Market sector analysis is a powerful tool that can help you better understand what you need to do to make your business successful. The market sector is the playing field of your business activity. The place where it will clash with competitors to capture potential customers in that industry and sell them your products and services.
Therefore, knowing the market sector, you will ideally play is of fundamental importance in defining a strategic plan suitable for conquering your target market. In this article, I will give you valuable tips on analyzing the reference sector well that can make you understand everything you need to know.
What Is A Market Sector?
A market sector is where different organizations strive to offer the same solution (or similar solutions) to the same group of potential customers with a common problem. It is a large group of companies that have something typical and tries to solve, in similar ways, a problem of potential customers in that sector.
- The online video game industry is where different organizations offer online computer games.
- The cell phone industry is where different organizations offer cell phones.
- A sector very close to the previous one, but different, is that of telephone operators, in which various companies offer telephone services, data for internet browsing, etc.
- The clothing industry is the place where different organizations offer clothing.
- The auto industry is where different organizations offer vehicles.
- And so on …
Each market sector has unique characteristics, rules, prices, and dynamics. And it is often crucial to know what distinguishes one industry from another. Several times in my career as a consultant and entrepreneur, I realized how the same campaign in a particular sector had achieved great success and could be unsuccessful in another industry. This is normal. It’s like comparing the game of football with that of tennis. They both use one ball but have entirely different ways of playing.
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What Is Industry Analysis?
Sector analysis is a market investigation to understand how a particular market environment works. Helps determine:
- whether the industry is still strong or not
- market operators
- the market share held by the leading company
- the size of the market
- the amount of competition
- competitive advantages and response to competitors.
In practice, it allows us to understand how big the playing field is, its rules, the strongest players, and the most coveted prizes. If you are thinking of starting a new business, the first thing you need to do is thoroughly analyze your market sector.
Why A Sector Analysis Is Important
Market sector analysis is very useful for companies that have to choose a single market to enter, as it shows where companies with similar characteristics, potentially suitable for collaboration with the company, are located. The sector of your startup can be one of the most critical factors for its success over time:
- If you choose a growing market, you can have a perfect chance even if you don’t have refined marketing.
- If, on the other hand, the trend in that sector is descending, everything will be much more difficult.
In these cases, applying the correct sector analysis is essential to understand how that particular environment evolves. In particular, if you don’t fully understand the sector you want to work in, you can use strategies that don’t work and consequently waste time and money.
Applying tactics that have worked in another sector can lead to implementing a strategy that may not work in the long term.
How To Do A Sector Analysis
The sector analysis technique is the best way to understand the market of a specific industry. The method consists of the analysis of several indices. Based on the results, it will be possible to design a marketing plan suitable for the category of product treated.
Phase 1 – Definition Of The Sector
To study the various market areas, it is first necessary to define the main characteristics of each of them and the related marketing objectives. The different features are as follows:
- The size of the entire sector
- Industry competition
- Product categories affected
- The presence of products and their price ranges
- The distribution of the market
- Barriers to entry
- Market shares of competitors
- The complexity of the production lines
- The sector’s future (expected demand, production, new technologies, etc.)
- The analysis of the market supply and demand
- the marketing resources usually used
- The growth rate of the market
- The impact of various government regulations and their implementation
This first phase is essential to define the perimeter of the subsequent analysis clearly.
Phase 2 – Analysis Of The Attractiveness Of The Sector
In this phase, we will establish the attractiveness of the sector, which is fundamental in a self-respecting business plan, is guided by the following forces
- Market attractiveness
- The situation of the application
- The threat of new entrants
- The threat of substitute products
- The threat of regulatory changes
- Market dynamics
Market sector attractiveness is a measure of the global attractiveness of the market. It is based on the market size, growth rate, and market share of the market leader. A market is considered attractive if the market is profitable, that is, if the market can generate higher returns than other investment opportunities.
Phase 3 – Analysis Of The Profitability Of The Sector
In this phase, the objective is to determine if one market, among the several we are evaluating, is more profitable than the other (and what is the relative growth margin) to decide on which to invest in and which ones to leave aside. Or abandon. To do this, estimating the costs necessary to operate in the sector and the potential expected earnings is essential.
With these two data, we will have a first idea of the ROI (and other profitability indicators) that we can expect. ROI is defined as Return on Investment and is an essential measure of how much profit we can obtain per investment unit. The formula is simple:ROI = (net profit / investment). By comparing the expected ROIs of different market sectors, we will have a very precise (albeit estimated) idea of which sector is more promising
Phase 4 – Analysis Of The Critical Success Factors In An Industry
What makes it possible to be successful in a particular market sector? What is the symptom of future profitability that makes it possible to predict the category’s growth? Knowing this is often crucial in deciding whether or not to enter that market. Understanding the success factors and weaknesses of a specific market sector can make a huge difference when entering the market.
For example, it is much easier for a startup to enter a market with many competitors (for example, the mobile phone market). This is because if there are many competitors, the market demand is robust (and we know how 95% of startups fail due to a lack of order). However, in these markets, many competitors usually struggle to survive. This means that if you want to survive, you have to differentiate yourself from the competition by offering a better (more specific) solution than theirs and effective marketing action. And this you can only do if you have done thorough market research.
In conclusion, the key to having good results with your company is to have a complete understanding of how your market works, where you are in the market, and where you are going (or where you want to go) so that you have a purpose in mind. To anchor your marketing strategies. A sector study is not just a market study but a customer study. A deep understanding of your customer will lead you to success.