Industry and Competitor Analysis Basics

Study Notes

Industry and Competitor Analysis

An industry is a group of companies that produce similar products or services. Examples include music companies, Pilates and yoga studios, and solar panel manufacturers.
Industry analysis is business research focusing on an industry's potential.
Understanding the competitive landscape is crucial to succeed in business, as noted in Sun Tzu's The Art of War. Knowing the terrain—like pitfalls, marshes, and swamps—is equally important preparing for business battles.
Industry analysis is vital when a new business venture is planned, as it helps determine if the industry and target market are favorable for success.
Analyzing ins and outs of an industry, helps define a new businesses feasibility.
Environmental trends encompass economic, social, technological, and political changes and impact industries. The aging population, for instance, can benefit industries selling products for seniors.
Business trends impact industries, such as increasing or decreasing profit margins, escalating or slowing innovation, and fluctuating input costs.

Techniques for Assessing Industry Attractiveness

Studying environmental and business trends allows firms to understand current and predicted conditions in an industry.
The Five Forces Model examines factors influencing industry profitability.

The Five Competitive Forces Model

A framework to understand industry structure and profitability.
Composed of forces like:
- Threat of substitutes: The availability of similar products affects pricing and customer demand. The pharmaceutical industry's low threat of substitutes is a key factor in its profitability. Close substitutes decrease profitability due to customer choice.
- Threat of new entrants: High industry profitability attracts newcomers increasing competition and impacting industry profit. Barriers to entry, like high capital requirements, slow this influx of new business and sustain profitability of the industry. These barriers include high costs, scarce resources, or strong brand recognition already in place.
- Rivalry among existing firms: Intense competition often drives prices below cost, causing industry-wide losses. Factors like the number of competitors, product differences, growth rate, and fixed costs influence rivalry.
- Bargaining power of suppliers: Suppliers can influence industry profitability by raising prices or lowering quality of production. When suppliers are powerful, industry profitability suffers, and supply chain pressures can impact business success. Factors like supplier concentration, switching costs, and attractiveness of substitutes influence profitability.
- Bargaining power of buyers: Powerful buyers force price concessions or improved product quality, affecting industry profit. Factors like buyer group concentration, buyer costs, and standardization of products greatly impact a buyer's negotiating power. Threat of backward integration also influences the buyers power.

Competitor Analysis

A detailed examination of a company's competition.
It reveals major competitor positions.
Identifies business opportunities.
Competitive Analysis Grid: A tool to organize information collected on competitors.

Identifying Competitors

Direct competitors offer similar or identical products.
Indirect competitors offer substitute products.
Future competitors can develop in the future.

Sources of Competitive Intelligence

Ethical methods to gather information about rivals: attending industry events, acquiring competitors' products, studying their websites, using social media, and setting up email alerts. Customer interviews are also useful to understand customer motivations and comparisons of competitor's products and services.

Completing a Competitive Analysis Grid

A framework to arrange data collected on competitors.
Guides how a firm stacks up compared to its competition. Gives ideas for markets to seek and identifies primary sources of advantage.