Industry Analysis: Major Types Of Analysis Methods For Startups

Industry analysis is the most crucial aspect to consider before you start your business.

Furthermore, it also becomes important if you want to launch a new product or service or want to grow your business into a new market. It helps you understand your position regarding competitors, market demands, and other external aspects. 

This article also informs you about the major types of industry analysis methods. This lets you understand what method to apply based on your current demands.  

Finally, you will learn about the role of a market research analyst in this entire process. Hence, to learn more, read on to the end of the article. 

What Are The Types Of Industry Analysis? 

There are three primary methods through which you can perform industry analysis. However, your method might change depending on the situation and what you want to analyze. 

The following are the different methods you can use for industry analysis: 

• Competitor Analysis 

• External Environment Analysis 

• Analysis of the Organization’s Current Position 

1. Competitor Analysis (Porter’s 5 Forces Model) 

Micheal Porter says that you can get an accurate insight into the industry if you analyze five major forces in the industry. Also, these five forces make industry analysis easier: 

A. Internal Competition 

This aspect helps you find out who your direct competitor is. Basically, in some markets, market competition and rivalries are so influential that it creates a cultural split among consumers.  

For example, check whether a direct competitor is present who offers products/services similar to yours.

The following are some of the factors you need to consider: 

• Number of competitors in the market 

• Growth of the industry 

• Similarities in products and services 

• Difficulty of leaving the industry (Exit Barriers) 

• High fixed costs (tempts companies to cut prices) 

B. Potential For New Entrants 

If it is easy for new firms to enter the market easily, then the industry has a lower profit margin. As a result, it leads to a lower share of the market. 

The following are some of the major factors you need to consider measuring the threat of new entrants in an industry: 

• Industries with large-scale production and lower costs have a smaller number of new entrants. 

• If existing brands are strong and have good customer loyalty, new entrants are fewer. 

• A high-cost requirement for startups means minimum new entrants. 

• If access to distribution channels is difficult, it is tricky for startups to enter the industry. 

• When there are many regulations, licenses, and safety standards, it gets too costly for new firms to gain access to the market. 

C. Power Of Suppliers 

When the power of suppliers in an industry is high, it raises the cost of resources. This happens when a supplier is the only source of something of primary importance for the firm. Primarily, the supplier power in an industry depends on the following factors: 

• How many suppliers are there for an important item for your business? 

• A supplier with a unique product is powerful. Hence, it will be costly to switch to another supplier. 

• Is switching to another supplier time-consuming and costly? 

• Suppliers have more power if they can move into a buyer’s industry (forward integration). Hence, it becomes difficult for buyers to compete in the market. 

• If the industry is important, the suppliers depend on the success of the operating companies. This leads to a balance of power, which is a good indicator. 

D. Customer Power 

Generally, successful brands attract customers. However, if customers have more strength, they can pressure businesses to provide better products at lower prices.

Here are some of the major ways you can determine customer power in the industry: 

• A lesser number of buyers means they have more power. 

• If the purchase size is big for customers, it indicates more customer power. 

• If customers find it easy to switch between companies, it is difficult to enter the industry. 

• Customers who have a better idea of the industry can negotiate their prices better. 

E. Threat Of Substitutes 

If there are more similar companies and substitutes for products and services, it is difficult to perform well in the industry.

Here are a few things you need to consider if you want to find the threat of substitutes: 

• If it costs less for customers to avail themselves of the services of a substitute, then the industry will be difficult to perform. 

• Customer willingness to buy products/services elsewhere. 

• Similarity of products and services among multiple companies. 

2. Analyzing External Forces (PEST Method) 

Using the PEST (Political, Economic, Social, and Technological) Method, you can analyze the external forces of an industry. Basically, you get a better idea of the external environment. Here, as a market analyst, you need to analyze each of the four components of the PEST model.

Here is a brief description of the components: 

i) Political 

These include political factors that positively and negatively impact any industry. For example, certain policies, tax regulations, environmental regulations, trade policies, tariffs, labor laws, etc., have a big impact.  

Moreover, factors like the ease of doing business in an area, and its overall political stability, are also important. Hence, when analyzing an industry’s political aspects, consider these factors. 

ii) Economic 

There are a variety of economic forces that can heavily impact an industry. These include GDP growth rate, inflation, interest rates, exchange rates, and many more. Apart from that, the capital market situation also plays a big role in determining the chances of growth of an industry. 

iii) Social 

Major trends at the social and cultural level also impact the business environment. For example, population growth, demographics, and cultural trends greatly impact how people perceive your business.  

Apart from that, while analyzing, you also must consider behavioral factors like fashion, health, social mobility, and many more. 

iv) Technological 

What are the advancements and developments in the local business environment of the industry? This is especially crucial to find out since almost all aspects of your business depend on technological development. 

Basically, the impact (or a lack of impact) of technological development can alter how you do business in a particular market. Apart from that, they also impact how people live their lives. For example, you can check how much your target market depends on the Internet. 

3. Assess Your Organization’s Current Position (SWOT Analysis) 

SWOT (Strength, Weaknesses, Opportunities, and Threats) analysis is a great method to determine the impact of various forces on your company. Primarily, this method offers a great way of summarizing industry forces and helps you find their implications. 

However, the factors responsible for SWOT can be internal or external.

Here is a brief overview: 

• Internal Factors: These factors already exist in your business and contribute well to your company’s current position. These factors might also continue to exist in the future. 

• External Factors: These events are beyond the control of the company. Hence, you need to assess their likelihood and impact on your business. Furthermore, if there are opportunities, check if your management intends to make the most of them. 

The following are each of the SWOT aspects you need to measure and summarize in your analysis: 

a. Strengths 

Generally, these are the major factors that make your organization excel in the market and stay ahead of competitors. Here, you find out the core competencies of your business.

These factors allow you to establish a strong brand, a strong balance sheet, a loyal customer base, etc. Basically, it would help if you decided how to use your strengths to your advantage in the industry. 

b. Weaknesses 

Your company’s weaknesses might stop you from performing in the industry’s internal and external environment. Hence, these are the areas where you need to put more effort. This will allow you to remain competitive. Therefore, find out those aspects of your business that pull you back. 

c. Opportunities 

These favorable external factors of your business offer you a competitive advantage in the industry. For example, in some cases, you might have tax cuts, opportunities for higher sales, etc. Basically, with the help of these opportunities, you can increase your market share. 

d. Threats 

Threats are those factors that can harm your organization once you get into the industry. Mostly, these are external threats. For example, opening your business operations in a place with unstable weather can be threatening.  

Apart from that, threats also include political and economic factors like legal problems, rising costs, a lack of labor supply, etc. Furthermore, an increasing number of competition can also be a threatening factor for your business. 

Final Thoughts

Hence, you can see that industry analysis is important to consider before you start getting into a new market. However, depending on what aspect of the industry you want to analyze, you need to use one of those three methods. 

Do you have more information about how to analyze industry forces for a business? Consider sharing your ideas and opinions in the comments section below.

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