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Wouldn’t it be great if you could look into a crystal ball and see the future of your business? Although there are no guarantees, industry analysis can be a powerful tool for knowing your business’s potential for growth. By doing an industry analysis, you can learn more about your competitors and about supply and demand within your industry, and you can find opportunities for growth. Whether you’re working on a business plan for a brand-new venture or contemplating your established business’s next move, an economic industry analysis provides vital insights that you can apply to your marketing efforts and your plans for business growth and development.
What Is Industry Analysis?
Industry analysis allows you to assess the overall industry that you’ve chosen for your business. An industry analysis may be a stand-alone report or may be included as part of a business plan. An industry analysis typically looks at the dominant companies within a given industry, supply and demand within the industry, whether the industry is growing, potential opportunities within the industry and other social, political and economic factors.
The purpose of an industry analysis is to compare your business or business idea to the industry as a whole. You can look at where your business fits in the industry and find creative ways to set yourself apart. For example, if you want to start a bakery, you would look at how other bakeries are performing in your area, what prices they are charging and what their specialties are. You would want to look at wholesale costs for your supplies and how you will obtain those supplies, especially if you’re using unique supplies or organic, farm-based products. You’ll also want to consider legal factors, such as the minimum wage for employees in your local area and laws regarding food service businesses in your area.
Once you’ve taken a close look at your industry, you can find opportunities for growth. With the bakery example, if most bakeries in your area close early in the day, you may want to stay open into the evening to take advantage of a gap in the market.
Common Methods of Industry Analysis
There is no single way to complete an industry analysis. There are a few commonly used frameworks, each of which gives different insights about your industry. These can be used alone or in combination to provide a more in-depth analysis.
SWOT is an acronym for strengths, weaknesses, opportunities and threats. The SWOT model is especially well suited for analyzing the competition within your industry. You would look at the strengths of dominant companies within your industry, their weaknesses, what opportunities they may be taking advantage of that could give them a competitive edge and what threats they might be dealing with, such as challenging economic conditions.
Another common method of industry analysis is using Porter’s five forces, which were introduced by Michael Porter in his book "Competitive Strategy: Techniques for Analyzing Industries and Competitors." The five forces are the nature of your competitors, the availability of substitutes, the power of buyers, the power of suppliers and how difficult or easy it is to get started in your industry.
The Importance of Industry Analysis
By conducting a thorough industry analysis, you gain insights about your competitors. You can use these insights to help you develop a marketing plan to move your business forward. As you evaluate your competitors and their weaknesses, you may see opportunities to capitalize on those weaknesses. For example, if you’ve noticed that your competitors tend to offer an impersonal customer service experience, you could mention in your marketing materials that your business offers personalized service.
An industry analysis also offers insights for business planning. Once you’ve identified threats to your industry, you can implement a plan to mitigate those threats. For example, if your business offers technical support to other business owners, you might capitalize on the threat of cybersecurity lapses by offering robust, closely monitored security services that use the latest technology.
Industry analysis is also a critical component of a business plan. Including a thorough industry analysis in your business plan demonstrates to investors that you understand the potential opportunities and pitfalls of your business. It shows that you’ve given careful consideration to what makes your business unique and attractive to consumers.
Although conducting an industry analysis can be time consuming, it’s well worth the effort. You can find opportunities for success and proactively protect your business from potential threats to your industry. It’s a tool for reflecting on your business and its future within your industry.
Melinda Hill Sineriz is a freelance writer with over a decade of experience. She specializes in business, personal finance, and career content. She has worked in sales and has managed her own business for more than a decade. She has also written content for businesses in various industries, including restaurants, law firms, dental offices, and e-commerce companies. Learn more about her and her work at thatmelinda.com.