Industry analysis is a market assessment tool designed to provide a business with an idea of the complexity of a particular industry. It involves reviewing the economic, political and market factors that influence the way the industry develops. A competitive analysis is a critical part of your company marketing plan.
Methods of industry and competitive analysis: The following are the seven critical questions that help in understanding a company’s competitive environment.
- What are the dominant economic features of the industry in which the company operates? e.g., high investment in reality.
- What kinds of competitive forces arc industry members facing and how strong is each force? E.g. FMCG
- What forces are driving changes in the industry, and what impact will these changes have on competitive intensity and industry profitability? E.g. the airline industry.
- What do market position industry rivals occupy – who is strongly positioned and who is not? E.g. FMCG, passenger cars.
- What strategic moves are rivals likely to make next? E.g. cars.
- What are the key factors for future competitive success? E.g. software
- Does the outlook for the industry present the company with sufficiently attractive prospects for profitability? E.g. cellphones
Following methods can be used in industry and competitive analysis in answering the above questions:
(1) Porter’s Five Forces Model: Industry and competitive analysis can be done by using the Porter’s 5 Forces model. The model is named after Michael E. Porter, this model identifies and analyzes 5 competitive forces that shape every industry, and helps to determine an industry’s weaknesses and strengths. Five forces are –
a) Competition in the industry,
b) Potential of new entrants into the industry,
c) Power of suppliers,
d) Power of customers,
e) A threat of substitute products
(2) Thompson and Strickland’s-7 forces Model: Michael Porter’s Five Forces Model focuses only on the competitive forces surrounding buyers, suppliers, established companies, potential competitors and substitute products. This model excludes many other industry-related factors that substantially provide inputs for identification of industry’s environmental opportunities and threats. To overcome it is a shortcoming of Porter’s Model, Thompson and Strickland have developed a model for the overall analysis of an industry, including competition within the industry.
The model for industry and competitive analysis proposed by Thompson and Strickland has not only been able to overcome the drawbacks of Porter’s Model, it also seems to be comprehensive. It touches on all the relevant issues in an industry that need to be analyzed for assessing the overall industry situations, including the degree of competition in the industry.
The seven factors of the Thompson and Strickland Model are as follows –
- Industry’s dominant economic features.
- Main sources of competitive pressure and the strengths of the competitive forces.
- Driving forces.
- Market position of the rival companies.
- Competitor’s strategic moves.
- Industry’s key success factors.
- Industry’s overall attractiveness and profitability prospects.
(3) The “Structure-Conduct-Performance” Paradigm: The “Structure-Conduct-Performance” paradigm is a roadmap for identifying the factors that determine the competitiveness of a market, analyzing the behavior of firms, and assessing the success of an industry in producing benefits for consumers.