Chapter 6
Analyzing the
Industry and
Market
Learning Objectives
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Explain the industry life cycle
Use frameworks to characterize an industry
Conduct an industry analysis
Characterize the target market and first
customer
Gather competitive intelligence
Gather demand data
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Some Definitions
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Industry: A grouping of similar businesses that
interact in a common environment
Market: A grouping of customers that an
entrepreneur targets
Primary Customer: Represents that segment of
the marketplace that needs the product or
service most.
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An Overview of Industry Analysis
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How is the industry described?
Is the industry growing?
Where are the opportunities?
What is the status of any new technology?
How much do industry companies spend on
research and development?
Who are the opinion leaders in the industry?
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An Overview of Industry Analysis
(Continued)
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Are there young, successful firms in the
industry?
What does the future look like?
Are there any threats to the industry?
What are the typical margins in the industry?
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Table 6.1: Resources for
Industry Analysis
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Frameworks for
Understanding Industries
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Birth
Growth and adaptation
Differentiation and competition
Shakeout
Maturity and decline
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Figure 6.2: Industry Trajectories
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Porter’s Five Forces Model
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Barriers to entry:
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Economies of scale
Brand loyalty
Capital requirements
Switching costs for the buyer
Access to distribution channels
Proprietary factors
Government regulations
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Porter’s Five Forces Model (continued)
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Threats:
– Threats from substitute products: Products/services
which accomplish the same function in a different
way or at a different price.
– Threats from buyers’ bargaining power: The more
large buyers understand the nature of the industry
and the more products are standardized, the greater
the likelihood that these buyers will have significant
bargaining power.
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Porter’s Five Forces Model (continued)
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Threat’s (continued)
– Threats from suppliers’ bargaining power: If
the number of these suppliers is few relative
to the size of the industry or the industry is
not the primary customer of the suppliers,
the suppliers’ potential power to raise prices
or change the product quality of
goods/services supplied to manufactures
and distributors is greater.
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Porter’s Five Forces Model (continued)
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Competitive rivalry among existing firms: In
general, a highly competitive industry will drive
down profits and ultimately the rate of return on
investment.
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Figure 6.4: PEST Analysis
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Characterizing the Target Market
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Key questions to answer:
– What are the potential markets for the product or
service?
– Of these potential markets, which customers are
most likely to purchase the product or service at
market introduction?
– How much do these customers typically buy, how do
they buy , and how do they hear about the product
or service?
– How often do they buy? What is their buying
pattern?
– How can the new venture meet these
customers’ needs?
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Characterizing the Target Market
(continued)
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Steps in Market Research:
– identify and profile the first customer
– estimate potential demand from that
customer
– identify subsequent customer segments and
needs to grow the company
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Characterizing the Target Market
(continued)
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Primary research techniques
– Mail and phone surveys
– Interviews
– Informal focus groups
– The Internet
– Online or in-person surveys
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Gathering Competitive Intelligence
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Elements of Competitive Intelligence Analysis:
– Identify the competition
– Find information about competitors
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New Venture Checklist
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Identify the NAICS code for the new venture industry
Collect secondary data on the industry
Conduct field research
Develop an industry profile
Define the industry target market
Determine most effective method for gathering primary
data to develop customer profile
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