Chapter 2 Worksheet - Salem State University



Chapter 3 Worksheet

The concepts in this worksheet correspond directly with the text. If you do not understand the concept or need to refresh your memory, please refer to the text. I provide the page reference for each of the criteria. You should also use the CD-ROM for concepts that require more detailed explanation than the text provides.

The purpose of the external analysis is to identify opportunities and threats for the industry you are analyzing. Do not focus on the company under analysis. Focus on the industry in which the company competes. Make sure your analysis of the facts leads to a logical determination of specific opportunities and threats associated with the criterion you are analyzing. Consider each criterion from a strategic perspective. In other words, does your analysis lead you to conclude how or in which ways does the criterion under analysis create opportunities or threats for the industry or specific companies in the industry? State the specific nature of the opportunity or threat. This will strengthen your analysis and help you with your subsequent SWOT analysis.

Do not use speculative statements. Typical key words indicating speculation include: if, should, could, would, and may. Avoid contractions in written business reports. You only use contractions in a business report when it involves a direct quote.

Macro-environment forces

|Criteria |Facts |What does this mean? |

|(Refer to page 74.) | | |

|The economy at large |The economy at large was very robust during the time frame of |This is an opportunity for companies in the|

|(Address the economic conditions during the timeframe of|the case. Memphis and the surrounding area were growing |industry to grow their sales volume. Please|

|the case.) |mainly due to the establishment of 9 casinos in Tunica |elaborate on the specific nature of the |

| |Mississippi, which is about 20 miles from Memphis. The market|opportunity (ies). This comment applies |

| |grew over 15% in 1996 |throughout your worksheet. The casinos |

| | |have contributed to population increases in|

| | |the market. The casinos are also |

| | |attracting customers who expect to dine on |

| | |foods they are accustomed to. Specialty |

| | |sausage is among the food they seek. The |

| | |casinos are willing to pay a premium and |

| | |offer variety so that they may satisfy |

| | |their customers appetites. |

|Legislation and regulation |The USDA imposes some regulation on sausage producers that |The USDA regulations are reasonably easy to|

| |want to operate on a commercial scale. Government regulations|comply with and therefore do not prevent a |

| |specified that nutrition facts must be included on all food |significant barrier to new entrants. This |

| |products. |is a significant threat to the existing |

| | |companies as nearly any company may easily |

| | |enter the industry. |

|Population demographics |The Memphis market is growing in population. The opening of 9|Increased business activity and the larger |

|(Population demographics analysis relies on developing |casinos in Tunica, Mississippi, which is only 20 miles from |number of visitors present an opportunity |

|various categories of the population and analyzing their|Memphis, is largely responsible for attracting approximately |for growth for the specialty sausage |

|impact on the industry. Typical categories include |16 million visitors annually to the Memphis region. These |industry in this area. Please elaborate on|

|gender, age, education level, geographic location, and |visitors are bringing prior knowledge of and appreciation for |the specific nature of the opportunity |

|income levels. In addition to population demographics, |specialty sausage. The casinos are bringing increased |(ies). |

|this type of categorization includes ethno-graphics and |prosperity to the local residents. While these facts are | |

|psychographics |interesting, they do not address the population demographic | |

| |categories. Please address the demographic categories. How | |

| |are the population’s demographics or changing demographics | |

| |impacting opportunities or threats for this industry? | |

|Societal values and lifestyles |Sausage is growing in acceptance as more than just a breakfast|These conditions are presenting |

| |item. The market for specialty sausage, which can be sold at |opportunities for specialty sausage makers |

| |a premium, has increased particularly with the casino goers. |to diversify their product offerings such |

| |Lifestyle changes are causing consumers to be increasingly |as Healthy Choice has. There is also the |

| |health conscious. These same consumers are also finding that |opportunity for increased market due to the|

| |they have less time to prepare meals and are looking for |acceptance of sausage for meals other than |

| |products that can be ready in a half hour or less. |breakfast. |

| | |Health consciousness and meal preparation |

| | |time could ultimately be threats to the |

| | |industry if the industry can not offer |

| | |products to respond to customers’ changing |

| | |tastes and they begin switching to the |

| | |readily available substitutes. |

|Technology |There have been no significant technological advances in the |The lack of specialized or unique |

| |specialty sausage industry. E-commerce opportunities may |technology is a threat to the existing |

| |potentially exist. This response should be in the “what does |firms as a company can easily acquire the |

| |this mean” column. Please elaborate or provide supporting |equipment necessary to compete with them. |

| |narrative that describes the specific nature of the | |

| |opportunity. | |

1. What are the Industry's dominant economic features (page 77)?

Please note that table 3.1 provides a sample profile of the sulfuric acid industry. Table 3.2 provides examples of the strategic significance of each of the criterion. Make sure you know the industry you are analyzing.

|Criteria |Facts |What does this mean? |

|Market size |The retail portion of the Memphis market is 12.25 million|The local market is in a state of high growth, producing |

| |dollars on 6.1 million pounds of sausage products sold. |opportunities for specialty companies such as Guiseppe’s to grow |

| |The market grew 15.4% in 1996. |their revenues. |

|Scope of the competitive rivalry |The scope of the rivalry is local with small producers of|This arrangement tends to increase the competition between rivals. |

|(The competitive scope criterion |specialty sausage fighting for market share. Some |Because of this competitive situation there is a threat of lower |

|addresses geographic scope (Global,|national players are involved in the Memphis market. |profit margins for the existing firms. |

|National, Regional, and Local), |Product breadth tends to be large for the smaller | |

|product scope, market scope and so |companies and narrow for the larger national companies. | |

|on.) | | |

|Market growth rate and position in |The retail segment grew 15.4% while the entire local |This is an opportunity for the smaller producers to increase |

|the business cycle |market grew at a rate of 18.3% in 1996. The industry |revenues. Enough growth exists to offer opportunities for the |

| |appears to be entering the later stages of growth and |local producers but there is probably not enough growth for the |

| |possibly has already entered the mature stage. |national companies to target the market. |

|Number of rivals and their relative|There were 20 or 30 companies who have sales in the |The high level of competition poses a threat to the industry of |

|size |Memphis market. Most were national players such as |declining profit margins. The large national players drive the |

|(Relative size refers to the market|Johnsonville, Jimmy Dean and John Morrell. Locally |market price down reducing the profits the specialty companies can |

|share based on total sales for the |Guiseppe’s main rival was Dino’s. |make, while the small companies force their larger rivals to |

|overall market or, when applicable,| |increase product offering which can drive down their profits. |

|individual market segments.) | | |

|Number of buyers and their relative|There are two major buyers in the Memphis market. These |The individuals do not pose a threat in the industry because the |

|size |are the (brokers) retailers and the food service |retailers and food service companies purchase the majority of |

|(Address the number of buyers in |industry. There are also numerous individuals who make |product. The retailers and food service companies present a threat|

|each market and market segment. |direct purchases. |of lower profits to the existing companies as they prefer to make |

|Buyer size refers to the buyer’s | |purchases through brokers who expect to profit from this service. |

|volume of sales for the industry.) | | |

|Extent of rivals’ vertical |There is no evidence of backwards, vertical integration |Although it would be possible there is no real threat of vertical |

|integration (How far forward or |in the industry. Guiseppe’s and a couple others make |integration either forwards or backward in the specialty sausage |

|backwards have the rivals extended |small individual sales, which are evidence of forward |industry. |

|their value chain?) |integration. | |

|Extent of rivals horizontal |The case makes no mention of horizontal integration. | |

|integration | | |

|Types of distribution channels |Sausage is sold to the individual consumer via mail |The distributors and brokers pose a slight threat to market |

|rivals use to access customers (Do|order. The retailers are reached through a retail broker|penetration while holding down the profits that a manufacturer can |

|the channel types vary by customer |and an independent or company distributor. The food |achieve. This threat is not insurmountable to a company willing to|

|segment?) |service buyers are similarly reached through a food |establish the necessary relationships for competing in the market. |

| |service broker and distributor. | |

|Pace of technological innovation in|The pace of technological advance in the industry has |The relative lack of technology acts as a threat of entry to the |

|production process innovation |been slow. |current market participants. |

|Pace of technological innovation in|Product innovation is relatively fast with new products |The lack of technological innovation is a threatening to firms |

|product introduction |being offered and copied at a steady pace. Technology is|currently in the industry. New entrants or existing rivals can |

| |not a significant contributor to this innovation. |quickly copy new products. |

|Extent to which the rivals products|Most of the industries products are essentially identical|This situation poses a threat that drives down the market prices |

|and/or services are differentiated |with much competitive copying and inter-brand pricing. |and offers little opportunity to consistently generate a premium on|

| | |the specialty offerings. |

|Extent to which rivals use |There is no true economy of scale in the industry. The |This is a threat to the sausage makers as it is relatively easy for|

|economies of scale in: |national brands do hold some advantages over the smaller |new competitors to enter the market. A company with a recognized |

|Purchasing |local companies due to sheer size and marketing prowess. |brand name would likely find it relatively easy to establish |

|Manufacturing |These national companies have achieved brand recognition |themselves as suppliers of specialty sausage. |

|Services |and hold most of the retailers’ limited shelf space. | |

|Transportation (logistics) |This hampers the smaller specialty companies’ ability to | |

|Marketing |increase market presence. | |

|Advertising |Would you consider that some rivals do have economies of | |

|General and Administration |scale while others do not? | |

|Others | | |

|Extent to which the key industry |The small specialty makers are local to the Memphis |A new entrant possessing adequate and cost effective distribution |

|participants are clustered in one |Market. The National competitors operate out of |capabilities could start their company in almost any location. |

|geographic location |different locales. |This is a threat to the existing companies. |

|Extent to which certain industry |Very little advantage is gained in the industry from |This acts as a threat as a new competitor can easily enter the |

|activities result from learning and|learning curve effects. |market and quickly become competitive. This is a possessive |

|experience curve effects | |pronoun. It infers possession or ownership. It is not appropriate|

| | |to start a sentence with this. |

|Capacity surplus or shortage in the|Guiseppe’s has excess capacity, as he runs his operation |Assuming there is a surplus of capacity this is an opportunity to |

|industry |on one shift. There is no specific mention of the other |the existing companies, as they will be able to manufacture the |

| |rivals capacity status. |increased demand in a cost effective manner. |

|Capital requirements and the ease |Very little capital is required to enter the specialty |This poses a great potential threat to the existing companies of |

|of entry or exit |sausage industry making entry and exit very simple. |new rivals entering the market. |

|Industry profitability | Industry profitability is low to average due mainly to |This acts as a barrier to new entrants. |

| |the high level of competition and availability of | |

| |substitute products. | |

|Degree of alliances |There is little in the way of alliances in the industry. |This acts as a threat to the industry as new competitors can easily|

| |We see some signs in the distribution channels. |penetrate the market. |

|(You can provide additional | | |

|economic features) | | |

1. What is competition like and how strong is each of the competitive forces (page 79)?

|Criteria |Facts |What does this mean? |

| | |(Does this make the force strong or weak for the |

| | |industry? What does it mean for the company?) |

|RIVALRY (pages 81-84) | | |

|How many competitors are there in this |20 to 30 brands participate in the specialty sausage industry.|Competition is a strong force in the industry. |

|industry? |There are 8 or 9 top competitors in the Memphis market. |This is a threat to the continued profitability of|

| | |the existing firms. |

|What is the relative size of each competitor?|Dino’s and Guiseppe’s are similar in size but each faces |These diverse factors act as a threat to overall |

| |competitions from the national companies who are hundreds of |profitability of the existing firms. This tends |

| |times larger. Although the small companies have an advantage |to act as a strong force to keep profits down. |

| |in their ability to offer many sausage varieties their profit | |

| |margin is kept down due to the pricing advantage the national | |

| |companies own. | |

| |Conversely if the national companies manufacture more | |

| |varieties in smaller quantities to be more competitive in | |

| |local markets, they face declining overall profit. | |

|What is the industry concentration ratio |This information is not available. | |

|(C4)? | | |

|( Top 4 company’s sales | | |

|Industry sales | | |

|What is the product or service demand growth |The specialty sausage market grew 18.3% from 1996 to 1997. |This high growth rate is an opportunity for the |

|rate? | |existing firms to increase their revenues. |

|Are rivals using price cuts or other |The large national brands chose to offer a small number of |This strategy threatens the overall profitability |

|competitive weapons to boost unit volume? |sausage varieties at a low price to the larger buyers such as |of the existing companies by making it difficult |

| |the retailers and food process companies. |to demand a premium for uniqueness or variety. |

|Are the customer's switching costs low? |Customer switching costs are low. Substitutes are available |These two factors combine to increase the rivalry |

| |at competitive prices. Most often these substitutes are |between the sausage companies. They form the |

| |available where specialty sausages are purchased. Customers |incentive for the existing firms to keep sell |

| |also find it very easy to switch from one brand of specialty |prices low to avoid the loss of market share to |

| |sausage to another brand. |rival firms or substitute products. Do low |

| | |switching costs increase rivalry? If so, what are|

| | |the resulting opportunities or threats? |

|Are rivals launching moves to change their |Yes. Column two is for facts. Do not answer the questions in|These actions are driving down potential profits |

|market share or industry position at the |this column. Companies are copying successful products, |by limiting the price a rival can charge for its |

|expense of other industry participants? |diversifying product offerings and waging price competition. |product. Do these actions create opportunities or|

| | |threats for the industry? |

|What are the payoffs for strategic moves? |Increased market share and revenue growth are the payoffs for |These payoffs likely come with the cost of reduced|

| |successful strategic moves in the specialty sausage industry. |profit margin, as any successful strategy would |

| | |most certainly require offering specialty sausage |

| | |at a reduced price. |

|Does it cost more to exit the industry than |It is not costly to exit the sausage industry. Firms will be |As the specialty sausage industry continues to |

|to continue participation? |more likely to leave then to linger unprofitably. As profit |mature, rivalry will continue to intensify. As |

| |margins continue to dwindle, aggressive firms or firms with |price competition intensifies, companies will have|

| |lower costs may be able to drive other firms out of the |the opportunity to leave the industry without |

| |specialty sausage industry. |suffering significant losses. This should allow |

| | |the remaining firms to operate their companies |

| | |profitably. |

|How consistent are rivals strategic visions, |The national companies operate in a similar manner. They |These two diverse strategies pose a threat to the |

|strategic intents, objectives, strategies, |offer a small range of products that they can manufacture in |industry. Each strategy has its competitive |

|resources and origins? |high volumes. The smaller local firms tend to offer more |advantage, and there are enough firms in each |

| |varieties that they produce in small volumes. This allows |group to drive profits down. |

| |them to find niches in the overall market. | |

|Are strong new entrants acquiring weaker |Currently the industry has not seen the arrival of aggressive |We do anticipate the arrival of this type of new |

|rivals and launching well-funded, aggressive |new entrants looking to dominate the specialty sausage market.|rival. This is an opportunity for the existing |

|moves? | |firms to grow or defend their current position. |

| | |Please re-read your response. If there are new |

| | |entrants, then rivalry increases. The increased |

| | |rivalry is a threat for the industry. Defending |

| | |your market position inherently is defending |

| | |against a threat. |

|THREAT OF ENTRY |Under the heading of new entrants, your analysis should lead | |

|(pages 84-87) |you to conclude that new entrants are likely or unlikely to | |

| |challenge the existing firms in the industry. Therefore, new | |

| |entrants are likely (threat) or unlikely (opportunity) to pose| |

| |an opportunity or threat to the existing firms in the | |

| |industry. | |

|What economies of scale exist in each of the |There are no significant economies of scale in the specialty |This poses a threat to existing firms, as it is |

|following areas: |sausage industry. The larger national brands do have an |relatively easy for new entrants to join the |

|Production |advantage due to their brand recognition and ability to spread|industry particularly if the new entrant is an |

|Purchasing |their costs over a greater number of units. |established firm with the listed capabilities |

|Inbound and outbound logistics | |already in place. |

|Advertising |Please refer to my previous comment. | |

|Financing | | |

|Customer service | | |

|Raw materials | | |

|R&D | | |

|Other steps in the value chain? | | |

|Cost and resource disadvantages independent |Existing firms do not have a significant advantage in the |This is a threat to the existing companies, as new|

|of size |industry unrelated to size. The one area they may have a |entrants have no significant obstacles to overcome|

| |slight opportunity is in access to the distribution channels. |in their quest to become competitive within the |

| | |industry. Would you consider access to the |

| | |brokers and the limited retailer shelf space as |

| | |significant obstacles? |

|What are the learning curve and experience |Learning curve effects do not contribute significantly to |This poses a threat, as new entrants can quickly |

|effects to enter? |lower unit costs. |become cost competitive. |

|Inability to match the technology and |The industry’s technologies are readily accessible. |This is also a threat to the existing firms, as |

|specialized know-how of firms already in the | |new entrants can easily acquire the equipment |

|industry. How accessible is the industry's | |necessary to produce specialty sausage. |

|technology? | | |

|Brand preferences and customer loyalty |It’s expensive for start-up companies to establish brand |This is an opportunity for the established firms. |

| |recognition and to make a better quality or service for a | |

| |lower price. Customers taste preferences can lead to brand | |

| |loyalty. | |

|What are the capital requirements to enter? |No significant capital is required to enter the industry. |This is a serious threat to existing firms. |

|What other resource requirements are |There are no specific resources required to gain entry. |This is also a threat to the existing firms. |

|necessary to enter? | | |

|What is the access to distribution channels? |Use of the existing distribution channels is critical to |Access to the distribution channels is a mild |

| |growth of market share and revenues. It is relatively easy for|deterrent to new entrants in the specialty sausage|

| |new entrants to access these channels. The availability of |industry. |

| |selling space is limited however and this may present a more |New firms would find it difficult to penetrate |

| |significant barrier to a new entrant trying to displace a |these channels. An existing food producer that |

| |current firm. |decided to get in the specialty sausage business |

| | |may already have access and find this as easily |

| |See my previous comments regarding brokers and retail shelf |overcome. |

| |space. | |

|What regulatory policies apply? |Government agencies can limit or stop entry by requiring |This easy access to permits, is a threat to the |

| |licenses and permits. These are relatively easy to acquire for|existing firms. |

| |new companies. | |

|What tariffs and trade restrictions apply? |None apply in the specialty sausage industry. |This normally would act as a threat however it is |

| | |unlikely that a foreign producer would enter this |

| | |market. |

|SUBSTITUTES (pages 87-88) |Under the heading of substitutes, your analysis should lead | |

| |you to conclude that substitutes are likely or unlikely to | |

| |challenge the existing products the industry produces. | |

| |Therefore, substitutes are likely (threat) or unlikely | |

| |(opportunity) to pose an opportunity or threat to the existing| |

| |firms in the industry. | |

|What is the availability of attractively |Attractively priced alternatives to specialty sausage are |Substitutes’ attractive prices are a threat to the|

|priced substitutes? |plentiful. |industry. |

| |Chicken, beef, pork, and fish are all comparatively priced | |

| |substitutes. | |

|Is the substitute of better, worse, or equal |Most of these substitutes are likely to be viewed as of equal |Substitutes’ performance and quality are threats |

|quality? |quality in the price range of sausage. The substitutes will |to the sausage industry. |

|Is the substitute of better, worse or equal |do equally well as the entrée in a meal. | |

|performance? | | |

|Is the substitute of better, worse or equal |Most substitutes would be considered a healthier alternative |Substitute products nutritional advantages are not|

|nutrition? |to sausage. Most specialty sausage consumers do not appear |a threat to the specialty sausage producers. |

| |to place an emphasis on the nutritional value of their | |

| |purchase. | |

|Can buyers easily switch to the substitutes? |Yes, one could purchase the substitutes in the same place, and|This is a definite threat to specialty sausage |

| |not suffer any undo costs. |makers. |

| | | |

|SUPPLIERS (pages 88-90) | | |

|Is the item or service a commodity available |The ingredients needed to make sausage could be considered a |This is a neutral factor as the supplier has no |

|on the open market from many suppliers who |commodity, as there are many suppliers capable of filling the |advantage but the companies do not hold much of an|

|are capable of filling the order? |industry needs. |advantage either. |

|Are there good substitutes for the product or|There are several good substitutes that can be used as |The opportunity to use substitute ingredients |

|service to which the buyers can easily |ingredients in specialty sausage. |poses a slight threat to the suppliers. |

|switch? | | |

|Is the company a major buyer? |The sausage industry as a whole is not a major buyer of the |This is a threat to the sausage manufacturers, as |

| |majority of products required to manufacture sausage. |they do not have great leverage in keeping the |

| | |price of ingredients down. |

|Does the supplier dominate the industry? |No one supplier seems to dominate the industry. Sausage |The diversity of buyers and availability of |

|(The supplier provides the industry with an |makers are spread out geographically and the cost of |numerous suppliers is an opportunity for the |

|item that accounts for a sizable fraction of |transporting sausage ingredients makes it unlikely that one |sausage makers. |

|the costs of an industry's product (or |supplier could service all the sausage makers. | |

|service), is crucial to the industry, or | | |

|significantly affects product | | |

|Does an outside supplier provide a cost |Purchasing from an outside supplier provides a cost advantage |This is a threat to the sausage companies. They |

|advantage over vertical integration? |to sausage makers over becoming vertically integrated. A |do not possess the opportunity to vertically |

| |variety of ingredients that are not specific to specialty |integrate. |

| |sausage making are required. | |

|Does an outside supplier provide other |The suppliers do not possess any other specific advantage in |This is neither threat nor opportunity for the |

|advantages over vertical integration? |addition to being able to supply the sausage makers with lower|sausage makers. |

| |cost supplies. | |

|What types of working relationships exist? |There are no significant strategic advantages for the local |Neither the buyer nor the seller appears to have a|

|Start by listing the types of working |specialty sausage makers. No industry alliances are mentioned|significant strategic advantage in this |

|relationships that exist. Then, focus on the|in the case. |relationship. |

|strategic importance of relationships with | | |

|suppliers in this industry. Are these | | |

|relationships of strategic value for the | | |

|competitors in the industry? If so, why and | | |

|how do the relationships impact the | | |

|competitive structure and environment of the | | |

|industry? | | |

|What is the relative quality of the supplier |It is relatively easy for sausage makers to obtain the quality|The buyers are unlikely to be tied to an |

|and his services or products? |of supplies they require. |individual supplier due to a concern over quality.|

| | |There are many opportunities to find the desired |

| | |quality. |

|BUYERS (pages 90-92) | | |

|What is the cost of switching? |There is very little cost to the buyer when it comes to |The sausage makers have very little leverage with |

| |switching from one brand to another. |their customers. This poses a threat to the |

| | |sausage maker that their customers can easily |

| | |switch to another producer. |

|How many buyers are there in this industry? |There were many different retailers and service industries in |Sellers have many outlets for their product. This|

| |the local market. There are many individual buyers. |is an opportunity for the sausage makers. |

|What is the relative size of each buyer? |Large retailers tend to have influence over suppliers. The |Sausage makers’ customers are capable of dictating|

| |casinos are also very important to suppliers like Guiseppe’s. |terms of sale to them. This is a threat to their |

| |Small individual buyers have little influence. |profitability. |

|What is the buyer's knowledge level? |The buyers do not possess great knowledge although many are |The buyers taste preferences pose a mild threat |

| |likely to follow their taste preferences. |especially to the small specialty firms. |

|Can the buyers threaten the industry with |It is unlikely that any of the significant buyers pose a |This is not a threat to the firms in the industry.|

|backward integration? |threat of backwards integration. It would not be profitable | |

| |for the larger buyers to begin making their own sausage. | |

|Are the industry's products discretionary |Buyers can easily choose not to purchase specialty sausage. |The ability of the buyers to purchase other |

|purchases? |There are many substitutes that are readily available to the |products to replace specialty sausage purchases is|

| |buyers. |a threat to the sausage makers. |

| | | |

3. What is (and how are they) causing the industry's competitive structure and business environment to change (page 93)?

Please refer to the Cannondale1 example on the web site for good examples of appropriate analysis for this question.

|Factors |Industry competitive structure |Industry business environment |Strategic implications |

|(pages 94-100) |This factor is supposed to capture how the drivers of change are |This factor is supposed to capture how the drivers of | |

| |altering the industry's competitive structure. |change are altering the industry's business | |

| | |environment. | |

| |The competitive structure of an industry entails the number of competitors and their competitive relationships. For | |

| |example, an industry entering maturity causes fewer, larger competitors. This affects the industry's structural | |

| |arrangement between rivals, buyers and suppliers. When approaching maturity or when in decline, the industry's business | |

| |environment will create intense rivalry for a diminishing market. | |

|Internet and new |These opportunities are not specifically talked about in the case. |E-commerce opportunities could close the gap between |With the growing changes in technology businesses |

|e-commerce |We expect firms will seek to use the internet to market specialty |the large national firms and the smaller local |must review their practices to fully integrate the |

|opportunities |sausage to individual customers. Sausage snobs of the future will be|companies. A small company with a clever marketing |internet and the new e-commerce. Companies will need|

| |able to order product on line and receive next day delivery. |campaign may gain new customers nationally and ship |to evaluate partnerships with existing e-commerce |

| | |product all over the United States. |companies such as Amazon. Other companies may seek |

| | | |to build their own e-commerce sales network. |

|Increasing |Approximately 25 to 30 major brands are competing within the Memphis |Globalization would likely threaten the companies that|Globalization is unlikely in the near future. |

|globalization of the |area. Globalization in the specialty sausage industry although |are participating in the specialty sausage industry. |Companies would need to overcome transportation |

|industry |unlikely in the near term would likely cause mergers among these |Current specialty sausage companies would need to |issues related to freshness of product. Companies |

| |companies. |establish distribution systems capable of quickly |would likely seek to merge to get greater |

| | |transporting both sausage and the ingredients to make |manufacturing capability over a wider geographical |

| | |sausage in an effort to ensure freshness. The costs |area. |

| | |associated with accomplishing this would strain the | |

| | |already low profit margins in the industry. | |

|Long term industry |In 1996, the sausage industry registered 18.3% growth. This high |The potential entry of large established meat |The leading national companies may be forced to |

|growth rate |growth rate is likely to entice new competitors particularly some of |producers poses a strong threat to the national |aggressively defend the positions that they currently|

| |the larger meat producers. If companies such as Perdue were to enter|companies such as Jimmy Dean who have contracts with |have in the market if the large meat producers take |

| |the market it is likely that partnerships and consolidation would |retailers that effectively prevent smaller companies |an interest in specialty sausage. One or more of the |

| |increase. |such as Guiseppe’s from easily gaining market share. |existing companies may look to sell their |

| | |These large meat producers also have distribution with|manufacturing capabilities to these new entrants in |

| | |these same retailers thus giving them the opportunity |an effort to get out of the industry as they would |

| | |to displace companies such as Jimmy Dean. |likely be facing declining profit margins and |

| | | |possibly loss of market share. |

|Who buys the product |Specialty dinner sausage sales consisted mostly of 2 segments retail |“Shelf space and competitive inter brand pricing were |Larger national sausage manufacturers might seek to |

|and how do they use it|(super market) and food services, which are comprised of restaurants |keys” to a successful company in this environment. The|become the low cost producer so that they may entice |

| |and institutions, such as schools, hospitals and others |potential loss of supermarket customers being forced |firms such as Wal-Mart or Sam’s Club to carry their |

| |establishments |out of business by giant retailers could be |specialty sausage by offering very low prices. This |

| |Retailers buy the product for resale as is to individual consumers, |devastating to some of the current industry firms. On|type of price competition could lead to many |

| |typically at a very small margin. Retailers with huge buying power |the flip side, securing a customer such as Sam’s Club |companies becoming unprofitable sparking industry |

| |such as Wal-Mart and Sam’s Club have begun to displace some of the |or Wal-Mart might vault a sausage supplier to industry|consolidation. |

| |smaller supermarkets that would normally carry specialty sausage |leader in a short period of time. |Other companies might be tempted to partner with an |

| |products. |Similar opportunities and threats exist with the |existing franchise chain, in an attempt to market |

| |The food service buyers use the specialty sausage as the entree in |restaurant buyers. A current customer could be forced|their specialty sausage to a whole new set of |

| |meals that they prepare and sell to individual consumers. |out of business by franchise restaurants. Conversely |consumers. |

| |Independent restaurants are facing increasing competition from |securing a contract with the McDonalds of specialty |If a company was successful under either of these |

| |franchised restaurants for market share in the food services |sausage could provide an existing firm with a dramatic|strategies they would likely seek to change the |

| |industry. |revenue increase. |relationships that they currently have with their |

| | | |existing suppliers of the ingredients necessary to |

| | | |manufacture specialty sausage. |

|Product innovation |Product innovation is a key to success for small companies able to |Buyers’ tastes and preferences are constantly |R & D efforts will be increased in an effort to |

| |differentiate themselves by offering “exceptional, distinctive- |changing. Two examples that may affect the specialty |produce specialty sausage that is either healthier or|

| |tasting and quality sausages. Competitors are quick to copy |sausage industry are consumers becoming increasingly |quicker to prepare. Current firms may look to |

| |successful new products. New suppliers could be needed to provide |health conscious and consumers desire to more quickly |partner with companies having expertise with |

| |the ingredients or packaging necessary to support new products that |prepare meals. Companies able to satisfy these and |microwave or low fat products. Existing firms with |

| |are created in response to customers’ preferences changing. |other buyer preferences with new sausage offerings are|these capabilities may look to gain entry into the |

| | |likely to become more successful. A company such as |specialty sausage market. |

| | |Healthy Choice with its experience in low fat, | |

| | |microwave products is an example of a new entrant due | |

| | |to changing environment. | |

|Technological change |Technological advances can greatly increase the industry competitive |The technology used in the specialty sausage is fairly|Technological change is not driving changes in the |

| |force. There have been no technological advances of note in the |mature and readily available. This makes it easy for |way sausage companies operate strategically with the |

| |production and packaging of specialty sausage. Technological change |new companies to enter the market. |exception of change brought about by development of |

| |is being driven by internet development. | |the internet. |

|Marketing innovation |Innovative new marketing campaigns are likely to be launched by firms|The internet could become an equalizer for small firms|All specialty sausage firms will be forced to alter |

| |utilizing the growing internet. Firms will look to the internet as a|looking to compete against the larger national firms. |their marketing strategies to include the internet |

| |possible vehicle to increase direct sales to consumers diverting |The possibility exists, that new entrants could be |eventually. Aggressive firms will make offensive |

| |these sales from existing retailers. Firms may also seek to form |successful utilizing an innovative internet marketing |moves to capitalize on opportunities the internet |

| |collaborative relationships with existing internet firms in an |campaign. |brings. As these moves begin to pay dividends the |

| |attempt to market specialty sausage. | |other companies will be forced to use defensive moves|

| | | |or counter with their own offensives. |

|Entry of major firms |Currently no major firms are entering the industry. The biggest |Major new entrants would heighten the already strong |Most existing firms would likely put more strategic |

| |concern to existing firms is that large meat packing companies decide|competitive environment that specialty sausage firms |emphasis on becoming a low cost provider. Aggressive|

| |to enter the market. This threat would likely increase pricing |operate in. This would likely threaten the |moves would likely be launched in an effort to |

| |pressure. Existing firms may be forced to examine their current |profitability of most if not all of the existing |increase market share. Companies might look at |

| |relationships with suppliers in an effort to drive down their costs. |firms. It is likely that existing firms would be |harvesting in an effort to gradually exit the |

| | |forced to leave the business or look to merge with |industry, realizing that the cost of exiting is |

| | |rivals seeking a competitive advantage. |relatively small. |

|Exit of major firms |There have been no recent instances major firms exiting the industry.|The industry business environment in this sense has |No specific strategies are needed, as competition |

| | |not been changed. |has not been altered. |

|Diffusion of technical|This is not a major competitive factor in the specialty sausage |The diffusion of technological know-how is normally a |Diffusion of technical know-how does not have current|

|know-how |industry. The technology and skills required to manufacture sausage |powerful stimulant to increasing competition within |strategic implications. Future strategies could be |

| |are mature and readily available. The speed that new sausage |the business environment. In the case of the sausage |altered by successful exploitation of the internet |

| |varieties are copied, by rival firms is evidence of widespread |industry it is not. |and e-commerce initiatives. |

| |technical know-how. | | |

|Increasing |Globalization is not affecting the industry competitive structure. |Globalization is not a threat to existing companies. |The need for specific strategy is unnecessary due to |

|globalization |Approximately 25 to 30 major brands were already competing within the|Profit margins in this industry are not attractive |globalization is not taking place. |

| |Memphis area for market shares in the retail segment. Although |enough to entice firms to compete on a global scale. | |

| |globalization creates new partners, new challenges and also extends | | |

| |the competitive field of the industry, globalization is unlikely in | | |

| |this industry. | | |

|Cost and efficiency |The specialty sausage industry is under increasing pressure to lower |This driver is not affecting the manufacturing aspects|Existing firms must put heavy strategic emphasis on |

| |costs. Unfortunately there does not appear to be any low hanging |of companies to a great extent. There have been no |finding ways to gain an advantage in cost and |

| |fruit to pick in the industry. Companies may look to establish |breakthrough technologies for some time. A meat, |efficiency internally as there are not significant |

| |partnerships with distributors and suppliers in order to lower costs.|processing, firm boasting low cost manufacturing |industry wide differences in the cost structures of |

| |Firms should seek to use company intranets or the internet as a way |facilities, coupled with an efficient supply chain, |existing firms. As maturation of the industry |

| |to lower ordering and distribution costs. |and a strong brand name could be a significant threat |continues it is likely that the surviving firms will |

| | |to existing firms if they were able to reduce prices |be the ones with the greatest market share and lowest|

| | |by as little as 5 or 10%. Existing specialty sausage|cost structures. |

| | |firms would be hard pressed to lower their prices that| |

| | |much without significant profit erosion. | |

|Growing buyer |Large segments of the industry’s customers specifically upscale |This growing demand for variety is threatening to the |Smaller companies will seek to expand their product |

|preferences for |restaurants, individuals, and casinos are demanding a variety of |larger companies. Smaller companies willing to offer |line in an effort to compete against the national |

|differentiated |specialty sausage. Most retailers are unable to provide this variety|a diverse range of products can eat away at the market|firms. They may also look to find a niche in the |

|products instead of a |due to shelf space concerns. Most national producers prefer to offer|share of the larger companies |market where they can earn a good profit and expand |

|commodity product |less variety in larger volumes. Differentiated suppliers may seek to| |market share. The larger firms may be forced to |

| |strengthen their relationships with buyers demanding variety. | |expand the range of their product offering to compete|

| | | |retain their current market positions. |

|Regulatory and |Despite the requirement to put nutritional information on food |The likelihood of new entrants is increased by the |No significant strategic moves are being necessitated|

|government policy |products the specialty sausage industry experienced double, digit |lack of barriers imposed by regulators on the |by regulatory changes. The necessity of having |

|changes |growth in the mid 1990’s. Regulatory changes do not appear to be |specialty sausage industry. |nutritional labels on food products may entice some |

| |affecting this industry. | |firms to set strategies to capitalize on buyers |

| | | |preferences for healthier foods. |

|Societal concerns, |Consumers are increasingly demanding healthier food choices. Firms |These demands are an opportunity for existing firms to|R&D expenditures are likely to increase as companies |

|attitudes and |must work more closely with their suppliers to ensure higher quality,|differentiate their products based on quality or |search for healthier alternatives to their existing |

|lifestyle changes |healthier ingredients. Suppliers in turn must make sure they are |nutrition. |products. Companies will also look to develop |

| |capable of responding to the stricter demands. Partnerships could |There is an increased threat of entry by new firms |sausages that can be cooked in less than 30 minutes |

| |develop to support these changing demands between the firms and their|that have experience in producing health food |to meet the growing demand for quicker preparation |

| |suppliers and buyers to ensure healthier offerings. |products. |times. Some companies may look to developing new |

| | | |sausage products as an alternative to seeking further|

| | | |cost reductions which are becoming increasingly |

| | | |difficult to obtain. |

|Reductions in |The specialty sausage industry is past the stage where this is a |The fact that the industry is at this stage is a |Companies are likely to craft defensive strategies to|

|uncertainty and risk |strong factor affecting firms currently in operation. |threat to existing firms. Potential new entrants are |combat the threat of entry and to protect their |

| | |well aware of the level of risk in the industry. They|current market share. |

| | |are able to make an educated analysis and decision on | |

| | |whether to enter this industry or not. New entrants | |

| | |are therefore likely to be competitively viable. | |

4. Which companies are in the strongest/weakest positions (page100)?

High

Quality

Medium

Low

Narrow broad

Available Resources

High

Price

Medium

Low

Narrow broad

Market scope

What strategic moves are rivals likely to make next (page103)? Refer to Table 3.3 on page 105.

| |What is the |What is their |What is their market |What is their |What is their |What is their |What does this mean in terms of their most likely moves? |

| |competitive |strategic intent|share objective |competitive position |strategic posture |competitive strategy | |

| |scope of each |(dominant |(aggressive expansion, |(getting stronger, |(offensive, |(low cost, | |

| |(local, |leader, overtake|expansion via internal |well entrenched, stuck|defensive, both)? |differentiation, broad| |

| |regional, |the leader, top |growth, expand by |in the middle, going | |or narrow, best | |

| |national, |5, move up a |acquisition, hold |after different market| |value)? | |

| |multi-country, |position, |present share, give up |position, losing | | | |

| |or global)? |maintain |share)? |ground, retrenching)? | | | |

| | |position, | | | | | |

| | |survive)? | | | | | |

|Johnsonville |National |Overtake the |Aggressive expansion |Getting stronger |Both |Broad |Special promotions. Get quality out there by advertising. |

| | |leader | | | | | |

|Dino’s |Regional |Maintain |Hold present share |Stuck in the middle |Defensive |Narrow differentiation|Get some new specialty sausage out there |

| | |position | | | | | |

|King Cotton |Regional |Move up a |Hold present share |Stuck middle |Defensive |Best cost |Bring out new products at same low prices. |

| | |position | | | | | |

|Jimmy Dean |Global |Dominant leader |Expansion via internal |Well entrenched |Both |Narrow differentiation|They will expand their line of dinner sausages in order stay on|

| | | |growth | | | |top. |

|Bryan |Regional |Top 5 |Aggressive expansion |Getting stronger |Offensive |Broad differentiation |Advertising and special promotions to get the name out there. |

| | | | | | | |Become national. |

|John Morrell |Global |Overtake the |Expansion via internal |Getting stronger |Both |Low cost |Come out with more products. They can still keep the costs low |

| | |leader |growth | | | |since they are backward integrated. |

|Mr. Turkey |National |Maintain |Hold present share |Well entrenched |Offensive | Market niche |Add other varieties of turkey sausage. |

| | |Position | | | | | |

|Healthy Choice |National |Maintain |Hold present share |Well entrenched |Offensive | Market niche |Add on some other low fat dinner sausages. |

| | |Position | | | | | |

|Guiseppe’s |Regional |Move up a |Expansion via internal |Seeking to add to |Defensive |Broad differentiation |Slim down their product line and produce only the more popular |

|Original sausage | |position |growth |market share. | | |and profitable varieties. |

|co. | | | | | | | |

What are the key factors for competitive success (in this industry) (page 106)?

How does each competitor fare on each success factor? To use this tool, start by determining which of the KSF”s apply. Then provide your justification for choosing these KSF”s. Generally, there are less than ten (10) KSF”s applicable to an industry. Then assess each of the industry competitor's capabilities for the KSF. Please note I provide space for three competitors. You should add the number of columns necessary to evaluate all of the competitors in an industry. You should also add industry specific KSF”s when they apply. Refer to Table 3.4 on page 107.

| |Manufacturing (production of the product |Marketing related KSF”s |Skills related KSF”s |Other KSF”s |

| |or service) related KSF”s | | | |

| | | |Ability to develop innovative products | |

| |Quality of manufacture |Breadth of product and product selection |and product improvements | |

| | | | |Image and reputation |

|Questions in this row apply for all the sausage companies |What is their capability for this factor? |What does this mean? |

|listed. | | |

|Industry growth potential |The industry as a whole grew at a rate of 18.3% in 1996 and was |Currently this industry is attractive due to its high growth rate.|

| |experiencing growth in all segments. |There is currently too much competition to expect to achieve above|

| | |average profitably. |

|Does competition permit adequate profit potential? |Competition is tending to drive profit margins down in this industry. The |Competition is straining the profit potential in the specialty |

| |competitive strengths of the local and national companies work to keep |sausage industry. At the current growth rates we expect companies|

| |prices down. |to be generate adequate profits. When growth stops the majority |

| | |of specialty sausage makers will struggle to remain profitable. |

|Does competition lead to stronger or weaker forces? |Competition leads to stronger forces because it will force out the weak |Competitors will look to reduce prices as a way to increase market|

| |competitors. It is unlikely that the industry participants will be able to|share as growth rates decline. This will continue to decrease |

| |boost profits to an above average level. |profitability. |

|Will the prevailing driving forces positively or negatively |Overall profit will increase due to the growth of the specialty sausage |We see the overall profit in this industry increasing. We expect |

|impact profit potential? |market. The number of rivals competing for this extra profit is likely to |the competitive situation to decrease profit margins. |

| |remain steady. | |

|What is the company's relative competitive potential in this |The company is relatively weak when stacked against all firms in the |Guiseppe’s is currently at a competitive disadvantage in the |

|industry? |industry. They lack broker connections, accurate costing, and long-term |industry. Unless Guiseppe’s can work to strengthen their relative|

| |relationship with buyers. |position, they will continue to struggle to achieve profitability.|

|What is the company's ability to capitalize on its |Guiseppe’s would not seem capable of capitalizing on the weaknesses of its |Guiseppe’s must focus their energies on successfully promoting |

|competitor's weaknesses? |competitors under current conditions. The weakness they are most likely to|their ability to offer a wide selection of specialty sausage. The|

| |exploit is the lack of product breadth that the national companies have in |customer segments most likely to seek this selection are the |

| |the Memphis market. |casinos and upscale restaurants. |

|Can the company defend against or is it insulated from the |The company is not insulated from the low profit margins in the specialty |Guiseppe’s cannot defend itself if necessary. They must obtain |

|factors that make this industry unattractive? |sausage industry. Guiseppe’s would have a difficult time defending itself |accurate costing for the many varieties of sausage they produce. |

| |if one of its many rivals more aggressively competed against Guiseppe’s. |They must use this information to compete against their rivals. |

| | |Guiseppe’s must make and sell only sausage varieties that have a |

| | |high enough profit margin to overcome costs. |

|How well does the company's capabilities match the industry's |Guiseppe’s is very capable of competing on a quality and breadth of product|The company’s capabilities are well enough suited to take |

|KSF”s? |basis. They are beginning to establish some brand recognition in the local|advantage of the high growth of the specialty sausage market. |

| |market. |Unfortunately their current strategy and customer base does not |

| | |allow for this to happen. |

|What are the future uncertainties and risks for this industry?|Intense competition among the existing rivals could lower the profit |Competitive pressures will remain very high as this industry |

| |margins to a point that would make the business unattractive to most |continues to mature. The industry must recognize any changes in |

| |companies. It is possible that the next generation of consumers could |consumer preferences and take actions to offset these changes if |

| |become so health conscious that they switch to healthier substitute |companies wish to remain profitable. |

| |products. | |

|What is the severity of the issue(s) or problem(s) facing this|The issues that is most affecting this industry, is the high degree of |This industry should be able to remain profitable as long as |

|industry? |competition among rival firms. This has not yet hit the stage where |double-digit growth remains. As this industry matures companies |

| |companies begin to merge or buy out competitors. We could expect this to |will need to fight for their survival. |

| |happen if industry growth rates decline. | |

|If a corporation, will continue participation in this industry|Continued participation in the specialty sausage industry should not hamper|A strong specialty sausage company possessing a good national |

|positively or negatively impact its ability to compete in |the ability of a firm to compete in other industries. |distribution system with access to the retail brokers, has the |

|other industries? | |foundation necessary to sell other products to the same buyers. |

III. Summary of External Factors

Which of these forces and factors are the most important to the corporation and to the industries in which it competes at the present time? Which will be important in the future? Which represent opportunities and which represent threats to the corporation? Summarize using the following matrix. Consider the external forces and factors for the corporate, business, functional and business levels of the organization.

|External Forces and Factors |Opportunities |Strategic Implications for|Threats |Strategic Implications for|

| | |the company | |the company |

|Societal | X | X |  |  |

|Political |  |  |  |  |

|Legal |  |  |  |  |

|Regulatory | X | X |  |  |

|Dominant economic traits | X | X |  |  |

|Five forces | X | X |  |  |

|Driving forces of change for the industry and |  |  | X | X |

|the industry’s environment | | | | |

|Companies in the strongest and weakest position|  |  |  |  |

|Rivals most likely moves |  |  | X | X |

|Key Success Factors | X | X |  |  |

|Industry Attractiveness and prospects for | X |X |  |  |

|profitability | | | | |

-----------------------

Jimmy Dean

Bryan

Dino’s

Guiseppe’s

Guiseppe’s

Dino’s

Jimmy Dean

Bryan

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