Gaining a competitive advantage is a difficult task for any business to accomplish.
Some of the largest companies in the world have achieved incredible results by establishing a competitive advantage, including companies like Apple and Tesla.
So how exactly do you establish a competitive analysis?
The only way to gain an edge on your competition is by studying the industry trends and determining what your business needs to do to succeed. Keep reading to learn how to do an industry analysis and why it is so crucial to perform one.
How to Do an Industry Analysis
An industry analysis involves using marketing research tools to help gain a better understanding of how the industry operates. It also helps companies determine where they fit within the industry and identifies potential opportunities and threats.
Conducting an industry analysis is a time consuming and sometimes tricky process. Follow along for a complete breakdown of how to research an industry.
1. SWOT Analysis
Performing a SWOT analysis is an excellent way to start your industry analysis. It will help you determine how your business fits in the industry while identifying ways to improve.
SWOT is an acronym that stands for:
In the strengths section, you will determine what your business does well. Think about what makes you unique to your customers when compared to the competition. Only include items here that give you a competitive advantage.
This is where you will identify areas of your business that you could improve upon. Try to think of what your competitors would consider a weakness of yours.
The opportunities section is where you will determine what opportunities are present in the industry, what you can capitalize on. You can also think of the strengths you jotted down and consider how you can turn them into opportunities.
Last but not least, the threats section is where you will identify areas of your business that could potentially harm your business. Consider what your competition is doing well and how it affects you. You can also take a look at the weaknesses and consider how they could be a threat to your business.
2. Porters Five Forces
Porter’s five forces model (competitive forces model) was developed by a Harvard Business School professor Michael Porter. Since it was established, it has become one of the most popular models used for researching industries.
Porter’s first force is referring to how much competition is within the industry, and the market share each competitor currently entertains. Other factors that should be considered are:
- Diversity among competition
- Brand loyalty
- Cost of switching
- And competitive differences
This is where you determine the factors that affect pricing and how much power your business has over the competition.
The Threat of New Entrants
The easier it is for new competition to emerge in the industry, the more vulnerable an established company’s market share becomes. The harder it is for new competition to enter the industry, the more power companies within that industry have over prices.
Bargaining Power of Suppliers
In an industry with very few suppliers, the more reliant a company becomes on those suppliers. In turn, it is giving the suppliers more control over prices and other advantages when it comes to trade. But in an industry with many suppliers, the power shifts to the company.
Bargaining Power of Customers
The customers can also enjoy power in certain industries. In an industry with fewer consumers, the power shifts in their favor, giving them the ability to negotiate lower prices. On the contrary, industries with many consumers enjoy more power when it comes to pricing.
Threat of Substitutes
In many industries, you will be competing not only just within your industry but with competing industries that produce goods that could be substituted as well. When an industry has competition from other industries, it diminishes its power when it comes to pricing. The opposite is true, as well. If companies don’t have substitute products or industries, they enjoy more control.
3. PEST Analysis
The PEST analysis (Broad factors Analysis) is a commonly used management framework to determine major external factors that could potentially influence the organization.
PEST is also an acronym standing for:
This section should be focused on government policy that could affect factors pertaining to the business like the economy and the industry.
The economic section takes into account interest rates, the macro-economy, supply and demand, and inflation.
Includes demographics, cultural impacts, and lifestyle trends that are linked to the organization.
Includes any technological advancements in the industry and any major technology trends happening in the broad market.
Why It Is Important
Industry analysis is vital to a companies long term success because it gives the organization the tools it needs to compete in a dynamic industry.
Industries are evolving all around us, and if a business doesn’t keep up, they will get left behind.
Take, for example, Kodak, at its peak, Kodak enjoyed an 80 percent market share in the U.S alone. They were the leaders of the industry, with very little competition to worry about. Kodak failed to keep up with the innovation that was changing its industry forever.
They were so focused on their business alone, they were ignorant to the fact the industry had technological advancements (digital cameras) that were becoming the new thing.
In Kodaks case, it is especially painful to study because the engineer who invented the digital camera was a Kodak engineer. Not only did they fail to keep up with the dynamics of the industry, but they also failed to there employees who could have kept them on top of the industry.
You can see why conducting an industry analysis is so critical to sustaining success in any industry. It is vital to have the information relative to the organization’s industry to stay ahead of the competition and remain profitable, and it is advisable to use one of the top market research companies.
Don’t fall into the trap of becoming stagnant and believing your company will remain ahead of the competition without having the necessary information to make business decisions.
If you need help conducting industry analysis, contact us today, and we can help identify opportunities for growth within your industry.