How to Use Industry Analysis

Summary

This video explores the application of industry analysis using the airline industry as a case study. It breaks down the six competitive forces shaping industry profitability, including rivalry, buyer power, supplier power, and the threat of new entrants and substitutes. Using these insights, existing airlines can develop strategies like frequent flyer programs or niche services to stay competitive, while new entrants can look for underserved routes or unique offerings. The video highlights how understanding these forces can guide strategic decisions to navigate both profitable and unprofitable industries.

Takeaways

• 😀 Understanding industry profitability starts with analyzing the six competitive forces that shape it.
• 😀 The airline industry is highly competitive with numerous airlines competing for market share on each route.
• 😀 Buyers in the airline industry have significant power due to low switching costs and many options for travel.
• 😀 Rivalry among existing airlines is intense, driving down prices and profits.
• 😀 The threat of new entrants in the airline industry is high, which also places pressure on prices.
• 😀 Suppliers in the airline industry, such as aircraft and engine manufacturers, have significant power due to concentrated supply and high switching costs.
• 😀 The airline industry faces low threats from substitutes like trains or buses due to the speed and necessity of air travel.
• 😀 Airlines can enhance customer loyalty by creating frequent flyer programs, which shift buyer power in their favor.
• 😀 New entrants to the airline industry may find success by targeting underserved customer segments or offering niche services.
• 😀 Unprofitable industries are often easier to enter but less attractive, while profitable industries present higher barriers to entry but more competition.
• 😀 Industry analysis can reveal opportunities for differentiation, such as providing services for pet travel, where traditional airlines may not compete.

Q & A

What is the main objective of the video series?

The main objective of the video series is to introduce and explain the industry analysis framework, specifically focusing on how to generate strategic insights after understanding the six competitive forces that shape industry profitability.

What are the six competitive forces discussed in the video?

The six competitive forces discussed are rivalry among existing competitors, threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, and the role of complements in the industry.

Why is rivalry among existing airlines considered a key factor in keeping profits low?

Rivalry is high because there are numerous airlines competing for each route, and there are few differentiators between them. This results in customers focusing on price differences, and airlines often dropping prices to fill seats, keeping downward pressure on profits.

How does the threat of new entrants affect the airline industry?

The threat of new entrants is high because it's relatively easy for new airlines to acquire planes, financing, and gate space at airports. This forces existing airlines to lower prices on certain routes to remain competitive, keeping downward pressure on industry profits.

What factors contribute to the bargaining power of buyers in the airline industry?

Buyers have high bargaining power because there is little brand loyalty in the airline industry, few switching costs between airlines, and many options for consumers to choose from. This encourages customers to shop around for the best fares, thus driving prices down.

What role do suppliers play in the airline industry's profitability?

Suppliers, such as airplane manufacturers, fuel suppliers, and airports, have significant bargaining power. This is due to concentrated suppliers in the market (e.g., only two major airplane manufacturers) and the high reliance on specific suppliers, resulting in high switching costs for airlines.

Why is the threat of substitutes low in the airline industry?

The threat of substitutes is low because, for long-haul travel, there is no efficient substitute for air travel. While alternatives like buses, trains, or boats exist, they are typically slower and less cost-effective for business travelers, especially those needing to travel for face-to-face interactions.

What is the role of complements in the airline industry?

Complements in the airline industry include events like sporting events, conferences, and concerts that require physical presence, thus necessitating air travel. These complements can drive demand for flights but do not directly address the industry's profitability issues.

How can airlines counter the high bargaining power of buyers?

Airlines can counter high buyer power by developing frequent flyer programs that reward customers for repeat business. These programs increase brand loyalty, reduce price sensitivity, and can lock customers into the airline’s services, making them less likely to switch to competitors.

What strategic approaches might a new entrant to the airline industry consider?

A new entrant might look for underserved customer segments or routes where existing airlines do not compete directly. They could also use new technologies or innovative business models to offer superior services, targeting niche markets with distinct needs that are not met by current competitors.