What is an Industry Analysis?

An industry analysis is a type of market tool that is used to assess or evaluate the current condition and future prospects of a specific industry. There are a number of different issues addressed as part of the analysis, including the impact of the economy on the growth of that industry, competition among the companies that are active within the industry, and even political events and influences that could shape the future of the industry. When conducted properly, an industry analysis can help a business identify ways to gain market share, sidestep potential pitfalls that are soon to develop within the economy, and in general enhance the chances of continuing to operate over the long-term.

One of the core issues that must be addressed in any industry analysis is the economic factor. This includes assessing the current cost of the raw materials used in the production process and where those costs are likely to move in the future. Along with the cost of materials, the analysis will consider averages of other essential costs applicable within that industry, such as wages and salaries, and distribution costs. The idea is to provide benchmarks that every business associated with the industry can use when evaluating the status of their own operation, which in turn motivates them to look for ways to make whatever changes are necessary to remain competitive.

Another important aspect of an industry analysis is the current relationship between supply and demand within that industry. Here, the idea is to gather intelligence that helps to provide an understanding of what is happening with consumption of the goods and services offered to consumers. If the market for those products is currently bloated, meaning there are many more units available than consumers are willing to purchase, participants within the industry may choose to adjust their production quotas accordingly. Should the analysis indicate that demand for the products is increasing consistently and the reserves of finished goods are shrinking, this may also be motivation for companies within the industry to shift production levels upward from current quotas.

The scope of competition is also an integral part of any industry analysis. This is particularly important for new companies that are attempting to establish a presence within the marketplace. If a small group of businesses currently compose the entire industry, that new company may be able to capture market share by undercutting prices, assuming that the business can offer quality and volume that consumers find acceptable. From this perspective, the industry analysis can provide the basic detail needed to launch and grow a business within a given industry, based on understanding the current nature and composition of that industry.

An industry analysis is not just about how things are today within a specific industry. The analysis is also about what will happen in the future, based on factors like demand, supply, shifts in consumer tastes, changes in governmental regulations and even in shifts in the status of the economy in general. When the data used in the analysis is complete and accurate, the chances of projecting the future of the industry are much better, giving those participating in the industry a much higher opportunity to be successful.