chapter 6 analyzing the industry and market. copyright © houghton mifflin company. all rights...

Chapter 6

Analyzing the Industry and

Market

Copyright © Houghton Mifflin Company. All rights reserved. 6 | 2

Learning Objectives

• 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


Some Definitions

• 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.


An Overview of Industry Analysis

• 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?


An Overview of Industry Analysis (Continued)

• 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?


Table 6.1: Resources for Industry Analysis


Frameworks for Understanding Industries

• Birth• Growth and adaptation• Differentiation and competition• Shakeout• Maturity and decline


Figure 6.2: Industry Trajectories


Porter’s Five Forces Model

• Barriers to entry:

• Economies of scale• Brand loyalty• Capital requirements• Switching costs for the buyer• Access to distribution channels• Proprietary factors • Government regulations


Porter’s Five Forces Model (continued)

• 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.



• 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.



• Competitive rivalry among existing firms: In general, a highly competitive industry will drive down profits and ultimately the rate of return on investment.


Figure 6.4: PEST Analysis


Characterizing the Target Market

• 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?


Characterizing the Target Market (continued)

• 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


Characterizing the Target Market (continued)

• Primary research techniques– Mail and phone surveys– Interviews– Informal focus groups– The Internet– Online or in-person surveys


Gathering Competitive Intelligence

• Elements of Competitive Intelligence Analysis:– Identify the competition– Find information about competitors


New Venture Checklist

• 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

chapter 6 analyzing the industry and market. copyright © houghton mifflin company. all rights...

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