Industry analysis is a tool that many businesses use to assess the market. It is used by market analysts, as well as by business owners, to figure out how the industry dynamics work for the specific industry studied. Industry analysis helps the analyst develop strong sense of what is going on in the industry. Think of it as a fancy way of “getting the lay of the land."
When it comes to business, industry analysis involves such things as assessing the competition in the industry; the interplay of supply and demand in the industry; how the industry holds up against other industries that are emerging and providing competitions; the likely future of the industry, especially in light of technological developments; how credit works in the industry; and the exact extent of the impact that external factors have on the industry.
The importance of industry analysis is manifold. As an entrepreneur trying to find your way in the industry of your choice, you can use industry analysis to understand what your position is, relative to the position that other players in the industry have. You can use industry analysis to your advantage to identify opportunities and threats within your environment, as well as to plan for the future of your business, in the context of the future of your industry. The only way you can survive in any competitive industry is that you will need to understand how you measure up against your competitors, and then use that information to your fullest advantage.
What Is the Purpose of Industry Analysis?
The importance of industry analysis for marketing capability cannot be overemphasized. Industry analysis and the associated skills used to carry out industry analysis are absolutely critical for your business, as they will help you gain an intimate understanding of the environment within which you’re operating. This importance has various facets to it, however, and they can each be discussed in some detail.
Industry Analysis Can Be Used to Predict Performance
One of the greatest indicators of how well your business will perform in an industry is the performance of the industry as a whole. If the industry is doing well, then your business is likely to do well within that industry, provided you run it well enough. By being able to foresee the changes that are likely to take place in the industry, this will help you see which changes that industry is likely to go through. For example, if there is a significant drop in the price of fuel, then manufacturers of products that require fuel to produce will enjoy better profit margins. Being able to predict such changes will give your business the opportunity to react in a strategic manner when doing industry-related projects.
Industry Analysis and Positioning of a Business
During the planning phase of your business, you will be better able to position yourself in the market if you understand how the market works. For example, if you understand the kind of products being sold in the market, as well as how saturated the market is, you will be better able to figure out how you can differentiate yourself from the competition.
Industry Analysis to Identify Threats and Opportunities
Throughout the process of industry analysis, you will be able to identify many different threats and opportunities. Threats are any phenomena that would impede the growth of your business, while opportunities are phenomena that would catalyze the growth of your business.
Types of Industry Analysis
There are three main ways in which you can perform industry analysis. These are:
The Competitive Forces Model, also known as Porter’s 5 Forces.
The Broad Factors Analysis, also known as PEST Analysis.