PURPOSES AND IMPORTANCE OF INDUSTRIAL ANALYSIS
Marketing Environment Analysis cannot be completed without Industry Analysis.
An analysis of the mega environment alone will not enable the firm to have a total grasp of its environment, as such an analysis does not reveal details about its proximate environment, which includes the industry in which it operates and its competitors therein.
After all, the mega environment will be by and large common to all industries. It is the structural realities of the specific industry, the nature and intensity of competition therein, and the relative abilities of the players that are of special relevance to the firm in formulating its competitive / marketing strategy. It is not in the mega environment but in a specific industry that a firm operates as a player. And, it is here that the firmâ€™s efforts at scoring over competition are concentrated. So, a close scrutiny of the industry concerned becomes essential for completing the environment analysis.
Industry analysis supports strategy formulation by revealing industry attractiveness and Firmâ€™s competitive position.
Industry analysis serves as a groundwork / prelude to strategy formulation. It helps the firm to assess industry attractiveness as well as its own strengths relative to the other players in the industry i.e. its own competitive position within the industry. The findings on these two fronts take the firm closer to strategy formulation.
In fact, industry attractiveness and firmâ€™s competitive position within the industry are the two central concepts in forgoing competitive strategy. For knowing both of them, the firm needs to analyze the industry and competition. With this analysis, the firm gets to know details such as industry growth, industry profitability, industry potential and number of players in the industry, the manner in which the players are positioned within the industry, their market shares, their installed capacities and their relative strengths within the industry. In addition, it also gets an idea of the strength of the other competitive forces that shape the competition in the industry and hence industry profitability / attractiveness. Similarly, the firm gets to know its competitive position within the industry.
Why Analyze Industry and Competition?
* Analyzing industry and competition completes the process of marketing environment analysis.
* Supports strategy formulation; serves as a prelude to strategy formulation.
* Helps a firm know the two key factors in forging strategy: industry attractiveness and its competitive position within the industry.
* Helps the industry identify and build its competitive advantage.
Industry Analysis help Create Differential Advantage, which is Central to Strategy:
In simple terms, developing successful strategy means designing products, services and marketing programs that will enable a firm to attract the customers and score over competition. And it means that products, service and marketing programs should carry attributes, which are important to customers and which provide a differential advantage over competitors. It is not sufficient, though it is necessary, if the attributes are important to customers, for, competitors too will be providing attributes that are important t customer. The firmâ€™s offering must be not only important to customers, but also mean a differential advantage over competitors. Delivering a differential advantage is truly the name of the game in competitive strategy. The firm has to offer attributes of value to customers and which bring in a differential advantage over competition. And, analyzing industry and competition provides the firm with the knowledge required for achieving such a differential advantage. With industry analysis, the firm constantly compares its products, prices, channels and promotion with its competitors. And, from this comparison, the firm learns where and how it can secure a differential advantage.
Both industry attractiveness and the firmâ€™s competitive position must be good for firm to prosper. A firm in a very attractive industry may not earn attractive profits if its competitive position within the industry is poor. In the same way, a firm with an excellent competitive position may still be quite unprofitable, and its efforts to enhance its position will be of little help, if the industry in which it operates is unattractive.
The fact is that, both industry attractiveness and the firmâ€™s competitive position are dynamic entities; industries become more or less attractive over time; and a firmâ€™s competitive position too keeps changing as it reflects the unending battle among competitors. Fortunately, both industry attractiveness and firmâ€™s competitive position, especially the latter, can be shaped by a firm to a considerable extent, through its strategy.