Home Appliance Case Study
What are the Industry’s Dominant Economic Traits? Industry’s Dominant Economic Traits| Features| Questions to answer | Market Size & Growth Rate| U. S is the largest producer of Home appliances in the world. U. S Home appliances industry is in the phase of Maturity. There are four major firms in Home appliances industry in United States. in 2002 there are 74.
5 million units. Dollar volume had been growing at an annual average rate of 1. 9 percent since. Scope of Competitive Rivalry| As major home appliance industry became increasingly global it became difficult for global and domestic major home appliance companies to survive independently in the competitive environment. | Number Of Rivals| Major rivals who shared 99% of the market share were Whirlpool, General Electric, and Maytag, AB Electrolux. Others who shared 1% of the market share were Bosch-Siemens, Haier, Emerson Electric, Sub-zero, Viking and Wolf.
Buyer Needs & Requirements| Many consumers were demanding appliances that are attractive, convenient and easy to clean for that consumers are willing to pay top prices for top of the fine appliances that enhances their decor’s and save precious time. The manufactures have responded to the consumer demands, by manufacture smart appliances with sophisticated electronic controls and self diagnostic features. | Pace of Technological Change| New technologies and designed were being introduced into major home appliances.
Due to governmental pressure, appliance manufactures were introducing energy efficient versions of Home appliances| Degree of Product Differentiation| In US major home appliances industry firms differentiated themselves on the basis of quality and cost. | Product Innovation| As a result of high competition and rivalry companies were always in search of innovation. Huge amounts were being spent on R;D in order to replace current technologies with more efficient one.
For example use of microwave energy in clothes dryers so that clothes could be dried faster, at low temperature.
This technology was not marketed as it needed further improvement. Another example of innovation is that silent, vibration-free refrigerator instead of the noisy, energy-consuming compressors. The cooling apparatus consisted of wheel containing gadolinium powder moving through a high powdered, rare earth magnet. | Economies of Scale| All the major home appliance manufacturers were trying to gain economies of scale by renovating and building production facilities in order to improve quality and reduce material costs.
| Q2. What kinds of competitive Force are industry members facing? Please make sure you follow my slides for Porter’s analysis. You have to explain the reasons for your evaluation. Threat of New Entrants/ Entry Barriers| Factors| | HUFA| MUFA| Neutral| MFA| HFA| | Comment| Economies of scale| Small| | | | 4| | Large| 99% of market shares capture by big four firms. | Capital require red| Low| | | | | 5| High| The high amount of capital required for the new entrance in this industry | Access to distribution channels| Ample| | 2| | | | Restricted| There are three mass distribution channel.
Which distribute appliances to mass. Differentiation| Low | | 2| | | | High| There is no such differentiation in products features. Focusing on price reduction that drove the surviving firms to increased efficiency and a strong concern for customer satisfaction | Brand Loyalty| Low | | | | | 5| High| A significant fraction of the consumers of high-end appliances were very knowledgeable about the brands and were also particular about the brands they used. | Experience Curve| Insignificant| | | | 4| | Significant| They have more than 50 years of experience in appliance industry that was the main source of their success. Govt. Action| | | | | 4| | | Govt has put strong regulations on Industry to produce energy saving products.
| Exit Barriers| Factors| | HUA| MUA| Neutral| MA| HA| | Comments| Specialized Assets| High| 1 | | | | | Low| They have captured a huge market through product development, learning experience and R;D. | Fixed Cost of Exit| High| | 2| | | | Low| They have spent a huge amount on machinery,labour trainings,R;D| Strategic interrelationship| High| | 2| | | | Low| Collaboration and commitment with their suppliers and dealers. | Competitive Rivalry|
Factors| | HUFA| MUFA| Neutral| MFA| HFA| | Comment| Composition of Competitors| Equal Size | | | | | 5| Unequal Size| All have same resources and same product line so they can compete easily with each other. | Mkt. Growth rate| Slow| | | | | 5| High| Because they have maximum market share and have grap the customers loyalty. | Scope of competition| Global| 1| | | | | Domestic| Because of competition with International markets.
| Capacity Increase| Large| 1| | | | | Small| When they will produce same products as like their competitors so it will exceed the requirements and have to sellin lesser price. Degree of differentiation| Commodity| | 3| | | | High| No such product differentiation among rivals| Threat Of Substitute Product | Factors| | HUFA| MUFA| N| MFA| HFA| | Comment| Threat of Obsolescence of Industry’s product| Hi| | | | | 5| Low| Product durability and reliability and no such substitute. | Aggressiveness of substitute products in promotion| Hi| | | | | 5| Low| There is no threat facing from substitute product| Switching Cost| Low | | | | | 5| High| No substitute| | Power Of Buyer|
Factors| | HUFA| MUFA| N| MFA| HFA| | Comment| Number of Important buyers| Few| | | | 4| | Many| Brand loyalty and innovative products preference. | Product supplied| Commodity| | 2| | | | Specialty| Similarities in products so they can easily switch to other if they increase the cost | Switching cost| Low| 1| | | | | High| Buyers can easily switch to other products if low cost. | Profit earned by buyer| Low| | 2| | | | High| Company is getting less profit and providing more discount to customers| | | | | | | | | | | | | | | | |
Overall Industry attractiveness| | | | | Factors| Unfav| Neutral| Fav| | | | | Entry Barriers| | | *| | | | | | Exit Barriers| *| | | | | | | | Rivalry among existing firms| * | | | | | | | | Power of buyer| | * | | | | | | | Threat of substitutes| | | *| | | | | | Q3.
Identify forces likely to exert greatest influence over next 1-3 Years? (Please note the Drivers of change are few usually not more than 4 factors). Your Drivers of change must point out. i. Are driving forces acting to cause demand for product to increase or decrease?
The driving forces increase the market demand for product because of emerging technologies, increase in globalization, product innovation and customers’ demand. ii.
Are driving forces acting to make competition more or less intense? Competition increases because the existing firm more involved in product innovation, price reduction and globalization. iii. Will driving forces lead to higher or lower industry profitability? Their profitability will increase because of mass production, change in cost, efficiency, change in people’s life style. Q4. Develop Strategic group map for the industry.
Justify your reasons? Price| Highlow| Maytag | | AB Electrolux | | | General Electric | Whirlpool | | | | | | | | | Few models Many models| Model Variety| Q5.
What are the key Factors for competitive success? Develop competitive profile matrix. Common Types of Industry Key Success Factors (KSF)| Features| Questions to answer| Technology | Introduce energy saving products, customers oriented features and efficient products that have save their cost and time. Manufacturing Related KSF| Economies of scaleIt plays very vital role as the entire major home appliance manufacturers were heavily engaged in renovating and building production facilities to gain economies of scale. E. g.
, reducing labor cost and manufacturing cost. QualityProduct Quality is also a key success factor it includes eight dimensions of quality which consumers want i. e. , performance, features, reliability, conformance, durability, serviceability, aesthetics and perceived quality. | Distribution related KSF| There is a strong network of wholesale distributors.
Strong direct sales capabilities via the internet. | Marketing Related KSF | They have well known brand name. They have a narrow product line. They are giving guarantees and warranties to their customer. | Strategic Factors| WhirlpoolWeight Rating Weighted Score| MaytagWeight Rating Weighted Score| Market Share| 0. 25| 4 1| 0.
15 3 0. 3| Global expansion| 0. 25| 4 1| 0. 5 3 0. 3| Learning experience| 0.
20| 4 0. 8| 0. 20 3 0. 6| Product Quality | 0. 15| 3 0. 45| 0.
25 3 0. 75| Production Capacity| 0. 15| 3 0. 45| 0. 25 2 0.
75| Total| 1| 3. 7| 2. 7| Competitive Profile Matrix (CPM)