Performing thorough industry analysis is crucial for business strategy marketing product development, and investment decisions. This comprehensive guide covers key steps for researching your industry context and crafting an insightful analysis.
Overview: What is an Industry Analysis?
An industry analysis examines a specific branch of manufacturing service or trade. It assesses the attractiveness, dynamics, trends, and financial performance of an industry over time.
Industry analysis serves several strategic purposes, like:
- Helping companies evaluate new market entry or expansion
- Informing investment decisions and merger and acquisition strategies
- Identifying growth opportunities and competitive threats
- Shaping product development and differentiation strategies
- Benchmarking a firm’s performance against wider industry metrics
- Forecasting future trends and directions based on historical data
Thorough industry research and insightful analysis is foundational to smart strategic planning across any sector or niche.
Step 1 – Identify Your Industry Scope
Start by clearly defining the scope of the industry you are analyzing
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Classify the industry type – manufacturing, transportation, financial services, etc.
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Specify the geographic footprint – global, regional, national, or local.
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Determine public/private status – public, private, nonprofit, etc.
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Identify relevant industry codes like NAICS, SIC, NTEE, etc. if analyzing standardized codes.
Proper industry identification provides focus for research activities and analysis.
Step 2 – Research Industry History and Overview
Next, build foundational knowledge by researching your industry’s origins and historical evolution.
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How long has this industry existed?
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What need or innovation created it?
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How has it changed over time via innovation, regulations, economic cycles, etc?
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Who have been the major players over the decades?
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What have been major trends, developments, and events?
Grasping an industry’s roots provides crucial context for analyzing its current state and forecasting the future.
Step 3 – Analyze Market Size and Segments
Quantifying market size reveals the revenue potential and upside for industry players. Evaluate:
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Current market value by revenue, unit sales, etc. How has this changed historically?
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Growth rates and volatility over time. Is the market expanding or contracting?
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Geographic, product, or demographic-based market segments. Which niches are growing fastest?
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Market share distribution between major and minor players. Is share concentrated or fragmented?
Granular data helps assess market maturity, target promising segments, and evaluate competitive landscape.
Step 4 – Profile Target Customers and Needs
Understanding core customer groups, buying behaviors, and pain points is vital for tailoring your offering strategically.
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Define major customer segments like B2B, B2C, age groups, income levels, geographic, etc.
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Identify how they use the product/service and what motivates purchase decisions.
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Assess purchasing power and price sensitivity of key segments.
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Uncover major unmet needs or dissatisfactions.
This consumer insight guides positioning, product roadmaps, and go-to-market strategies.
Step 5 – Analyze Supply Chain and Distribution
Evaluating how products or services reach customers reveals opportunities to add value and improve experiences.
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Map out supply chain stages from materials to production to end customers.
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Gauge distribution model effectiveness – direct, in-house, multi-tier wholesalers, etc.
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Identify bottlenecks impacting cost, efficiency, scalability, or reliability.
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Assess innovation opportunities around sustainability, automation, regionalization, etc.
Supply chain analysis uncovers competitive advantage through operational excellence and innovation.
Step 6 – Profile and Benchmark Major Players
Studying major companies provides competitive intelligence to inform your strategy and reveal gaps.
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Catalogue the largest companies by market share, niche dominance, thought leadership, etc.
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Benchmark financial metrics like revenue, profitability, assets, debt, R&D spending, etc.
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Compare product offerings, pricing, promotions, distribution models, and business models.
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Highlight relative strengths and weaknesses.
Measuring your company against top players equips you to disrupt established competitors.
Step 7 – Research Industry Trends and Innovations
Looking ahead, investigate emerging trends, technologies, and innovations shaping your industry’s future:
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Profile advances like automation, additive manufacturing, artificial intelligence, extended reality, biotech, etc. applicable to your sector.
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Track shifting customer preferences, demographics, and social factors creating new demand.
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Monitor regulations, trade policies, and political landscape developments.
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Analyze threats from substitutes, new entrants, or competing industries.
Getting ahead of coming changes will keep your company relevant in disrupted industries.
Step 8 – Analyze Financial Performance and Health
Assessing financial metrics provides an objective view of industry profitability and stability.
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Gather data on revenue, profit margins, capital expenditures, cash flow, debt levels, and growth rates for overall industry and key players.
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Compare industry metrics against market indexes and cross-industry benchmarks to gauge relative financial performance.
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Determine reliance on economic cycles by correlating financials with macroeconomic trends.
Financial analysis quantifies inherent industry risk and economic sensitivity.
Step 9 – Interview Industry Experts and Insiders
While secondary research provides data, primary research offers qualitative insight.
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Connect with industry veterans, thought leaders, academics, analysts, trade groups, and conference speakers.
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Ask probing questions to gain color behind the numbers. Listen for trends, myths, criticisms, and validation of your findings.
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Correlate interviewee perspectives with your quantitative research to get a well-rounded picture.
Experts often spot undercurrents and make connections that public data alone may miss.
Thorough industry analysis requires a holistic approach using both quantitative and qualitative techniques. By combining big picture data and trends with insider perspectives, you gain an accurate, nuanced view of market realities to drive strategic planning. Conduct regular analysis to track how your industry evolves over time.
#1 Competitive Forces Model (Porter’s 5 Forces)
Michael Porter introduced his Five Forces in 1980 in his book called “Competitive Strategy: Techniques for Analyzing Industries and Competitors.” According to Michael Porter, these five forces describe any industry completely.
These five forces and additional “power of complementary goods/services” are:
1. Intensity of industry rivalry
The industrys competitiveness depends on how many competitors exist at the current moment. Also, we should consider the market share of those competitors. The industry tends to be competitive if the product is less differentiated.
For example, the biotechnology industry has less competition. Compare it with the restaurant business. In every corner of any city, you will find many restaurants.
Also, the high exit costs motivate current players to fight for the existing market. Examples of high exit costs might be high fixed assets, labor unions, government restrictions, and many others.
2. Threat of potential entrants
The threat of potential entrants is how easily new players can enter the market. If it is easy to start a business in the industry, the risk of new competitors will be unavoidable. Vice-versa, if its hard to enter the market, then the sector has a minimal threat of new entrants.
The existing competitors in the industry can use their competitive advantage to prevent new entrants from entering the field.
This force is also called “barriers to entry.” The barriers can be in the form of regulations, licensing, or technological advancements.
For example, Microsoft, Apple, and Google dominate the mobile and desktop operating systems market due to technological advancements and network effects. Contrast this with the blogging and dropshipping business, where you dont need expertise or capital expenditure.
Suppliers also play an essential role in any industry. If there is a small number of suppliers, then the bargaining power of suppliers is high. However, if there are many suppliers, companies have more control over suppliers.
For example, software companies heavily rely on operating system providers such as Apple, Microsoft, and Google. So, the bargaining power of suppliers is high. But, in the car manufacturing industry, many small manufacturing shops provide specific parts.
Due to the access to numerous suppliers, this power is low for the car manufacturing industry.
4. Bargaining power of buyers
If the industry has many customers, then the bargaining power of buyers is low. The opposite is true for markets with few consumers.
For example, contrast the two different investment management companies: one is a mutual fund, and the other is a wealth management company. The prior one works with the masses and manages vast capital—the former works with ultra-high-net-worth individuals (UHNWIs).
The mutual fund has more power over multiple clients, while the wealth management company is dependent on a few UHNWIs.
5. Threat of substitute goods/services
The businesses are not only competing in the same industry. They also compete with companies in complementary industries. This is true for all industries. The more substitutes the product has, the lower prices can charge an average player.
Substitutes can take two forms:
- Product with the same function/quality, but at the lower price
- Product of better quality at the same price (more utility compared with other products)
One of the excellent examples is the auto industry. The car has such substitutes as public transportation, ride-sharing services (Uber, Lyft), bicycles, and scooters. All of these substitutes are doing the same job but in different ways.
The threat of substitutes is higher when substitute products are available at a lower price.
6. Existence of Complements
This is a new concept that many business practitioners suggested. The existence of complements affects the demand side of the industry. The higher the demand for complementary goods, the higher the demand for the goods offered by the industry.
For example, if the demand for cars increases, the demand for oil products (gas/petrol) will rise. So complementary goods and services exist in all industries.
Porter’s 5 Forces (Tesla Example) – How to do an Industry Analysis – Porters 5 Forces Explained
What is industry analysis?
It involves a comprehensive assessment of the factors that impact the performance and prospects of businesses operating within that industry. Industry analysis serves as a vital tool for businesses and decision-makers to gain a deep understanding of the environment in which they operate. Key components of industry analysis include:
How do I do an industry analysis?
Use the following steps to learn how to do an industry analysis for your business or potential company: 1. Conduct background research Conduct detailed background research on your industry and competitors to understand your market. Choose if you want to research your entire industry or look at a specific subsection.
Why do I need an industry analysis?
You’ll need to do some industry analysis so you’re able to explain the general state of your industry, its growth potential, and how your business model fits into the landscape.
What are the different types of industry analysis?
Three popular types of industry analysis include: Related: SWOT Analysis Guide (With Examples) The Competitive Forces Model, also known as Porter’s Five Forces, is one of the most famous industry analysis models. Its nickname comes from its creator, business professor Michael Porter.
