Look for industry reports and data from reputable sources to determine market size. These reports often provide revenue, sales volume, and market share statistics. Analyzing this data will give you an idea of the industry’s overall health and potential for growth. Consider breaking down the data by segment, region, or product line to gain deeper insights.
Industry Analysis – Formulation of Strategy
In hyper-competition the frequency, boldness, and aggressiveness of dynamic movement by the players accelerates to create a condition of constant disequilibrium and change. In other words, environments escalate toward higher and higher levels of uncertainty, dynamism, heterogeneity of the players and hostility. Strategists do a large part of external environment analysis on an informal and individual basis. Various sources such as suppliers, customers, industry publications, employees, industry experts, industry conferences, and industry analysis in strategic management the Internet provide the information for such analysis. In a given industry there may be many companies, each of which has different interests and competes on a different basis.
Importance of Industry Analysis in Business
Perceptual mapping displays consumer perceptions of key product attributes and preferences. Industry offerings are mapped based on attributes like price, quality, features, style, and orientation to compare positioning. Maps reveal ideal positions to target and gaps or clusters in the market. This facilitates strategic decisions on product differentiation, branding, and marketing based on consumer perceptions. Achieving cost leadership means exploiting all sources of cost advantage.
Emerging technologies could disrupt industry value chains if competitors integrate them faster. New technologies also expand capabilities, enable new business models, create higher-value products, or dramatically improve productivity. The Five Forces primary purpose is to determine the attractiveness of an industry. However, the analysis also provides a starting point for formulating strategy and understanding the competitive landscape in which a company operates. For example, in the early history of automobiles, firms followed a differentiation strategy to produce expensive touring cars.
Onto the evaluation of the strength of these forces, a high force can be looked upon as a threat as it reduces profitability whereas, a low force would mean an opportunity that allows a firm to earn more profits. A description of each of these five forces is discussed in details in the following section. It provides perspective into inherent industry profit potential shaped by competitive forces.
Differentiation
For example, when Texas Instruments (TI) introduced the first sub-$20 LED digital watch in 1966, drastic discounts led to these watches (and those of competitors) becoming commoditized. Several digital watchmakers went out of business, and TI had to pull out of the watch business by 1980 due to plummeting revenues 5. Agriculture, video rental, and health clubs, real state brokers are examples of fragmented industry. “A consolidated industry is dominated by a small number of large companies” Aerospace, automobiles and pharmaceuticals are examples of consolidated industry. High fixed costs of exit, such as severance of pay redundant employees.
Step 2: Assess Market Size and Growth
Are you ready to unlock the secrets of Industry Analysis, equipping yourself with the knowledge to navigate markets and make informed strategic decisions? Dive into this guide, where we unravel the significance, objectives, and methods of Industry Analysis. Broad Factors Analysis, also commonly called the PEST Analysis stands for Political, Economic, Social and Technological. PEST analysis is a useful framework for analyzing the external environment. Let us apply some of the learning from the above step to industry analysis report of the Automobile Sector, IT Services Sector, and Steel Sector, respectively.
The analysis also evaluates size and growth trends, market share, profitability, and competitor strengths and weaknesses. The end goal is to synthesize findings into an industry outlook that highlights strategic opportunities and threats. Effective industry analysis provides fact-based insights to guide strategic decisions and investments. The five forces framework is developed by Michael Porter (Exhibit 2) and is the most widely used analytical tool for assessing the competitive environment. The five forces analysis is undertaken from the perspective of both an incumbent (already operating in industry) organisation and a new entrant organisation.
- If the companies are to avoid the mistakes, they must understand the forces that drive competition in the industry.
- Conduct scenario planning to explore how different economic cycles and trends might evolve and impact your business.
- Like differentiation, multiple sustainable focus strategies are often possible in an industry, provided firms target different segments.
- Emerging technologies could disrupt industry value chains if competitors integrate them faster.
- Let’s start by going through the crucial preparatory steps for conducting a comprehensive industry analysis.
SWOT Analysis is a versatile tool used to assess an organization’s internal strengths and weaknesses, as well as external opportunities and threats. By conducting a SWOT analysis, you can gain a comprehensive understanding of your industry and formulate effective strategies. Analysis of the industrial condition is typically done by keeping in mind market size, technological advancement, changes in rules and regulations, the objective of the company, etc. The industry landscape is continuously changing, and it is important to keep track of them so as to remain updated about the latest condition that may affect the entity directly or indirectly. Only then it is possible for the management to identify possible avenues of growth and expansion by utilizing the existing resources. In some companies, there’re dedicated teams who primarily do industry analyses and write reports on the same.
- The type of tactical planning you complete as you strategize is important because it forces you to make difficult choices and difficult decisions.
- The power relationships between the firm and the suppliers affect them.
- India’s competitive advantage in smartphone manufacturing lies in lower production costs.
- This model explains that five important forces affect how profitable and appealing an industry can be.
- Whether it’s assessing market trends, evaluating the competitive landscape, or understanding customer behavior, Appinio offers a holistic solution to uncover valuable findings.
A number of characteristics that affect the intensity of the rivalry among competitors are illustrated below. For example, Lay’s potato chips by Pepsico India have a well established distribution channel that has made its products available to the consumers at an arm’s length. This has not only posed a challenge to product like Bingo by ITC (a conglomerate) but has also refrained the local players from establishing themselves in the industry. In the same way, Suzuki-Maruti in the automobile industry has established a vast network of dealers and services centre across the length and breadth of the country making it the most affordable car in India (Exhibit 4). Such deeply entrenched distribution network act as a barrier to entry for the new entrants. Remember that the depth and complexity of your industry analysis may vary depending on your specific goals and the industry you are assessing.
Mastering Industry Analysis: A Step-by-Step Guide for Businesses
Risk assessment and mitigation are crucial aspects of industry analysis and strategic planning. Identifying potential risks, assessing vulnerabilities, and implementing effective risk management strategies are essential for business continuity and success. If the industry relies on a small number of suppliers, they enjoy a considerable amount of bargaining power. This can particularly affect small businesses because it directly influences the quality and the price of the final product.
If established companies have economies of scale, the threat of new entrants is reduced. Potential competitors are companies that currently are not competing in an industry but have the capability to do so if they choose. These new entrants to an industry typically bring to it new capacity, a desire to gain market share, and substantial resources. Effective strategists are concerned with their customers, their needs and desires, their potential customers and their location as well as the trends in the future that may lead to changes in customer buying patterns. In fact, opportunities come through identifying and providing for customer needs and desires, and threats come from failures to meet changing customer needs.
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. This chapter focuses on how businesses use strategy to create a competitive advantage and value for the organization. Understanding how organizations can be strategic in their thinking helps ensure that organizations select the right projects to align with what is important.
Conduct surveys or interviews with customers, suppliers, and competitors to gather firsthand information. Look for reports, articles, and studies that provide an industry overview. This background information will give you a solid foundation for your analysis. Understanding the historical context can help you identify key factors influencing the industry’s development and current position. Whether it’s assessing market trends, evaluating the competitive landscape, or understanding customer behavior, Appinio offers a holistic solution to uncover valuable findings. With our platform, you can make informed decisions, strategize effectively, and stay ahead of industry shifts.