INDUSTRY ANALYSIS

  • Industry analysis is business research that focuses on the potential of an industry.
  • An industry is a group of firms producing a similar product or service, such as music, fitness drinks, or electronic games.
  • Once it is determined that a new venture is feasible in regard to the industry and the target market in which it will compete, a more in-depth analysis is needed to learn the ins and outs of the industry the firm plans to enter.
  • This analysis helps a firm determine if the niche or target markets it identified during its feasibility analysis are accessible and which ones represent the best point of entry for the new firm.
  • When studying an industry, an entrepreneur must answer three questions before pursuing the idea of starting a firm.

First, is the industry accessible—in other words, is it a realistic place for a new venture to enter?

Second, does the industry contain markets that are ripe for innovation or are underserved?

Third, are there positions in the industry that will avoid some of the negative attributes of the industry as a whole? It is useful for a new venture to think about its position at both the company level and the product or service level. At the company level, a firm’s position determines how the company is situated relative to its competitors,

 

  • It’s also important to know that some industries are simply tougher than others in terms of survival rates and profit potential. For example, the four year survival rate in the information sector is only 38 percent, while it is 55 percent in education and health care. What this means is that the average start-up in education and health care is roughly 50 percent more likely than the average start-up in the information sector to survive four years, which is a big difference.
  • These types of differences exist for comparisons across other types of industries. The differences can be mitigated some by firm-level factors, including a company’s products, culture, reputation, and other resources. Still, in various studies researchers have found that from 8 to 30 percent of the variation in firm profitability is directly attributable to the industry in which a firm competes.
  • As a result, the overall attractiveness of an industry should be part of the equation when an entrepreneur decides whether to pursue a particular opportunity. Studying industry trends and using the five forces model are two techniques entrepreneurs have available for assessing industry attractiveness

Environmental Trends

  • The strength of an industry often surges or wanes not so much because of the management skills of those leading firms in a particular industry, but because environmental trends shift in favour or against the products or services sold by firms in the industry. Economic trends, social trends, technological advances, and political and regulatory changes are the most important environmental trends for entrepreneurs to study.
  • For example, companies in industries selling products to seniors such as the eyeglasses industry and the hearing aid industry benefit from the social trend of the aging of the population. In contrast, industries selling food products that are high in sugar, such as the candy industry and the sugared soft-drink industry, are suffering as the result of a renewed emphasis on health and fitness. Sometimes there are multiple environmental changes at work that set the stage for an industry’s future.
  • Demand for motorcycle dealers is expected to speed up over the next five years. Industry revenue is anticipated to increase 2.5% to $24.2 billion in the five years to 2016. Disposable income is poised to increase over the next five years while the U.S. economy gains steam. With more money in their pockets, consumers will hit motorcycle lots again. Furthermore, the tight lending standards of the past are projected to dissipate, and more financing will be available for consumers to use when purchasing a motorcycle. High fuel prices will also feed into industry demand as some consumers switch from cars to motorcycles

Business Trends

  • Other trends impact industries that aren’t environmental trends per se but are important to mention. For example, the firms in some industries benefit from an increasing ability to outsource manufacturing or service functions to lower-cost foreign labour markets, while firms in other industries don’t share this advantage. In a similar fashion, the firms in some industries are able to move customer procurement and service functions online, at considerable cost savings, while the firms in other industries aren’t able to capture this advantage. Trends like these favour some industries over others.

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MARKET SEGMENTATION

  • Market segmentation is the process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers (known as segments) based on some type of shared characteristics. In dividing or segmenting markets, researchers typically look for shared characteristics such as common needs, common interests, similar lifestyles or even similar demographic profiles. The overall aim of segmentation is to identify high yield segments – that is, those segments that are likely to be the most profitable or that have growth potential – so that these can be selected for special attention (i.e. become target markets).
  • ¨Many different ways to segment a market have been identified. Business-to-business (B2B) sellers might segment the market into different types of businesses or countries. While business to consumer (B2C) sellers might segment the market into demographic segments, lifestyle segments, behavioral segments or any other meaningful segment.
  • ¨The STP approach highlights the three areas of decision-making
  • ¨Market segmentation assumes that different market segments require different marketing programs – that is, different offers, prices, promotion, distribution or some combination of marketing variables. Market segmentation is not only designed to identify the most profitable segments, but also to develop profiles of key segments in order to better understand their needs and purchase motivations. Insights from segmentation analysis are subsequently used to support marketing strategy development and planning. Many marketers use the S-T-P approach; Segmentation→ Targeting → Positioning to provide the framework for marketing planning objectives. That is, a market is segmented, one or more segments are selected for targeting, and products or services are positioned in a way that resonates with the selected target market or markets.

BASES FOR SEGMENTING CONSUMER MARKET

  • A major step in the segmentation process is the selection of a suitable base. In this step, marketers are looking for a means of achieving internal homogeneity (similarity within the segments), and external heterogeneity (differences between segments). In other words, they are searching for a process that minimises differences between members of a segment and maximises differences between each segment. In addition, the segmentation approach must yield segments that are meaningful for the specific marketing problem or situation. For example, a person’s hair colour may be a relevant base for a shampoo manufacturer, but it would not be relevant for a seller of financial services. Selecting the right base requires a good deal of thought and a basic understanding of the market to be segmented.
  • In reality, marketers can segment the market using any base or variable provided that it is identifiable, measurable, actionable and stable. For example, some fashion houses have segmented the market using women’s dress size as a variable. However, the most common bases for segmenting consumer markets include: geographics, demographics, psychographics and behavior. Marketers normally select a single base for the segmentation analysis, although, some bases can be combined into a single segmentation with care. For example, geographics and demographics are often combined, but other bases are rarely combined. Given that psychographics includes demographic variables such as age, gender and income as well as attitudinal and behavioral variables, it makes little logical sense to combine psychographics with demographics or other bases. Any attempt to use combined bases needs careful consideration and a logical foundation.

MARKET TARGETING

  • The market for a given product or service known as the market potential or the total addressable market (TAM). Given that this is the market to be segmented, the market analyst should begin by identifying the size of the potential market. For existing products and services, estimating the size and value of the market potential is relatively straight forward. However, estimating the market potential can be very challenging when a product or service is totally new to the market and no historical data on which to base forecasts exists.
  • A basic approach is to first assess the size of the broad population, then estimate the percentage likely to use the product or service and finally to estimate the revenue potential. For example, when the ride-sharing company, Uber, first entered the market, the owners assumed that Uber would be a substitute for taxis and hire cars. Accordingly, they calculated Uber’s TAM based on the size of the existing taxi and car service business, which they estimated at $100 billion. They then made a conservative estimate that the company could reach 10 percent share of market and used this to estimate the expected revenue. To estimate market size, a marketer might evaluate adoption and growth rates of comparable technologies
  • Another approach is to use historical analogy.  For example, the manufacturer of HDTV might assume that the number of consumers willing to adopt high definition TV will be similar to the adoption rate for Color TV. To support this type of analysis, data for household penetration of TV, Radio, PCs and other communications technologies is readily available from government statistics departments. Finding useful analogies can be challenging because every market is unique. However, analogous product adoption and growth rates can provide the analyst with benchmark estimates, and can be used to cross validate other methods that might be used to forecast sales or market size.

POSITIONING

  • Positioning refers to the place that a brand occupies in the mind of the customer and how it is distinguished from products from competitors. In order to position products or brands, companies may emphasize the distinguishing features of their brand (what it is, what it does and how, etc.) or they may try to create a suitable image (inexpensive or premium, utilitarian or luxurious, entry-level or high-end, etc.) through the marketing mix. Once a brand has achieved a strong position, it can become difficult to reposition it.
  • A good positioning helps guide marketing strategy by clarifying the brands essence, what goals it helps customers achieve and how it does so in a unique way.
  • The result of positioning is the successful creation of a customer focused value proposition, a cogent reason why the target market should buy the product.
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