by Pamela Hubbell
An Industry Analysis is an assessment of the profitability of an industry. In order to perform this assessment, your objective is to characterize the driving forces of competition within an industry. The purpose of this analysis is to help management create and maintain a competitive advantage that allows the company to excel in the industry.
Writing the Industry Analysis
When preparing and writing your Industry Analysis you should focus on the five competitive forces that determine the competition within an industry:
Barriers to entry (this includes economies of scale; proprietary product differences; brand identity; switching costs; capital requirements; access to distribution; absolute cost advantages; government policy; and expected retaliation)
Threats of substitutes (this includes buyer loyalty; switching costs; and relative price performance of substitutes)
Bargaining power of buyers (this includes buyer's volume; buyer information; the availability of substitute products; switching costs; and buyer concentration vs. firm concentration)
Bargaining power of suppliers (this includes the ability of suppliers to raise the price of raw materials or decrease their quality; availability of substitute inputs; switching costs; supplier concentration; importance of volume to supplier; and cost relative to total purchases in the industry)
Rivalry among existing competitors (this includes industry growth; product differences; brand identity; diversity of competitors; exit barriers; price competition; advertising; new product introductions; and increased customer service)
If your Industry Analysis is part of a Business Plan, you should focus on the particular opportunities and constraints in the industry. For example, a firm has the best chance of profitability in an industry characterized by high barriers to entry and by weak competitors, substitutes, buyers, and suppliers. The five competitive forces in an industry directly affect a company's pricing, costs, and investment requirements.
Certo, Samuel C. and J. Paul Peter. Strategic Management: Concepts and Applications. New York: Random House, 1988. 100-102.
Robbins, Stephen P. Management Concepts and Applications, 2nd Ed. Englewood Cliffs: Prentice-Hall, 1988. 164-66.