Understanding who you are competing with, to provide what value to your customers, can help you clearly define the industry in which you compete and who you are competing against. Defining your industry accurately is critical to developing a cohesive strategy for your business.
What it is: An industry is a group of suppliers seeking to provide products and services to a common set of customers. The industry is defined by the suppliers who compete more so than the customers who buy (this is called a market). But an industry is made up of competitors who are trying to be hired by the customers to do a similar job for them.
What does it do. An industry is defined by the job that competitors do for their targeted customer base. Each industry has a set of Competitors (who compete in the industry), Buyers (those for whom the competitors are trying to do the required job), Suppliers (the companies that provide raw materials and services to the competitors), Substitutes (those who supply different products that can do the same job for the buyers as the competitor's product offering) and Potential Entrants (those who could enter the industry and provide the same products and services as the current competitors in the industry). The interactions of all of the players in the industry will impact the average profitability of the competitors in the industry (see Porter Five Forces Industry Analysis in this library).
Uses:
How is it used: By defining the specific industry in which you compete you can more clearly understand who the competitors are and how you compete to do the job the Buyer is hiring you to do. It also defines the other players in the industry (Suppliers, Buyers, Substitutes, and Potential Entrants) and provides a basis to project how their actions will impact your future market share and profitability.
Where: Industry and Competitor definitions are a necessary part of well-written business plans and marketing plans.
Why: If you do not understand who else is providing what your customer is hiring you to do, or could do so in the future, then you are at risk to lose your customer. If you do not know who else is meeting the customers' job requirements in the same way that you do, or in a substitute manner, you are at risk of being displaced at that customer and potentially in the entire industry.
Limitations:
Where it shouldn't be used: It is always valuable to understand your industry and competitors so there is nowhere that you would not use Industry and competitor definitions.
Any restrictions: none
Warnings: Defining your industry and competitors too broadly or too narrowly can cause you to draw the wrong conclusions and overlook important competitive information.
Gathering data: Utilize industry experts, secondary research, customer surveys, and focus groups to gather information on what job your targeted customers are hiring your company and their products and services to do. Then continue your data collection to:
Identify competitors that provide the same products and services in the same way as you do the job the customer is hiring you to do.
Document the Buyers (customers) in the industry that have the needs and will hire companies to do the same job as you are doing
Document the Suppliers who provide products and services to you and your competitors to make the products and services that they provide to Buyers
Identify Substitute providers who your customers could hire to get the same job done, but in a different manner than the competitors in your industry
Forecast who are Potential Entrants that could enter your industry and provide the same products and services as your competitors. Try and forecast the drivers that would cause them to enter, or keep them from entering.
Analysis of data: Use the data collected above to identify the players in each of the 5 categories above. Determine which ones:
Are the strongest in their category and therefore the greatest threat to your market share and profitability
Which ones are growing faster than the others and what is driving their growing market share
Who is losing market share and or has declining customer satisfaction (and why)
What is the driving forces for the substitute suppliers to begin to target your customers
Are you allowing profits to grow so much that you are inviting other potential entrance to enter your market
Interpretation of results: If all of your analysis points to a clearly defined industry, you have done your job well
Presentation of results: The results are often included in a Business plan or Marketing plan as part of the PowerPoint
Industry analysis example Walmart.doc
