Analyzing the Industry

Analyzing the industry is an important step in researching your market. On this page you will find tips on what to look for.

One of the most well known models used to undertake industry analysis is Porters Five Forces Model of Competition.

This model looks at five elements of the market, rivalry between competitors, alternate or substitute products, the bargaining power of suppliers and consumers, and the ease of entry into the market.

Rivalry amongst Competitors

If the businesses operating in the market are highly competitive, the market is generally less attractive as prices can be forced down by aggressive marketing techniques, costs are increased, or both. In this situation, opportunities are limited and are probably related to new technology or methods of production that reduce production costs.

Substitute Products

Substitute products and services originate from outside of the industry or market that the business is operating in. If the substitute product can provide high quality or better value, their entry into the market can erode market share and profitability.

An example of this might be the market for sunscreen. Quite a few make-up manufacturers these days are adding sunscreens to foundations and moisturizers and competing against sunscreen manufacturers for sales.

Opportunities may arise for your business if your product or service could satisfy the needs of consumers in another (related) market.

Bargaining Power of Suppliers

The bargaining power of suppliers determines who sets the price for their products.

If there a relatively few suppliers and no alternative sources of supply, the supplier sets the price. If there are a lot of suppliers and alternate sources of the product, the buyer is more likely to be able to set the price.

Bargaining Power of Consumers

This is the reverse of the bargaining power of suppliers, if you are in a market with relatively few competitors and very few substitutes for your products, you will be able to set your own prices. However, if you have a large number of competitors the consumer will set the price, and if you aren't prepare to meet it, they will buy elsewhere.

Potential Entry of New Competitors

In some industries it is difficult for new competitors to enter the market. The barriers could be government regulation, high start-up costs etc. A market with high entry barriers is likely to be very attractive to existing members, but less attractive to new entrants.

Another factor to consider while analyzing the industry is where your industry is in terms of its life cycle. Industries or markets are generally classified as new or emerging, rapid growth, mature, or in decline. The 'life stage' of the market will largely determine the likelihood of opportunities existing within the market, and what form they will take.

For example, opportunities for a business operating in a market in decline are likely to involve re-inventing a product or service and the move into a related emerging market rather than being opportunities for growth in the existing market.

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