CHAPTER 5
Analyzing the Industry and Market
SUMMARY AND AUTHOR’S NOTE
Know your industry or be buried by it. Every industry is distinct and has a different
personality—a different culture, if you will. The way business is conducted varies by industry.
a market. It is a worthwhile exercise to ask students to differentiate. An industry is a group of
companies with common interests along the value chain, such as manufacturers, suppliers,
distributors, retailers, and so forth that focus on, say, electronics. The industry is the environment
in which the business operates—its context. This chapter looks at how an industry can be
analyzed to reveal its risks and benefits. It discusses how to examine the characteristics of an
industry, how to seek out competitive entry strategies, and how to deal with the competition.
CHAPTER OBJECTIVES
After reading this chapter, students will be able to:
• Explain the difference between an industry and a market.
Chapter 5: Analyzing the Industry and Market 21
CHAPTER OUTLINE
OPENING CASE: Gemvara Finds a Niche in a Tough Industry and a Crowded Market
I. An Overview of Industry Analysis—exploring an industry to determine opportunities
and potential ROI
a. Gathering Secondary Sources of Industry Information—using secondary sources to
gather background data on an industry
• Figure 5.2—Industry Trajectories
II. Analyzing an Industry—frameworks for industry analysis
a. Porter’s Five Forces—the forces that affect ultimate profit potential of a venture
• Figure 5.3—Porter’s Five Forces Framework
i. Barriers to Entry
ii. Threat from Substitutes
• Figure 5.4—PEST Analysis
SOCIAL ENTREPRENEURSHIP: MAKING MEANING—Having It All
III. Characterizing the Target Market—analyzing and defining customers
a. Targeting the First Customer—target market research
• Table 5.2—A Four-Step Market Research Process
• Table 5.3—Market Research Resources
b. Exploring the Market with Primary Data—collecting customer data through
22 Chapter 5: Analyzing the Industry and Market
ii. The Customer Profile
iii. Gathering Demand Data
d. Drawing Conclusions from Market Research—using data to make reasonable
RELEVANT CASE STUDIES
Case 3 HomeRun.com
Case 5 B2P
ANSWERS TO QUESTIONS ON KEY ISSUES
1. Which primary and secondary information will tell you whether the industry is growing
and favorable to new entrants?
2. What kinds of information can suppliers and distributors provide?
Suppliers and distributors can tell you about the industry and how it works and about the
3. How should a market entry strategy be determined? What factors should be considered?
Your entry strategy will depend on barriers to entry in the industry, such as economies of
4. What is the value of defining a market niche?
5. Suppose you are introducing a new type of exercise equipment to the fitness industry. What
would your strategy for research with the customer look like?
Students should suggest a variety of secondary and primary research methods. Given the
Chapter 5: Analyzing the Industry and Market 23
6. Given the definitions of direct and indirect competitors, provide an example of each for a
product of your choosing.
In general, students need to remember that direct competitors are those businesses that
SUGGESTIONS FOR EXPERIENCING ENTREPRENEURSHIP
1. Choose an industry that interests you. Create a status report using the Internet, LexisNexis
or other industry source, current periodicals, and interviews with people in the industry. In
your estimation, does this industry have potential for new business opportunities? If so,
where do those opportunities lie? Write your analysis in a two-page report, indicating
sources.
Students should present their industry analysis in a logical format, building a case for
2. Pick a product or service, and formulate a plan for researching the customer. Identify what
information needs to be collected (secondary and primary) and how to collect it. Justify the
plan in a two-page report.
You might want to begin by having the students graphically depict the value chain for the
SUPPLEMENTARY LECTURE MATERIAL
Playing Hardball with Competitors
It may be a result of the economy or just the fact that people are becoming bolder about
assaulting others’ views, but recently it seems clear that playing hardball is a survival tactic that
is gaining efficacy. Tough competitors like Wal-Mart succeed while softer types like the airline
industry and the recording industry find themselves in trouble. Market watchers suggest that
companies need to learn how to compete in this new environment. To compete successfully,
entrepreneurs must do five things:
24 Chapter 5: Analyzing the Industry and Market
• Find an advantage that will put you out of reach of your competition. This could be a
relationship with a supplier or major customer, or it could be intellectual property.