Studying the market trends and the competition level is important for businesses because it helps them to lay out their future strategies. Therefore, they use various tools and methods to achieve their goals. Industry analysis is the same process. Today, we’ll discuss industry analysis, its types, examples, and guide.
What is Industry Analysis?
Industry analysis is a market evaluation tool that businesses and companies use to comprehend and analyze the degree of competition in a certain industry. It helps you to understand the market position of the industry. Like the external factors impacting the industry, credit system, technological changes and how shaping the future, other competitive developing industries, competition level within the industry, and statistics of supply and demand.
Industry analysis helps an entrepreneur or a startup company to comprehend the position of a business relevant to the other competitive businesses in the industry. Most importantly, it helps you to recognize the upcoming threats and opportunities and how you can handle them with your strong points. The only way to survive in today’s business environment is to distinguish yourself from the competitors within the industry.
Types of Industry Analysis
Businesses and companies use three main tools and methods to perform industry analysis, and they’re as follows;
Competitive Force Model (Porter’s Five Forces)
Michael Porter introduced this model in the 1980s and it goes by the name of Porter’s 5 Forces. It analyzes the five forces impacting the industry. They are as follows;
- The intensity of Industry Rivals. The businesses operating in the same industry and their market share makes them industry rivals. Some of the factors that make the competition intense are; increasing fixed cost, lower differentiation, and high exit cost.
- The threat of Potential Entrants. The entrance of the new business in the industry makes the business environment competitive. If the entrance is easier, then it makes the business environment risky. If the entrance is difficult, then they could enjoy benefits for a long time.
- Bargaining Power of Supplier. If a business depends on the supplies of suppliers, then they would have a significant influence over your businesses. It could directly impact the price and quality of your product.
- Bargaining Power of Buyer. Here the customers have more negotiating power over the business. They would demand discounts, better quality, and economical price. It usually happens when there are more competitors in the industry.
- Threats of Substitute Products. It’s when competitive businesses are offering similar substitute products of the other industry. A business usually has to face competitors from various industries and they impact your revenue stream. However, the substitute’s products are of two types; same product features with the higher price and same product features with lower price.
SWOT analysis comprises strengths, weaknesses, opportunities, and threats, and its analysis studies the impact on the business. It further consists of two parts;
- Internal Factors. The strengths and weaknesses fall under the category of internal factors. They exist within any business and continue to play their role.
- External Factors. The opportunities and threats are the external factors. They tell us the impact of potential happenings and how the company should react. Now it depends on the management whether it has the ability to exploit the opportunities and ignore threats.
PESTLE analysis comprises six macro-environmental factors like political, economical, social, technological, legal, and environmental factors.
- Political. Political factors mean government regulations, trade policies, tariffs, and the country’s overall stable environment.
- Economical. Economical factors include revenue, GDP, net income, import and exports, taxation, unemployment, growth rate, interest rate, and many other factors.
- Social. The social factor comprises fashion, trends, shopping, attitude and behavior, demography, healthy standards, and cultures.
- Technological. Technological factors consist of research and development, latest innovation and creativity, internet, and digital tech trends.
- Legal. Legal factors comprise labor laws, regulations, minimum wage, employment contracts, paychecks, leaves, and other issues.
- Environmental. The environmental factor comprises environmental issues like deforestation, pollution, carbon emission, soil degradation, and others.
Reasons to Perform an Industry Analysis
Industry analysis allows you to have an insight into the competitive business environment. The weaknesses of your competitors would be your strong suits. You can integrate such information to make the marketing plan to grow your business.
The result of industry analysis provides you an insight into the future growth of your business. If the report tells you upcoming threats, then you can take preventive measures to avoid them.
The analysis confirms and ensures the credibility of your business, and it would help you attract investors. It means that you’re familiar with competitors and knows what your customers want.
How to Perform Industry Analysis Effectively
Review Available Documented/Reports
You should take some time to find and study already published reports relevant to your industry. You would probably find a well-detailed report, and studying it would answer your questions. It doesn’t mean that you should completely rely on such published reports.
Therefore, you should choose the most report of your industry. It’s because trends and statistics change over time. If you rely on the old report, it won’t give you conclusive results.
Carefully Choose the Industry You Analyze
You must select the most relevant industry for your business. It’s because every industry has got many sub-categories. For instance, a chemical industry would have sub-categories of pesticides, organic, inorganic, and so on.
Come up with the Supply and Demand of Industry
Supply and demand play a significant role in controlling the market. You should study the past trends and product and product scenarios, and the findings would help you to predict the future.
Know Your Competitors
You should consider studying your competitors and their expectations and plans from the market. Porter’s 5 forces model would help you in this regard.
Follow Recent Developments in the Industry
Most importantly, you should study the macro-environmental factors that could impact your industry. Like the technological development, the latest tech trends, and technology innovation would impact many businesses worldwide.
Focus on dynamics of the Industry
The industry analysis should focus on the particular industry in question and understand the various dynamics of the industry. It should be direct, to the point, and in-depth. For instance, if your focus industry is aluminum, then you should be aware of the per capita consumption within the industry along with production and total consumption.
Examples and Templates of Industry Analysis
If you want to study the industry analysis of other businesses relevant to the industry as an example, it’s because it helps business owners to understand the position of their business. It answers them that how they can get a competitive edge over competitors.
- Industry Analysis Example, Templates, and Reports
Advantages of Industry Analysis
- It helps you to touch the unexplored opportunities
- It helps startup companies to know the position of their business relevant to the competitors
- Its focus is to point out the opportunities and threats
- It helps you to find out those points that could provide you the best results
- It helps you to develop a competitive strategy that would defend you in the competition
- It helps you to evaluate the profitability of the relevant industries
Disadvantages of Industry Analysis
- Misinterpretation of the statistics and data could lead you to make the wrong decision
- It’s a one-sided approach and it doesn’t guarantee success
- If inflation decreases the sale and company’s revenue stream, it would badly impact the report
- Season factors usually have a good and bad impact on the business, if the interpreter doesn’t consider these factors, it would impact the conclusions.