Five Forces Model
1 of 2
• Second Application of the Model

– The second way a new firm can apply the five forces model
to help determine whether it should enter an industry is by
using the model to answer several key questions.
– The questions are shown in the figure on the next slide, and
help a firm project the potential success of a new venture in
a particular industry.

Second Application of the Five Forced Model
2 of 2
Using the Five Forces Model to Pose Questions to Determine the Potential
Success of a New Venture in an Industry

Industry Types and the Opportunities
They Offer
1 of 3
• Emerging Industries
– Industries in which standard operating procedures have yet
to be developed.
• Opportunity: First-mover advantage.
• Fragmented Industries
– Industries that are characterized by a large number of firms
of approximately equal size.
• Opportunity: Consolidation.

They Offer
2 of 3
• Mature Industries
– Industries that are experiencing slow or no increase in
demand.
• Opportunities: Process innovation and after-sale service innovation.
• Declining Industries
– Industries that are experiencing a reduction in demand.
• Opportunities: Leadership, establishing a niche market, and
pursuing a cost reduction strategy.

They Offer
3 of 3
• Global Industries
– Industries that are experiencing significant international
sales.
• Opportunities: Multidomestic and global strategies.

Competitor Analysis
• What is a Competitor Analysis?

– A competitor analysis is a detailed analysis of a firm’s
competition.
– It helps a firm understand the positions of its major
competitors and the opportunities that are available.
– A competitive analysis grid is a tool for organizing the
information a firm collects about its competitors.

Identifying Competitors
Types of Competitors New Ventures Face

Sources of Competitive Intelligence
1 of 3
• Collecting Competitive Intelligence

– To complete a competitive analysis grid, a firm must first
understand the strategies and behaviors of its competitors.
– The information that is gathered by a firm to learn about its
competitors is referred to as competitive intelligence.
– A new venture should take care that it collects competitive
intelligence in a professional and ethical manner.

2 of 3
Ethical ways to obtain information about competitors
• Attend conferences and trade shows.

• Purchase competitor’s products.
• Study competitors’ Web sites.
• Set up Google and Yahoo! e-mail alerts.
• Read industry-related books, magazines, and Web sites.
• Talk to customers about what motivated them to buy your
product as opposed to your competitor’s product.

3 of 3
• Many companies attend

trade shows to not only
display their products,
but to see what their
competitors are up to.
• This is a photo of the
the 2008 Consumer
Electronics Trade Show
in Las Vegas.

Completing a Competitive Analysis Grid
• Competitive Analysis Grid

– A tool for organizing the information a firm collects about
its competitors
– A competitive analysis grid can help a firm see how it
stakes up against its competitors, provide ideas for markets
to pursue, and identify its primary sources of competitive
advantage.

Competitive a Analysis Grid for Expresso
Fitness

Review Question 1
What is an industry? Provide an example
of an industry and several firms in it.
– An industry is a group of firms producing a

similar product or service.
– An example of an industry is the airline
industry. A partial list of the firms in the
airline includes: Air Canada, WestJet,
Porter, Bearskin, CalmAir.

Review Question 2
What is the purpose of industry analysis?
– Industry analysis is business research that

focuses on the potential of a particular
industry.

Review Question 3
What are the four primary categories of environmental trends? Provide
an example of how a trend in each category could affect the toy industry?
The four primary categories of environmental trends are economic trends,

social trends, technological advances, and political and regulatory changes.
– Economic trend: The recession is impacting the discretionary income that

people have. Because toys are largely a discretionary purchase, toy sales are
likely to be negatively impacted by the recession.
– Social trend: Children are experimenting with video games at earlier ages
than ever before, which may negatively impact traditional toy sales.
– Technological advances: Advances in video games (think Wii) and
alternative products like the Apple iPod are providing young children
alternatives to traditional toys.
– Political and regulatory changes. Since most toys are made in low labor
rate countries like China, any political or regulatory changes that impacts U.S.
China (or similar country) trade may have an impact on the toy industry.

Review Question 4
Identify the five competitive forces that
determine industry profitability.
– The threat of substitutes,

– the entry of new competitors,
– rivalry among existing firms,
– the bargaining power of suppliers,
– and the bargaining power of buyers.
These are the forces that comprise Michael Porter’s

five-forces analysis, as described in the book.

Review Question 5
Describe how the threat of substitute products has the
potential to suppress an industry’s profitability.
– The price that consumers are willing to pay for a product

depends in part on the availability of substitute products.
– When close substitutes for a product exist, industry profitability
is suppressed because consumers will opt not to buy when the
price is too high.
– Consider the price of movie tickets. If the price gets too high,
consumers can easily switch to watching rented videos, pay-
per-view, or some other forms of entertainment.

Review Question 6
How does the threat of new entrants
have the potential to suppress an
industry’s profitability?
– If the firms in an industry are highly

profitable, the industry becomes a magnet to
new entrants.
– Unless something is done to stop this, the
competition in the industry will increase, and
average industry profitability will decline.
Review Question 7
What is meant by the term barrier to entry? Describe the six major sources of
barriers to entry that firms use to restrict entry into their markets.
A barrier to entry is a condition that creates a disincentive for a new firm to enter an industry.
The six major sources of barriers to entry are as follows:

– Economies of scale: Industries that are characterized by large economies of scale are
difficult for new firms to enter, unless they have substantial resources or are willing to
accept a cost disadvantage.
– Product differentiation: Industries such as the soft drink industry that are characterized by
firms with strong brands are difficult to break into without spending heavily on advertising.
– Capital requirements: The need to invest large amounts of money to gain entrance to an
industry is another barrier to entry.
– Cost advantages independent of size: Entrenched competitors may have cost advantages
not related to size that are not available to new entrants.
– Access to distribution channels: Distribution channels are often hard to crack, particularly
for new firms.
– Government and legal barriers: In knowledge-intensive industries, patents, trademarks,
and copyrights form major barriers to entry. Other industries, such as banking and
broadcasting, require the granting of a license by a public authority.

Review Question 8
How does rivalry among existing firms have
the potential to suppress an industry’s
profitability?
In most industries, the major determinant of industry

profitability is the level of competition among the
firms already competing in the industry.
Some industries are fiercely competitive to the point
where prices are pushed below the level of costs.

Review Question 9
Describe the four primary factors that play a role in determining the
nature and intensity of the bargaining power of suppliers. How does the
bargaining power of suppliers have the potential to suppress and
industry’s profitability?
The four factors that play a role in determining the nature and intensity of the
bargaining power of suppliers are:
– Supplier concentration. When there are only a few suppliers that supply a
critical product to a large number of buyers, the supplier has an advantage.
– Switching costs. If switching costs are high, a buyer will be less likely to
switch suppliers.
– Attractiveness of substitutes: Supplier power is enhanced if there are no
attractive substitutes for the product or services the supplier offers.
– Threat of forward integration: The power of a supplier is enhanced if there is a
credible possibility that the supplier might enter the buyer’s industry.
In some cases, suppliers can suppress the profitability of the industries to which
they sell by raising prices or reducing the quality of the components they
provide.

Review Question 10
Describe the four primary factors that play a role in determining the
nature and intensity of the bargaining power of buyers. How does the
bargaining power of buyers have the potential to suppress an industry’s
profitability?
The four factors that play a role in determining the nature and intensity of the
bargaining power of buyers are:
– Buyer group concentration: If the buyers are concentrated, meaning that there
are only a few large buyers, and they buy from a large number of suppliers,
they can pressure the suppliers to lower costs.
– Buyer’s costs: The greater the importance of an item is to a buyer, the more
sensitive the buyer will be to the price it pays.
– Degree of standardization of supplier’s products. The degree to which a
supplier’s products differ from its competitors affects the buyer’s bargaining
power.
– Threat of backward integration: The power of a buyer is enhanced if there is a
credible threat that the buyer might enter the supplier’s industry.
Buyers can suppress the profitability of the industries from which they purchase by
demanding price concessions or increase in quality.

Review Question 11
Identify the nontraditional barriers to entry that are
particularly suitable for entrepreneurial firms.
– Strength of management team,

– first mover advantage,
– passion of management team and employees,
– unique business model tied together by a network of
relationships,
– unique or “spot on” Internet domain names and
– inventing a new approach to an industry and executing the
idea in an exemplary fashion.
These nontraditional barriers to entry are important for firms to

consider and utilize when appropriate.

Review Question 12
How can a start-up avoid or sidestep the pressure
applied by one of the five forces on industry profitability
by establishing a unique “position” in an industry?
– A company’s position determines how it is situated relative to

its rivals.
– An example of a company that has positioned itself in a
favorable manner is Panera Bread, the subject of Case 5.1.
– By establishing a new category in the restaurant industry,
which Panera Bread calls “fast-casual,” Panera diminishes the
“rivalry among existing firms,” by avoiding direct head-to-head
competition with the fast-food and the casual dining segments
of the restaurant industry.

Review Question 13
Describe the characteristics of a fragmented
industry. What is the primary opportunity for
new firms in fragmented markets?
– A fragmented industry is one that is characterized

by a large number of firms of approximately equal
size.
– The primary opportunity existing for start-ups in
fragmented industries is to consolidate the industry
and establish industry leadership as a result of
doing so.

Review Question 14
Describe the characteristics of a mature
industry. What is the primary opportunity for
new firms in a mature industry?
– A mature industry is an industry that is experiencing

slow or no increase in demand, has numerous
repeat customers, and has limited product
innovation.
– The primary opportunity existing for start-ups in
mature industries is to introduce new product
innovations.

Review Question 15
What is a global industry? Describe the two most
common strategies pursued by firms in global
industries.
– A global industry is an industry that is experiencing significant

international sales.
– The two most common strategies pursued by firms in global
industries are the multi-domestic strategy and the global
strategy.
– Firms that pursue a multi-domestic strategy compete for
market share on a country-by-country basis and vary their
product or services offerings to meet the demands of the local
market.
– In contrast, firms pursuing a global strategy use the same
basic approach in all foreign markets.

Review Question 16
Describe the purpose of a competitor
analysis. Make your answer as complete
as possible.
– A competitor analysis is a detailed analysis

of a firm’s competitors. It helps a firm
understand the positions of its major
competitors and the opportunities that are
available to obtain a competitor advantage
in one or more areas.

Review Question 17
Describe the differences between direct competitors,
indirect competitors, and future competitors.
The three different types of competitors referred to above are as

follows:
– Direct competitors: These are businesses that offer products
identical or similar to the products of the firm completing the
analysis.
– Indirect competitors: These competitors offer close substitutes
to the product the firms completing the analysis sells.
– Future competitors: These are companies that are not yet
direct or indirect competitors but could move into one of these
roles at any time.

Review Question 18
What is meant by the term competitive
intelligence? Why is it important for firms to
collect intelligence about their competitors?
– The information that is gathered by a firm to learn

about its competitors is referred to as competitive
intelligence.
– All companies benefit by knowing as much as is
ethically possible about their competitors.

Review Question 19
Identify three sources of competitive
intelligence.
– Attending conferences and trade shows, reading

industry related books, magazines and Web sites,
– Talking to customers about what motivated them to
buy your product as opposed to your competitors.
– Other choices include setting up Google and Yahoo!
e-mail alerts and reading industry-related books,
magazines, and Web sites.

Review Question 20
What is the purpose of completing a
competitive analysis grid?
– A competitive analysis grid is a tool for organizing

the information a firm collects about its competitors.
It can help a firm see how it stakes up against its
competitors in key areas and illustrates a firm’s
primary sources of competitive advantage.
– To be a viable competitor, and new venture must
have at least one clear competitive advantage over
its major rivals.
Application Questions
Chapter 5
Industry and Competitor Analysis

What Went Wrong?
Chapter 5
Bath and Body Works

How One Company Lost a
Favourable Position in an Industry

Bath and Body Works
Question for Critical Thinking 1:
What specific industry trends did Bath & Body Works miss?
What steps, if any, could Bath & Body Works have taken to prevent the
loss of its favourable position in the bath and beauty products
marketplace in the early 2000s?

Bath and Body Works
Look at the website for Bath & Body Works and Sephora.
How would you describe the positioning differences today?
Which firm do you thinks has the most distinct positioning strategy?
What industry trends do you think Sephora is relying on to continue it’s

positive momentum?

Bath and Body Works
Why do you think Bath & Body Works seemed to get caught off-guard
by emerging competition at the top end from Sephora and others
and the bottom end from Target and Wal-Mart?

Bath and Body Works
Use Table 5.2 to complete and industry analysis on the bath and
beauty industry today.
Is it an attractive industry?
Would it be a good or poor industry for a start-up firm to enter?

Application Question 1
Question:
Jason Murphy is thinking about starting a firm in

the fitness drinks industry. When asked by a
potential investor if he had studied the industry,
Jason replied, “The fitness drink industry is so
full of potential, it doesn’t need formal analysis.”
Will Jason’s answer satisfy the investor? In what
ways will Jason limit his potential if his current
attitude about the importance of industry
analysis doesn’t change?
Application Question 1…
Answer:
Jason’s answer will not satisfy the investors.

• While it may be true that the fitness drinks industry is full of potential, that doesn’t
mean that the potential is available to startups.
• The window of opportunity for new entrants may be closed, or one or more of the five
forces that determine industry profitability may be decidedly against new entrants.
• For example, barriers to entry in the fitness drinks industry are high, particularly if the
goal is to get the drink on grocery store shelves.
• Jason needs to determine specifically what the barriers to entry are and demonstrate
to investors that his startup has the potential to overcome the barriers.
• Rivalry among existing firms is also high. Jason needs to have a plan for how to take
market share away from rivals.
Jason will limit his potential to attract investors if he doesn’t change his attitude about
industry analysis. Knowing the dynamics of the industry that one plans to enter is an
important component of selling the potential of any new venture.

Case 5.1
Panera Bread: Occupying a

Favourable Position in a Highly
Competitive Industry

Case 5.1 – Panera Bread
Question 1 – positioning
• Panera Bread has established a unique position in the restaurant

industry.
• The “fast casual” position that Panera has established allows it to
capture the advantages of both fast food and casual dining.
• It is clear that this unique position has contributed to Panera’s success.
• It provides Panera a distinct point of differentiation between itself and
many of its competitors, and allows the company to sell a fairly large
volume of high margin food products.

Question 2 – five forces analysis
The Restaurant Industry
Competitive Forces Threat to Industry Profitability

Low Medium High
Threat of Substitutes X
Threat of new entrants X
Rivalry among existing firms X
Bargaining pow er of suppliers X
Bargaining pow er of buyers X

Question 2 – five forces analysis
• Threat of Substitutes – Panera has lessened the threat of

substitutes by creating a pleasing atmosphere in its restaurants and
making its bakery second to none.
• Threat of New Entrants – Panera has lessened the threat of new
entrants by establishing a first-mover advantage (or near first-
mover) in the fast-casual portion of the restaurant industry.
• Rivalry Among Existing Firms – Panera has lessened the threat of
rivalry among existing firms by creating a position that appeals to
both fast-food consumers and casual dining consumer. The
strength of its brand creates a barrier to entry.
• Bargaining Power of Suppliers – This is not a major threat to
Panera.
• Bargaining Power of Buyers – This is not a major threat to Panera.

Question 3 – barriers to entry
• Panera has created barriers to entry in the following areas:
Product Differentiation – Panera’s brand is growing in strength. In

addition, its Artisan breads and other bakery products are
distinctive in terms of their taste and quality.
Cost Advantages Independent of Size: As a first-mover, Panera has
snapped up many of the locations that are ideal for a fast-casual
restaurant.

Question 4 – primary sources of competitive advantage
Panera’s primary sources of competitive advantage are:

1. Its position in the restaurant industry (ie., fast-casual vs.
fast-food or casual dining)
2. Its brand strength
3. The atmosphere of its restaurants (which has created a
new time of day for people to eat specialty foods, which
Panera calls “chill-out” time (which is between lunch and
dinner), and
4. The distinctive nature of its bakery products

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Barringer E3 PPT 05

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Chapter 5

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1. Explain the purpose of an industry analysis.

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6. Identify the five primary industry types and the

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Question 1 Question 2 Question 3

Is the industry Are there positions in

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Assessing Industry Attractiveness

Study Environmental The Five Competitive

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• Explanation of the Five Forces Model

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• Explanation of the Five Forces Model (continued)

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• Threat of Substitutes (continued)

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• A customer could easily get

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• Threat of New Entrants

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Barrier to Entry Explanation

Industries that are characterized by large economies

Industries such as the soft drink industry that are

Capital The need to invest large amounts of money to gain

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Barriers to Entry (continued)

Barrier to Entry Explanation

Distribution channels are often hard to crack. This is

Government and Some industries, such as broadcasting, require the

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• Non Traditional Barriers to Entry

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Nontraditional Barriers to Entry

Barrier to Entry Explanation

If a start-up puts together a world-class management

If a start-up pioneers an industry or a new concept

If the employees of a start-up are motivated by the

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Nontraditional Barriers to Entry (continued)

Barrier to Entry Explanation

If a start-up is able to construct a unique business

Some Internet domain names are so “spot-on” that

Inventing a new If a start-up invents a new approach to an industry

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• Rivalry Among Existing Firms

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Factors that determine the intensity of the rivalry among

Degree of The degree to which products differ from one

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Factors that determine the intensity of the rivalry among existing

The competition among firms in a slow-growth

Firms that have high fixed costs must sell a higher

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• Bargaining Power of Suppliers

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