If you want an accurate picture of the industry you’re competing in, you need to do some general research.
Do not confuse this research with researching your target market, or even your fellow competitors. If your industry is going in a direction you don’t want to follow, you certainly should be aware of it.
Make sure your research regarding the industry is clear and purposeful. Gathering information about the industry supplies additional data which will tell you whether or not your industry is attractive and has profit potential.
In addition, it allows you to identify the key success factors, trends, threats and opportunities that will point out which assets and skills you need to prosper in the industry.
In addition to researching the industry as a whole, you should also research critical market segments. The following areas should be investigated:
Actual and potential size of the industry.
Industry growth prospects.
Structure of the industry.
Costs of operating in this field.
Trends and developments within the industry.
Key industry assets and skills.
Researching industry size
Knowing the actual and potential size of the industry is important not only to evaluate investment decisions, but also to determine the market share of each of your competitors.
You can determine the actual size of the industry by referring to several secondary research sources like the Australian Bureau of Statistics and Department of Commerce and Trade, as well as industry associations.
These sources often provide market information, charting sales by product line, growth, geographic markets and major players in the industry.
To gauge the potential size of the industry, you will have to look closely at gaps within the industry.
Such gaps may be in product lines, distribution, usage, competitiveness or any number of other areas. By gathering research on your customers, competitors and the industry, you will be able to spot those gaps.
Why forecast industry growth?
To forecast industry growth, you can set up several growth models and examine what has to happen for each to occur.
Growth models allow you to develop an idea of when turning points in growth will occur and what will cause them to occur.
Gathering data on leading indicators will allow you to chart growth. These indicators will most likely be industry sales, industry segment sales and demographic data.
You can develop forecasts for new industries by taking comparable industries as examples. For example, if you wanted to forecast growth for digital audio tape (DAT) technology, you might use the market for CD or cassette-tape technology as a basis for your projections.
Understanding industry structure
A study of the industry’s structure will reveal just how attractive the industry is for a long-term investment. You will need to take the following into account:
Competition among current firms. You will be primarily interested in uncovering data detailing the number of competitors in the industry, their comparative size, product lines, strategies, fid costs, and commitment to the industry. Much of this information should already appear in your research on your competition.
Threat of competition from potential entrants.
Threat of competition from alternate products and technology. These are products or services that are not in direct competition with you, but whose presence affects the sales growth of the industry. You can gather this data by analysing secondary competitor groups and contacting associations pertinent to them.
The buying power of customers. Determine the buying power of customers by looking at the amount of competition and by charting prices. If too many businesses are cutting prices because of customer pressure and do not produce a sufficient profit, investment in the industry may be unwise.
The negotiating power of suppliers. To determine supplier power within the industry, find out who the major suppliers are and the extent of their product lines. You can do this by looking through trade periodicals and contacting associations.
Industry cost structure and distribution
When researching the cost structure of an industry, the first thing you’ll have to do is identify the stages at which you add value to your product or service.
A product-oriented business will have the following stages:
A service business, of course, would not have the “fabrication” and “assembly” steps shown above.
Each stage adds additional value to the final product. Most trade associations have information regarding production and marketing costs for their respective industries.
This section applies mainly to manufacturers. Yours is a business that most likely relies on additional distribution systems aside from your own sales force, so you should conduct research into the best distribution system available.
When researching distribution systems within an industry, you should ask yourself three strategic questions:
What are the current distribution channels and who controls them?
Are any alternative distribution channels available?
Have any new distribution channels emerged? Are any likely to emerge?
Many large industrial companies use their own sales force to sell directly to their customers. Other, smaller firms might sell directly to retailers or through wholesale distributors, brokers or agents.
Generally, companies that sell more directly to the end user have more control over their marketing efforts, but also face greater risks.
If a few companies dominate a distribution channel, you may need to consider alternatives. To choose an alternative system, you need to take a close look at the channels employed by your competitors.
How to spot trends
To spot industry trends, you constantly need to ask yourself several questions concerning your customers, competitors, and the industry in general, such as:
- What is important to customers?
- Which needs aren’t being met?
- What new strategies are my competitors starting to employ?
You need to sit down and take a close look at your market analysis up to this point to spot the most significant trends in the industry.
Key success factors
Perhaps the most important result of your industry analysis will be the identification of the key success factors of your competitors. Key success factors are assets and skills that a company within a particular industry must have to succeed.
Key success factors might be:
- Name recognition.
- Access to distribution channels.
- Financial resources.
- Loyal consumers.
- Access to raw material.
Whatever the key success factors happen to be in your industry, the completed analysis of the industry should define them and provide you with enough information to make an educated guess about success factors needed in the future.