Question

What is the importance of industry analysis and impact on business performance?

Answer 1

For the company which is already in the industry, industry analysis helps to understand how the competitors are performing and their strategies and plans. It helps to understand the changing customer preferences, innovation that the competitors are implementing and the impact of it. It provides insights on the future of the industry, for example if you are in a business for which fuel is the important raw material ( contributes to 40-50% of the expenses) then if there is fall in fuel prices it helps you to gain better margins as your expenses decreases. Industry analysis helps to predict such changes so that you can strategize your business accordingly . It helps to understand the industry performance(the average margins of the industry as a whole) as your business peformance likely depends upon the industry performance.

For the entrepreneur who wants to enter into the market, it helps to understand the attractiveness of the industry, the investment that is required to enter into the industry, if the industry is already saturated it helps you to figure out how to differentiate and position your product/service in the market.It helps to identify potential opportunities and threats.

For example if you want to set up a restaurant, you have to decide your target audience- if your opening a fast food restaurant you have to focus on younger geeration and their food habits, if you are opening a dining restaurant then you have to create an ambience so that it can not only attract youth but also families.Next you have to focus on location, if you are setting up a fast food centre it should be in a locality where there are universities or there should be  lot of floating. On the other hand if you are setting up a dining restaurant, it should be attractive and convenient to the market. Location is everything to the food business. Identify the competitors in the decided location- number of restaurants in your market area,how they are differentiating their products(food-what kind of food they are offering) and categorising their services.Understand the pricing of restaurants in your market area- how much they are charging for similar food orders and the kind of service they are offering .On the whole understand the USP of the restaurants in your area