Service Area Competitor Analysis

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Service Area Competitor Analysis HCAD 5390

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Service Area Competitor Analysis. HCAD 5390. Market Fundamentals. Determine the appropriate market and define it as precisely as possible Few organizations can serve the entire market, so … Think in terms of segments of the market - PowerPoint PPT Presentation

Transcript of Service Area Competitor Analysis

Page 1: Service Area Competitor Analysis

Service Area Competitor Analysis

HCAD 5390

Page 2: Service Area Competitor Analysis

Market Fundamentals

Determine the appropriate market and define it as precisely as possible

Few organizations can serve the entire market, so …

Think in terms of segments of the market Watch for new segments emerging and existing

segments disappearing – constantly Define segments and concentrate on a select few

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Bases for Segmentation: Patients and Consumers

Patient demographics Patient economics Patient lifestyle Patient sociocultural factors Patient geographic location Patient purchase/usage behavior

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Bases for Segmentation: Organizations as Customers

Organization physical location Organization economics Organization purchase behavior Organization infrastructure Organization use of product or service

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Segment Characteristics – Bases for Selection and Strategic Targeting

Total Competitor Sales from the Segment Average Competitor Profits Earned in the

Segment Segment Value Chain Activities and Related

Costs Segment Distribution Channels Competitive Intensity

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Criteria for Selecting Suitable Market Segments

Definable in objective terms Can distribute products/services to segment Media channels for marketing to segment Customers interested in buying firm’s products/services Customers have money to buy firm’s products/services Can sell products/services at prices that allow above-

average profits No conflict between new and existing customers Room in segment for another competitor

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Customer Fundamentals

Market is composed of individual customers Must identify and describe them in detail First determine who the real customers are Learn what they value in the products/services

the firm offers Plan strategies to satisfy customer needs in one

or more targeted segments

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Customer Roles in Purchasing Health Care Services

Actual recipient of the services One who decides that patient will receive the services Other influencers of decision to seek and receive the

services One who decides who will provide the services Actual provider of the services Covers and pays for the services Pays premiums for health insurance coverage

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Sources of Customer Value

Performance of the product or service Appearance of the product or service Quality of the product or service Setting in which it is purchased or consumed Reputation of the seller of the product or service Reputation of the product/service brand name Demeanor of people selling the product/service Service available before/during/after the purchase

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Which Product or Service Attributes to Emphasize

Within segments, customers will have different value preferences

Identify and target attributes most widely preferred Start with “threshold attributes” (bare minimum, taken for

granted, not pay extra for) “Critical success factors” (prefer one competitor over

another and pay a premium) Match resources/competencies to these factors – gain a

competitive advantage

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Learning Customer Value Preferences

Current customers prefer values in existing products or services – listen to what they say

General public opinion surveys Patient satisfaction surveys Customer complaints Organization-sponsored market research Patient or customer focus groups

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Using Market/Customer Data in Strategic Decision-Making

Identify threshold product features Identify “critical success factor” (CSF) features How well do competitors deliver those features? Compare resources and competencies to critical

success factors Sustainable competitive advantage possible?

1. Mobilize resources/competencies to deliver CSFs2. Develop/acquire new resources/competencies3. Target different market segments

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Industry vs. Market

Industry: Group of organizations (usually for-profit) Selling similar products and services to … Similar markets and customers

Market: Group of customers (people or businesses) Demand similar products and services to … Satisfy similar needs

Market is composed of customers who buy products and services from organizations in an industry

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Understanding an Industry

I. Industry Value ChainDescribes the structure of an industry.

II. Porter’s Five Forces ModelDescribes the forces that determine the profit potential of an industry.

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Industry Value Chain

Describes the structure of an industry:

Chain of sequential activities and organizations Each adding value until finished good emerges Most firms operate in part of the value chain Each firm adds different amounts of value Each firm captures different amounts of profit Profit captured depends on bargaining power

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Industry Value Chain for Artery Stent Implantation

Employer↓

Managed Care Organization↓

Health Plan↓

Integrated Delivery System↓

Individual Practice Association↓

Cardiology Group Practice↓

Stent-Insertion Specialist↓

Patient/Employee/Health Plan Member

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Porter’s Five Forces Model

Describes the forces that determine the profit potential of an industry:

1. Competitive intensity

2. Threat of entry by competitors from outside the industry

3. Availability of equivalent, substitute products

4. Bargaining power of buyers and customers

5. Bargaining power of suppliers and employees

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Industry Environment

A set of factors that directly influences a A set of factors that directly influences a company and its competitive actions and company and its competitive actions and responsesresponses

Interaction among these factors determine an Interaction among these factors determine an industry’s profit potentialindustry’s profit potential

Threat of new entrantsThreat of new entrants Power of suppliersPower of suppliers Power of buyersPower of buyers Product substitutesProduct substitutes Intensity of rivalryIntensity of rivalry

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Analyzing Industry Environment

Opportunities and threats are competitive challenges arising for changes in industry conditions.

Analytic tools such as the five forces model help

managers formulate appropriate strategic

responses.

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Five Forces Model of Competition

Identify current and potential competitors and Identify current and potential competitors and determine which firms serve themdetermine which firms serve them

Conduct competitive analysisConduct competitive analysis Recognize that suppliers and buyers can become Recognize that suppliers and buyers can become

competitorscompetitors Recognize that producers of potential substitutes Recognize that producers of potential substitutes

may become competitorsmay become competitors

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Industry Force 1: Competitive Intensity

Factors encouraging intensity of competition:

Large number of competitors Slow industry growth High fixed costs Lack of differentiation High strategic stakes High exit barriers High competitor diversity

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Industry Force 2: Entry By Outside Competitors

Barriers to entry by new, outside competitors:

Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Other cost disadvantages Government policy

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Industry Force 3: Equivalent, Substitute Products

Availability of equivalent, substitute products that:

Perform the same function, or … Customers believe perform same function Offer more performance for same price Offer same performance at lower price

Compare alternative, Eastern medicine with conventional, Western medicine.

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Industry Force 4: Bargaining Power of Buyers or Customers

Buyers or customers have greater bargaining power when: Customer’s purchases represent large share of seller’s sales. Customer’s purchases from firm represent a large share of

customer’s costs. Items purchased are homogenous with few differentiating features. Costs of switching from one vendor to another are low. Buyer’s profit margins are low. Buyer has plausible opportunities to integrate backward into the

seller’s business. Buyer has good knowledge of seller’s operating costs and deals

with other buyers.

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Industry Force 5: Bargaining Power of Suppliers or Employees

Concentrated supplier industry No substitutes for supplier’s products Buyer is not important customer of supplier Supplier’s product is important input to buyer’s

business Supplier’s products are differentiated Supplier’s products have high switching costs Supplier can plausibly integrate forward

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A Sixth Force?Government Policy

May constitute barrier to entry Especially prominent in health care and biotech Government entities play many health care

roles: Payers/customers (Medicare, Medicaid) Providers (VA, IHS, city hospitals) Funders (NIH) Regulators (HIPAA, ERISA, Stark, fraud and abuse,

antitrust, FDA)

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Understanding Competitors

Which competitors to analyze? Competitors in systems and networks Narrowing the scope of competitor analysis Individual competitor analysis

Strategic aspirations and commitments Strategic capabilities

Forecasting competitor strategic behavior

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Which Competitors to Analyze?

Existing, immediate competitors Potential new competitors Indirect competitors

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Potential New Competitors

Expanding out of other geographic markets Expanding similar, related product lines Customers integrating backward Suppliers integrating forward Weak firm acquired by stronger firm Invaded firms retaliate by invading back Good fit with industry critical success factors

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Competition With and Among Networks and Systems

Networks and systems are a major force in the health care industry

Integrated delivery systems, hospital networks, health plan networks, nursing home chains

Competing with a single organization or a large aggregation of organizations?

Different resources and competencies Different strategic aspirations and intentions

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Narrowing the Scope of Competitor Analysis

Insufficient resources to tackle all competitors Focus on subsets of competitors

Concentrate on the greatest strategic threats Organize the industry into strategic groups

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Strategic Groups in the Pharmaceutical Industry

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R&D SpendingR&D Spending

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Strategic Groups in the Pharmaceutical Industry

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Generic Generic GroupGroup

• Marion Labs• Carter Wallace

• INC Pharmaceut’l

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Strategic Groups in the Pharmaceutical Industry

• Merck• Pfizer

• Eli Lilly

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R&D SpendingR&D Spending

Proprietary Proprietary GroupGroup

Generic Generic GroupGroup

• Marion Labs• Carter Wallace

• INC Pharmaceut’l

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Strategic Group Analysis

Cluster of businesses with similar characteristics, resources/competencies, and strategies

React to industry development in similar ways Industry counterpart to market segments Strategic groups of physician practices, hospitals,

health plans, drug companies, or … Defining characteristics of strategic groups of

physician practices

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Defining Strategic Groups:Physician Practices (I)

Clinical specialties Delivery channels Payer contracts and relationships Market segments served Quality of services provided Acceptance of new technologies

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Defining Strategic Groups:Physician Practices (II)

Reputation and customer loyalty Nature and vigor of marketing efforts Cost efficiency of operations Level of patient service amenities Level of fees and charges Adequacy of capitalization

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Individual Competitor Analysis:Strategic Aspirations and Commitments

Explains the strategies a competitor would like to implement or is committed to implementing.

Motivations for strategic action Strategic mindset Strategic track record Strategic managers’ background and history

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Individual Competitor Analysis:Strategic Capabilities

Explains a competitor’s strategic assets available for implementing strategies.

Internal value chain Resources and competencies

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Forecasting Competitor Strategic Behavior

Likelihood of any strategic move at all Form of the strategic initiative Methods of implementation Resources and energy committed Estimated chances of success Nature and severity of threat posed Competitor’s reaction to strategic attacks Nature and intensity of that reaction

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Competitive Intelligence

Process and system for acquiring knowledge about competitors’ strategic intentions and capabilities Formal and permanent intelligence-gathering system Backed with sufficient personnel and other resources One-time research in a turbulent industry is worthless Designed to meet the expressed needs of strategy

decision makers Employing a systematic gathering, analyzing, and

interpreting process

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Sources of Competitive Intelligence

Publicly Available Data

Media articles Reports filed with public agencies Speeches by top executives Corporate PR announcements Other corporate statements Health care-specific websites

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Sources of Competitive Intelligence cont’d

Privately Gathered Commercial Data Legal databases Corporate documents and reports Credit rating firms Consulting firms Market research firms Trade associations Think tank publications Commercial industry newsletters Investment banking research reports

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Sources of Competitive Intelligence cont’d

Original Field Research

Employees with knowledge of competitors Suppliers who also serve competitors Customers who also frequent competitors Contracted surveys and research

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Competitive Intelligence Process

Determine intelligence wants and needs of strategy decision makers

Identify best sources for desired competitor knowledge: Publicly available data Privately gathered commercial data Original field research

Sort and organize data gathered Analyze the data and draw conclusions Translated into reports for strategy decision makers