environmental and industry analysis in business plan example

A Comprehensive Guide to Business Environmental Analysis: What is It, and Why is It Important?

• Ossian Muscad
• August 28, 2022
• No Comments

Last Updated on January 3, 2024 by Ossian Muscad

Every business exists in an environment, and it’s important to understand that environment to be successful. Unfortunately, businesses sometimes tend to ignore this importance, leading to strategic planning failures. By getting to know the business environment and conducting regular environmental analysis, businesses can make the right decisions to stay ahead of the competition.

But what exactly is environmental analysis, and how do you conduct one? This article will discuss environmental analysis, its importance, and how to use it to improve your business’ strategic planning.

What is Business Environmental Analysis?

Business environmental analysis is studying the external factors that affect a business. This includes things like the political landscape, the economic conditions, the technological environment, and more. By understanding these factors, a company can develop strategies to optimize its performance within this context. 

This environmental analysis examines industry and organizational factors that positively or negatively affect the business. By determining short-term and long-term impacts, organizations can readily respond to them when they appear. 

Purpose of Environmental Analysis

An environmental analysis helps organizations define factors that can influence their business operations. Business leaders can make better decisions about moving forward by assessing and weighing these factors.

Additionally, environmental analysis can help business leaders anticipate changes in the market and adjust their strategies accordingly. Apart from that, here are other reasons why environmental analysis is essential for businesses:

• Identifying Opportunities: Environmental analysis can help businesses spot emerging trends and changes in the market. This allows them to seize new opportunities before their competitors do.
• Mitigating Threats: By understanding potential threats in the environment, businesses can design strategies to mitigate these risks, avoiding potential pitfalls.
• Formulating Strategies: Environmental analysis provides critical insights that can shape a company’s strategic planning process, ensuring alignment with the external environment.
• Enhancing Competitive Advantage: By understanding the external environment better than competitors, businesses can leverage this knowledge for a competitive advantage.
• Anticipating Change: Environmental analysis helps businesses anticipate and prepare for changes in the market, regulatory landscape, or technology trends.

Elements of Environmental Analysis

Two main elements of a business environmental analysis are internal and external factors.

Internal Factors

Internal factors are elements within a business that can influence its operation and success. These factors are primarily under the control of the business and can be altered or manipulated according to business needs. Here are some key internal factors:

• Resources: This includes all tangible and intangible assets a company has at its disposal to use in producing goods or services. Tangible resources include physical assets such as infrastructure, raw materials, and human resources. Intangible resources encompass elements like brand reputation, intellectual property, and corporate culture.
• Capabilities: A company’s capabilities are its skills or competencies in deploying resources to achieve business goals. It involves marketing effectiveness, production efficiency, technological innovation, customer service, etc.
• Management and Organization Structure: The organizational structure and quality of its management team can significantly impact a company’s operation. Effective leadership and a well-defined structure can facilitate smooth decision-making, coordination, and control, contributing to business success.
• Business Processes and Operations: These involve the methods and procedures for coordinating and conducting business activities. Efficient processes can enhance productivity and customer satisfaction, leading to higher profitability.

Identifying and evaluating these internal factors through an environmental business analysis can help businesses leverage their strengths, address weaknesses, exploit opportunities, and ward off potential threats.

External Factors

External factors are elements outside the control of a business that can significantly influence its performance. Recognizing and understanding these external factors can help a business to react and adapt to changing circumstances. Here are the key external factors:

• Political Factors: These include government policies, regulations, and legal issues that define formal and informal rules under which the firm must operate. Political stability, tax guidelines, trade regulations, and employment laws all influence the business environment.
• Economic Factors: Economic factors are determinants of a country’s economic performance that directly impact a company and have resonating long-term effects. These include inflation rates, interest rates, foreign exchange rates, economic growth patterns, and unemployment rates.
• Sociocultural Factors: These factors encompass the societal and cultural forces that shape consumer behavior. They include population growth rates, age distribution, attitudes towards health, and cultural trends.
• Technological Factors: Technological changes can create new industries and market opportunities. A company’s ability to manage its IT infrastructure might also affect its ability to compete and its efficiency.
• Environmental Factors: Environmental factors include weather, climate, and climate change. These factors can especially affect industries such as tourism, farming, and insurance.
• Legal Factors: These are related to the legal environment in which firms operate. They include consumer law, employment law, antitrust law, discriminatory law, and copyright law.

By evaluating these external factors during an environmental business analysis, businesses can develop effective strategies that align with their operating environment, thereby improving their chances of success.

Business Environmental Analysis Process

A business environmental analysis systematically uncovers factors affecting your business and its operations. When there aren’t any fixed and definitive rules on doing an environmental assessment, the following steps can guide you into making the most out of this process:

Step 1: Identify the Environmental Factors

Every environmental analysis will need a list of the factors that will undergo evaluation. These factors will depend on the business and its specific goals for conducting the analysis. This list should include micro- and macro-environmental factors that have short- and long-term effects on business.

For example, a company selling organic products might consider environmental factors such as changing consumer preferences, government regulations on organic labeling, and the availability of raw materials.

Step 2: Collect Further Information About These Factors

After outlining which factors will be included in the analysis, the next step is to conduct research and gather more information about each of these factors. This can be done through desk research, surveys, interviews, and focus groups . Again, you can utilize various sources to ensure accurate, relevant, and up-to-date information. 

For instance, organic product companies may gather data on consumer buying patterns through surveys and consumer behavior reports. They may also research government regulations and consult with suppliers to understand the availability of raw materials.

Step 3: Check the Competitors

When conducting an environmental analysis, your research isn’t limited to your organization’s business standing. It also involves understanding your competitors and how they’re faring in the business landscape. This will give you a better idea of where you stand and what you must do to stay ahead of the competition.

For example, the organic products company may analyze its competitors’ marketing strategies, product offerings, and financial performance to identify potential threats or opportunities.

Step 4: Determine the Impacts on the Organization

Once you’ve collected all the relevant information, it’s time to determine how these environmental factors will affect your business. This is where you need to weigh the risks and opportunities of each business situation. Doing so will help you develop strategies to take advantage of the opportunities and minimize the risks.

For instance, the organic products company may diversify its product offerings and invest in sustainable raw materials to capitalize on changing consumer preferences and government regulations. They may also implement cost-cutting measures to mitigate potential risks of rising production costs due to the limited availability of raw materials.

Step 5: Formulate an Effective Strategic Plan

The final step is creating a strategic plan to guide your business decisions and actions. This plan should be based on your insights from the environmental analysis. It should also be aligned with your business goals and objectives. Having a well-informed and strategic plan allows your organization to stay adaptable and competitive in the ever-changing business environment.

For example, based on their environmental analysis, the organic products company may decide to expand their market reach and invest in innovative technologies for sustainable packaging. They may also set goals for increasing sales and reducing costs.

Types of Environmental Analysis Techniques

There are two environmental analysis Techniques: PESTLE analysis and SWOT analysis. These methods help organizations assess their strategic positions based on the business environment and a wide range of internal and external factors. 

PESTLE Analysis

PESTLE analysis is a framework that helps organizations assess the factors that can influence their business on a larger scale outside the organization. It provides essential insights into the market status based on relevant trends concerning the market, technology, customers, and more. PESTLE has six key elements:

Political factors refer to government policies, regulations, and laws that regulate business operations. It is important to conduct business in any country. Other political factors include:

• Local, federal, and state policies.
• Tax regulations
• Trade rules
• Safety regulations
• Governmental stability

Economic factors are determinants of a country’s economic performance that directly impact the organization. By assessing the economic factors, organizations can anticipate potential opportunities and challenges. These include:

• Unemployment rates
• Inflation rates
• Economic growth rates
• Interest rates
• Foreign exchange rates

Social factors reflect the society in which an organization operates. It helps organizations to understand the evolving customer needs, preferences, and behaviors. These include:

• Attitudes and opinions towards health and work-life balance
• Key demographic trends
• Consumer buying patterns
• Cultural values
• Lifestyle trends 

Technological

Technology is a significant driver of change in the business environment. It has revolutionized how businesses operate, compete, and interact with customers. Key technological factors include:

• Research and development areas
• Technological incentives
• Up-and-coming technologies
• Disruptive technologies
• Technology transfer speeds

Legal factors are the laws and regulations that govern businesses. Organizations must comply with these laws to operate legally and avoid penalties. Legal factors include:

• Employment laws
• Product regulations
• Health and safety regulations
• Antitrust laws
• Environmental regulations

Environmental

Environmental factors encompass the natural environment in which an organization operates. These factors can impact industries such as tourism, agriculture, and energy. Environmental factors include:

• Energy consumption regulations
• Environmental policies
• Climate and weather conditions
• Sustainability efforts
• Natural disasters

SWOT Analysis

SWOT Analysis is a strategic planning tool organizations use to identify their Strengths, Weaknesses, Opportunities, and Threats – hence the acronym SWOT. The technique provides a framework to evaluate an organization’s competitive position and understand how the business can leverage its capabilities to succeed.

Strengths refer to the positive internal attributes of an organization, including resources, capabilities, and advantages that give it a competitive edge over others. This can range from strong brand recognition and skilled personnel to a robust financial position.

Weaknesses are the internal factors that prevent an organization from realizing its full potential and might hinder its performance. Examples could include poor infrastructure, lack of skilled labor, operational inefficiencies, or outdated technology.

Opportunities

Opportunities include the external factors that an organization could exploit to its advantage. These include market trends, shifts in customer behavior, technological advances, or changes in government policies.

Threats involve external factors that pose challenges or risks to an organization. These could include competitive rivalry, regulatory changes, unfavorable economic conditions, or technological disruptions.

Through a SWOT analysis, an organization can gain a comprehensive understanding of its internal and external environments. Consequently, it can develop strategies that leverage strengths, mitigate weaknesses, exploit opportunities, and defend against threats. This can ultimately lead to increased competitiveness and success.

Benefits of Environmental Analysis

Environmental analysis provides a strategic advantage to organizations by offering insights into the factors that might impact their business. By understanding the internal and external environments, a business can make informed decisions and develop robust strategies to respond to potential opportunities and threats. Here are three crucial benefits of conducting an environmental analysis:

Enhanced Market Understanding

Through an environmental analysis, businesses can comprehensively understand their market, including customer needs, competitor strategies, and current trends. This information can be instrumental in identifying viable market opportunities and potential threats, allowing businesses to make proactive decisions. Moreover, it helps define the market segment, understand the competitive landscape, and set realistic targets.

Risk Management

Environmental analysis also plays a vital role in risk management. By identifying potential threats in the business environment, organizations can develop contingency plans and mitigate the impact of adverse events. This includes changes in regulatory laws, economic downturns, technological disruptions, or social and political instability.

Strategic Planning

Conducting an environmental analysis can significantly inform the strategic planning process. The insights gained can help set realistic goals, strategize market entry or expansion, optimize resource allocation, and make informed investment decisions. It also facilitates the development of strategies that leverage organizational strengths and mitigate weaknesses, thereby enhancing business competitiveness and growth.

Frequently Asked Questions (FAQs)

Q1: what is the importance of a business environmental analysis.

A business environmental analysis is crucial as it helps organizations understand both their internal and external environments. This understanding allows them to identify opportunities and threats and develop strategies to leverage them and mitigate them. It facilitates informed decision-making and proactive planning.

Q2: In what ways does technology impact business environmental analysis?

Technology significantly impacts business environmental analysis by revolutionizing how businesses operate, compete, and interact with customers. Upcoming technologies, research and development, and technology transfer speeds are all crucial factors that need to be considered in an environmental analysis.

Q3: How do legal factors affect a business’s environmental analysis?

Legal factors, including employment laws, product regulations, health and safety regulations, and environmental regulations, affect a business’s environmental analysis by determining the legal constraints an organization must operate within. Non-compliance can lead to penalties and can negatively impact a company’s reputation.

Q4: How does the SWOT analysis process fit into business environmental analysis?

SWOT analysis is a part of the business environmental analysis that focuses on the organization’s internal factors (Strengths and Weaknesses) and external factors (Opportunities and Threats). It helps organizations understand their competitive position and leverage their capabilities for success.

Q5: Why is understanding social factors important in a business environmental analysis?

Social factors are essential in a business environmental analysis because they help organizations understand evolving customer needs, preferences, and behaviors. This can include attitudes towards work-life balance, buying patterns, cultural values, and lifestyle trends.

Q6: Does the size of a business influence the need for a business environmental analysis?

Regardless of the size, every business can benefit from conducting a business environmental analysis. It provides insights into the market, aids in risk management, and informs strategic planning. However, the scale and depth of the analysis may vary based on the size and nature of the organization.

Streamline Business Environmental Analysis with DATAMYTE

DATAMYTE is a quality management platform with low-code capabilities. Our Digital Clipboard , in particular, is a low-code workflow automation software that features a workflow, checklist, and smart form builder. This tool lets you streamline the process of conducting a business environmental analysis by automating data collection, analysis, and reporting.

DATAMYTE also lets you conduct layered process audits, a high-frequency evaluation of critical process steps, focusing on areas with the highest failure risk or non-compliance. Conducting LPA with DATAMYTE lets you effectively identify and correct potential defects before they become major quality issues.

With DATAMYTE , you have an all-in-one solution for quality management and environmental analysis, allowing you to make data-driven decisions for business success. Get in touch with us today to learn more about how DATAMYTE can help your organization thrive in a dynamic business environment!

While it may seem like a lot of work, business environmental analysis is crucial for any organization. With it, you can better understand your business’s strengths and weaknesses and the opportunities and threats of operating in a certain business environment. 

So, if you haven’t tried implementing this process in your business yet, now is the time. Use the information and insights gained from a business environmental analysis to make informed decisions, mitigate risks, and drive business growth. As the global marketplace continues to evolve, regularly conducting an environmental analysis will be essential for staying competitive and successful.

Related Articles:

• Floor Inspection Checklist: How To Create This Tool To Simplify Reporting
• Management of Change Procedure Template

• Implementation
• Case-Studies
• White Papers
• Knowledge Base

Experts in the Connected Factory

• 1-800-455-4359
• (763) 553-0455 ext. 1
• [email protected]

How to Conduct an Industry Analysis? Steps, Template, Examples

Appinio Research · 16.11.2023 · 39min read

Are you ready to unlock the secrets of Industry Analysis, equipping yourself with the knowledge to navigate markets and make informed strategic decisions? Dive into this guide, where we unravel the significance, objectives, and methods of Industry Analysis.

Whether you're an entrepreneur seeking growth opportunities or a seasoned executive navigating industry shifts, this guide will be your compass in understanding the ever-evolving business terrain.

What is Industry Analysis?

Industry analysis is the process of examining and evaluating the dynamics, trends, and competitive forces within a specific industry or market sector. It involves a comprehensive assessment of the factors that impact the performance and prospects of businesses operating within that industry. Industry analysis serves as a vital tool for businesses and decision-makers to gain a deep understanding of the environment in which they operate.

Key components of industry analysis include:

• Market Size and Growth: Determining the overall size of the market, including factors such as revenue, sales volume, and customer base. Analyzing historical and projected growth rates provides insights into market trends and opportunities.
• Competitive Landscape: Identifying and analyzing competitors within the industry. This includes assessing their market share, strengths, weaknesses, and strategies. Understanding the competitive landscape helps businesses position themselves effectively.
• Customer Behavior and Preferences: Examining consumer behavior , preferences, and purchasing patterns within the industry. This information aids in tailoring products or services to meet customer needs.
• Regulatory and Legal Environment: Assessing the impact of government regulations, policies, and legal requirements on industry operations. Compliance and adaptation to these factors are crucial for business success.
• Technological Trends: Exploring technological advancements and innovations that affect the industry. Staying up-to-date with technology trends can be essential for competitiveness and growth.
• Economic Factors: Considering economic conditions, such as inflation rates, interest rates, and economic cycles, that influence the industry's performance.
• Social and Cultural Trends: Examining societal and cultural shifts, including changing consumer values and lifestyle trends that can impact demand and preferences.
• Environmental and Sustainability Factors: Evaluating environmental concerns and sustainability issues that affect the industry. Industries are increasingly required to address environmental responsibility.
• Supplier and Distribution Networks: Analyzing the availability of suppliers, distribution channels, and supply chain complexities within the industry.
• Risk Factors: Identifying potential risks and uncertainties that could affect industry stability and profitability.

Objectives of Industry Analysis

Industry analysis serves several critical objectives for businesses and decision-makers:

• Understanding Market Dynamics: The primary objective is to gain a comprehensive understanding of the industry's dynamics, including its size, growth prospects, and competitive landscape. This knowledge forms the basis for strategic planning.
• Identifying Growth Opportunities: Industry analysis helps identify growth opportunities within the market. This includes recognizing emerging trends, niche markets, and underserved customer segments.
• Assessing Competitor Strategies: By examining competitors' strengths, weaknesses, and strategies, businesses can formulate effective competitive strategies. This involves positioning the company to capitalize on its strengths and exploit competitors' weaknesses.
• Risk Assessment and Mitigation: Identifying potential risks and vulnerabilities specific to the industry allows businesses to develop risk mitigation strategies and contingency plans. This proactive approach minimizes the impact of adverse events.
• Strategic Decision-Making: Industry analysis provides the data and insights necessary for informed strategic decision-making. It guides decisions related to market entry, product development, pricing strategies, and resource allocation.
• Resource Allocation: By understanding industry dynamics, businesses can allocate resources efficiently. This includes optimizing marketing budgets, supply chain investments, and talent recruitment efforts.
• Innovation and Adaptation: Staying updated on technological trends and shifts in customer preferences enables businesses to innovate and adapt their offerings effectively.

Importance of Industry Analysis in Business

Industry analysis holds immense importance in the business world for several reasons:

• Strategic Planning: It forms the foundation for strategic planning by providing a comprehensive view of the industry's landscape. Businesses can align their goals, objectives, and strategies with industry trends and opportunities.
• Risk Management: Identifying and assessing industry-specific risks allows businesses to manage and mitigate potential threats proactively. This reduces the likelihood of unexpected disruptions.
• Competitive Advantage: In-depth industry analysis helps businesses identify opportunities for gaining a competitive advantage. This could involve product differentiation, cost leadership, or niche market targeting .
• Resource Optimization: Efficient allocation of resources, both financial and human, is possible when businesses have a clear understanding of industry dynamics. It prevents wastage and enhances resource utilization.
• Informed Investment: Industry analysis assists investors in making informed decisions about allocating capital. It provides insights into the growth potential and risk profiles of specific industry sectors.
• Adaptation to Change: As industries evolve, businesses must adapt to changing market conditions. Industry analysis facilitates timely adaptation to new technologies, market shifts, and consumer preferences .
• Market Entry and Expansion: For businesses looking to enter new markets or expand existing operations, industry analysis guides decision-making by evaluating the feasibility and opportunities in target markets.
• Regulatory Compliance: Understanding the regulatory environment is critical for compliance and risk avoidance. Industry analysis helps businesses stay compliant with relevant laws and regulations.

In summary, industry analysis is a fundamental process that empowers businesses to make informed decisions, stay competitive, and navigate the complexities of their respective markets. It is an invaluable tool for strategic planning and long-term success.

How to Prepare for Industry Analysis?

Let's start by going through the crucial preparatory steps for conducting a comprehensive industry analysis.

1. Data Collection and Research

• Primary Research: When embarking on an industry analysis, consider conducting primary research . This involves gathering data directly from industry sources, stakeholders, and potential customers. Methods may include surveys , interviews, focus groups , and observations. Primary research provides firsthand insights and can help validate secondary research findings.
• Secondary Research: Secondary research involves analyzing existing literature, reports, and publications related to your industry. Sources may include academic journals, industry-specific magazines, government publications, and market research reports. Secondary research provides a foundation of knowledge and can help identify gaps in information that require further investigation.
• Data Sources: Explore various data sources to collect valuable industry information. These sources may include industry-specific associations, government agencies, trade publications, and reputable market research firms. Make sure to cross-reference data from multiple sources to ensure accuracy and reliability.

2. Identifying Relevant Industry Metrics

Understanding and identifying the right industry metrics is essential for meaningful analysis. Here, we'll discuss key metrics that can provide valuable insights:

• Market Size: Determining the market's size, whether in terms of revenue, units sold, or customer base, is a fundamental metric. It offers a snapshot of the industry's scale and potential.
• Market Growth Rate: Assessing historical and projected growth rates is crucial for identifying trends and opportunities. Understanding how the market has evolved over time can guide strategic decisions.
• Market Share Analysis: Analyzing market share among industry players can help you identify dominant competitors and their respective positions. This metric also assists in gauging your own company's market presence.
• Market Segmentation : Segmenting the market based on demographics, geography, behavior, or other criteria can provide deeper insights. Understanding the specific needs and preferences of various market segments can inform targeted strategies.

3. Gathering Competitive Intelligence

Competitive intelligence is the cornerstone of effective industry analysis. To gather and utilize information about your competitors:

• Competitor Identification: Begin by creating a comprehensive list of your primary and potential competitors. Consider businesses that offer similar products or services within your target market. It's essential to cast a wide net to capture all relevant competitors.
• SWOT Analysis : Conduct a thorough SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for each competitor. This analysis helps you identify their internal strengths and weaknesses, as well as external opportunities and threats they face.
• Market Share Analysis: Determine the market share held by each competitor and how it has evolved over time. Analyzing changes in market share can reveal shifts in competitive dynamics.
• Product and Pricing Analysis: Evaluate your competitors' product offerings and pricing strategies . Identify any unique features or innovations they offer and consider how your own products or services compare.
• Marketing and Branding Strategies: Examine the marketing and branding strategies employed by competitors. This includes their messaging, advertising channels, and customer engagement tactics. Assess how your marketing efforts stack up.

Industry Analysis Frameworks and Models

Now, let's explore essential frameworks and models commonly used in industry analysis, providing you with practical insights and examples to help you effectively apply these tools.

Porter's Five Forces Model

Porter's Five Forces is a powerful framework developed by Michael Porter to assess the competitive forces within an industry. This model helps you understand the industry's attractiveness and competitive dynamics.

It consists of five key forces:

• Threat of New Entrants: This force evaluates how easy or difficult it is for new companies to enter the industry. Factors that increase barriers to entry include high capital requirements, strong brand loyalty among existing players, and complex regulatory hurdles. For example, the airline industry has significant barriers to entry due to the need for large capital investments in aircraft, airport facilities, and regulatory approvals.
• Bargaining Power of Suppliers: This force examines the influence suppliers have on the industry's profitability. Powerful suppliers can demand higher prices or impose unfavorable terms. For instance, in the automotive industry, suppliers of critical components like microchips can wield significant bargaining power if they are few in number or if their products are highly specialized.
• Bargaining Power of Buyers: The bargaining power of buyers assesses how much influence customers have in negotiating prices and terms. In industries where buyers have many alternatives, such as the smartphone market, they can demand lower prices and better features, putting pressure on manufacturers to innovate and compete.
• Threat of Substitutes: This force considers the availability of substitute products or services that could potentially replace what the industry offers. For example, the rise of electric vehicles represents a significant threat to the traditional gasoline-powered automotive industry as consumers seek eco-friendly alternatives.
• Competitive Rivalry: Competitive rivalry assesses the intensity of competition among existing firms in the industry. A highly competitive industry, such as the smartphone market, often leads to price wars and aggressive marketing strategies as companies vie for market share.

Example: Let's consider the coffee shop industry . New entrants face relatively low barriers, as they can set up a small shop with limited capital. However, the bargaining power of suppliers, such as coffee bean producers, can vary depending on the region and the coffee's rarity. Bargaining power with buyers is moderate, as customers often have several coffee shops to choose from. Threats of substitutes may include energy drinks or homemade coffee, while competitive rivalry is high, with numerous coffee chains and independent cafes competing for customers.

SWOT Analysis

SWOT Analysis is a versatile tool used to assess an organization's internal strengths and weaknesses, as well as external opportunities and threats. By conducting a SWOT analysis, you can gain a comprehensive understanding of your industry and formulate effective strategies.

• Strengths: These are the internal attributes and capabilities that give your business a competitive advantage. For instance, if you're a tech company, having a talented and innovative team can be considered a strength.
• Weaknesses: Weaknesses are internal factors that hinder your business's performance. For example, a lack of financial resources or outdated technology can be weaknesses that need to be addressed.
• Opportunities: Opportunities are external factors that your business can capitalize on. This could be a growing market segment, emerging technologies, or changing consumer trends.
• Threats: Threats are external factors that can potentially harm your business. Examples of threats might include aggressive competition, economic downturns, or regulatory changes.

Example: Let's say you're analyzing the fast-food industry. Strengths could include a well-established brand, a wide menu variety, and efficient supply chain management. Weaknesses may involve a limited focus on healthy options and potential labor issues. Opportunities could include the growing trend toward healthier eating, while threats might encompass health-conscious consumer preferences and increased competition from delivery apps.

PESTEL Analysis

PESTEL Analysis examines the external macro-environmental factors that can impact your industry. The acronym stands for:

• Political: Political factors encompass government policies, stability, and regulations. For example, changes in tax laws or trade agreements can affect industries like international manufacturing.
• Economic: Economic factors include economic growth, inflation rates, and exchange rates. A fluctuating currency exchange rate can influence export-oriented industries like tourism.
• Social: Social factors encompass demographics, cultural trends, and social attitudes. An aging population can lead to increased demand for healthcare services and products.
• Technological: Technological factors involve advancements and innovations. Industries like telecommunications are highly influenced by technological developments, such as the rollout of 5G networks.
• Environmental: Environmental factors cover sustainability, climate change, and ecological concerns. Industries such as renewable energy are directly impacted by environmental regulations and consumer preferences.
• Legal: Legal factors encompass laws, regulations, and compliance requirements. The pharmaceutical industry, for instance, faces stringent regulatory oversight and patent protection laws.

Example: Consider the automobile manufacturing industry. Political factors may include government incentives for electric vehicles. Economic factors can involve fluctuations in fuel prices affecting consumer preferences for fuel-efficient cars. Social factors might encompass the growing interest in eco-friendly transportation options. Technological factors could relate to advancements in autonomous driving technology. Environmental factors may involve emissions regulations, while legal factors could pertain to safety standards and recalls.

Industry Life Cycle Analysis

Industry Life Cycle Analysis categorizes industries into various stages based on their growth and maturity. Understanding where your industry stands in its life cycle can help shape your strategies.

• Introduction: In the introduction stage, the industry is characterized by slow growth, limited competition, and a focus on product development. New players enter the market, and consumers become aware of the product or service. For instance, electric scooters were introduced as a new mode of transportation in recent years.
• Growth: The growth stage is marked by rapid market expansion, increased competition, and rising demand. Companies focus on gaining market share, and innovation is vital. The ride-sharing industry, exemplified by companies like Uber and Lyft, experienced significant growth in this stage.
• Maturity: In the maturity stage, the market stabilizes, and competition intensifies. Companies strive to maintain market share and differentiate themselves through branding and customer loyalty programs. The smartphone industry reached maturity with multiple established players.
• Decline: In the decline stage, the market saturates, and demand decreases. Companies must adapt or diversify to survive. The decline of traditional print media is a well-known example.

Example: Let's analyze the video streaming industry . The introduction stage saw the emergence of streaming services like Netflix. In the growth stage, more players entered the market, and the industry saw rapid expansion. The industry is currently in the maturity stage, with established platforms like Netflix, Amazon Prime, and Disney+ competing for market share. However, with continued innovation and changing consumer preferences, the decline stage may eventually follow.

Value Chain Analysis

Value Chain Analysis dissects a company's activities into primary and support activities to identify areas of competitive advantage. Primary activities directly contribute to creating and delivering a product or service, while support activities facilitate primary activities.

• Primary Activities: These activities include inbound logistics (receiving and storing materials), operations (manufacturing or service delivery), outbound logistics (distribution), marketing and sales, and customer service.
• Support Activities: Support activities include procurement (acquiring materials and resources), technology development (R&D and innovation), human resource management (recruitment and training), and infrastructure (administrative and support functions).

Example: Let's take the example of a smartphone manufacturer. Inbound logistics involve sourcing components, such as processors and displays. Operations include assembly and quality control. Outbound logistics cover shipping and distribution. Marketing and sales involve advertising and retail partnerships. Customer service handles warranty and support.

Procurement ensures a stable supply chain for components. Technology development focuses on research and development of new features. Human resource management includes hiring and training skilled engineers. Infrastructure supports the company's administrative functions.

By applying these frameworks and models effectively, you can better understand your industry, identify strategic opportunities and threats, and develop a solid foundation for informed decision-making.

Data Interpretation and Analysis

Once you have your data, it's time to start interpreting and analyzing the data you've collected during your industry analysis.

You can unlock the full potential of your data with Appinio 's comprehensive research platform. Beyond aiding in data collection, Appinio simplifies the intricate process of data interpretation and analysis. Our intuitive tools empower you to effortlessly transform raw data into actionable insights, giving you a competitive edge in understanding your industry.

Whether it's assessing market trends, evaluating the competitive landscape, or understanding customer behavior, Appinio offers a holistic solution to uncover valuable findings. With our platform, you can make informed decisions, strategize effectively, and stay ahead of industry shifts.

Experience the ease of data collection and interpretation with Appinio – book a demo today!

Book a Demo

1. Analyze Market Size and Growth

Analyzing the market's size and growth is essential for understanding its dynamics and potential. Here's how to conduct a robust analysis:

• Market Size Calculation: Determine the total market size in terms of revenue, units sold, or the number of customers. This figure serves as a baseline for evaluating the industry's scale.
• Historical Growth Analysis: Examine historical data to identify growth trends. This includes looking at past year-over-year growth rates and understanding the factors that influenced them.
• Projected Growth Assessment: Explore industry forecasts and projections to gain insights into the expected future growth of the market. Consider factors such as emerging technologies, changing consumer preferences, and economic conditions.
• Segmentation Analysis: If applicable, analyze market segmentation data to identify growth opportunities in specific market segments. Understand which segments are experiencing the most significant growth and why.

2. Assess Market Trends

Stay ahead of the curve by closely monitoring and assessing market trends. Here's how to effectively evaluate trends within your industry.

• Consumer Behavior Analysis: Dive into consumer behavior data to uncover shifts in preferences, buying patterns, and shopping habits. Understand how technological advancements and cultural changes influence consumer choices.
• Technological Advancements: Keep a keen eye on technological developments that impact your industry. Assess how innovations such as AI, IoT, blockchain, or automation are changing the competitive landscape.
• Regulatory Changes: Stay informed about regulatory shifts and their potential consequences for your industry. Regulations can significantly affect product development, manufacturing processes, and market entry strategies.
• Sustainability and Environmental Trends: Consider the growing importance of sustainability and environmental concerns. Evaluate how your industry is adapting to eco-friendly practices and how these trends affect consumer choices.

3. Evaluate Competitive Landscape

Understanding the competitive landscape is critical for positioning your business effectively. To perform a comprehensive evaluation:

• Competitive Positioning: Determine where your company stands in comparison to competitors. Identify your unique selling propositions and areas where you excel.
• Market Share Analysis: Continuously monitor market share among industry players. Identify trends in market share shifts and assess the strategies that lead to such changes.
• Competitive Advantages and Weaknesses: Analyze your competitors' strengths and weaknesses. Identify areas where you can capitalize on their weaknesses and where you need to fortify your own strengths.

4. Identify Key Success Factors

Recognizing and prioritizing key success factors is crucial for developing effective strategies. To identify and leverage these factors:

• Customer Satisfaction: Prioritize customer satisfaction as a critical success factor. Satisfied customers are more likely to become loyal advocates and contribute to long-term success.
• Quality and Innovation: Focus on product or service quality and continuous innovation. Meeting and exceeding customer expectations can set your business apart from competitors.
• Cost Efficiency: Strive for cost efficiency in your operations. Identifying cost-saving opportunities can lead to improved profitability.
• Marketing and Branding Excellence: Invest in effective marketing and branding strategies to create a strong market presence. Building a recognizable brand can drive customer loyalty and growth.

5. Analyze Customer Behavior and Preferences

Understanding your target audience is central to success. Here's how to analyze customer behavior and preferences:

• Market Segmentation: Use market segmentation to categorize customers based on demographics, psychographics , and behavior. This allows for more personalized marketing and product/service offerings.
• Customer Surveys and Feedback: Gather customer feedback through surveys and feedback mechanisms. Understand their pain points, preferences, and expectations to tailor your offerings.
• Consumer Journey Mapping: Map the customer journey to identify touchpoints where you can improve engagement and satisfaction. Optimize the customer experience to build brand loyalty.

By delving deep into data interpretation and analysis, you can gain valuable insights into your industry, uncover growth opportunities, and refine your strategic approach.

How to Conduct Competitor Analysis?

Competitor analysis is a critical component of industry analysis as it provides valuable insights into your rivals, helping you identify opportunities, threats, and areas for improvement.

1. Identify Competitors

Identifying your competitors is the first step in conducting a thorough competitor analysis. Competitors can be classified into several categories:

• Direct Competitors: These are companies that offer similar products or services to the same target audience. They are your most immediate competitors and often compete directly with you for market share.
• Indirect Competitors: Indirect competitors offer products or services that are related but not identical to yours. They may target a slightly different customer segment or provide an alternative solution to the same problem.
• Potential Competitors: These companies could enter your market in the future. Identifying potential competitors early allows you to anticipate and prepare for new entrants.
• Substitute Products or Services: While not traditional competitors, substitute products or services can fulfill the same customer needs or desires. Understanding these alternatives is crucial to your competitive strategy.

2. Analyze Competitor Strengths and Weaknesses

Once you've identified your competitors, you need to analyze their strengths and weaknesses. This analysis helps you understand how to position your business effectively and identify areas where you can gain a competitive edge.

• Strengths: Consider what your competitors excel at. This could include factors such as brand recognition, innovative products, a large customer base, efficient operations, or strong financial resources.
• Weaknesses: Identify areas where your competitors may be lacking. Weaknesses could involve limited product offerings, poor customer service, outdated technology, or financial instability.

3. Competitive Positioning

Competitive positioning involves defining how you want your business to be perceived relative to your competitors. It's about finding a unique position in the market that sets you apart. Consider the following strategies:

• Cost Leadership: Strive to be the low-cost provider in your industry. This positioning appeals to price-conscious consumers.
• Differentiation: Focus on offering unique features or attributes that make your products or services stand out. This can justify premium pricing.
• Niche Market: Target a specific niche or segment of the market that may be underserved by larger competitors. Tailor your offerings to meet their unique needs.
• Innovation and Technology: Emphasize innovation and technology to position your business as a leader in product or service quality.
• Customer-Centric: Prioritize exceptional customer service and customer experience to build loyalty and a positive reputation.

4. Benchmarking and Gap Analysis

Benchmarking involves comparing your business's performance and practices with those of your competitors or industry leaders. Gap analysis helps identify areas where your business falls short and where improvements are needed.

• Performance Benchmarking: Compare key performance metrics, such as revenue, profitability, market share, and customer satisfaction, with those of your competitors. Identify areas where your performance lags behind or exceeds industry standards.
• Operational Benchmarking: Analyze your operational processes, supply chain, and cost structures compared to your competitors. Look for opportunities to streamline operations and reduce costs.
• Product or Service Benchmarking: Evaluate the features, quality, and pricing of your products or services relative to competitors. Identify gaps and areas for improvement.
• Marketing and Sales Benchmarking: Assess your marketing strategies, customer acquisition costs, and sales effectiveness compared to competitors. Determine whether your marketing efforts are performing at a competitive level.

Market Entry and Expansion Strategies

Market entry and expansion strategies are crucial for businesses looking to enter new markets or expand their presence within existing ones. These strategies can help you effectively target and penetrate your chosen markets.

Market Segmentation and Targeting

• Market Segmentation: Begin by segmenting your target market into distinct groups based on demographics , psychographics, behavior, or other relevant criteria. This helps you understand the diverse needs and preferences of different customer segments.
• Targeting: Once you've segmented the market, select specific target segments that align with your business goals and capabilities. Tailor your marketing and product/service offerings to appeal to these chosen segments.

Market Entry Modes

Selecting the proper market entry mode is crucial for a successful expansion strategy. Entry modes include:

• Exporting: Sell your products or services in international markets through exporting. This is a low-risk approach, but it may limit your market reach.
• Licensing and Franchising: License your brand, technology, or intellectual property to local partners or franchisees. This allows for rapid expansion while sharing the risk and control.
• Joint Ventures and Alliances: Partner with local companies through joint ventures or strategic alliances. This approach leverages local expertise and resources.
• Direct Investment: Establish a physical presence in the target market through subsidiaries, branches, or wholly-owned operations. This offers full control but comes with higher risk and investment.

Competitive Strategy Formulation

Your competitive strategy defines how you will compete effectively in the target market.

• Cost Leadership: Strive to offer products or services at lower prices than competitors while maintaining quality. This strategy appeals to price-sensitive consumers.
• Product Differentiation: Focus on offering unique and innovative products or services that stand out in the market. This strategy justifies premium pricing.
• Market Niche: Target a specific niche or segment within the market that is underserved or has particular needs. Tailor your offerings to meet the unique demands of this niche.
• Market Expansion : Expand your product or service offerings to capture a broader share of the market. This strategy involves diversifying your offerings to appeal to a broader audience.
• Global Expansion: Consider expanding internationally to tap into new markets and diversify your customer base. This strategy involves thorough market research and adaptation to local cultures and regulations.

International Expansion Considerations

If your expansion strategy involves international markets, there are several additional considerations to keep in mind.

• Market Research: Conduct in-depth market research to understand the target country's cultural, economic, and legal differences.
• Regulatory Compliance: Ensure compliance with international trade regulations, customs, and import/export laws.
• Cultural Sensitivity: Adapt your marketing and business practices to align with the cultural norms and preferences of the target market.
• Localization: Consider adapting your products, services, and marketing materials to cater to local tastes and languages.
• Risk Assessment: Evaluate the political, economic, and legal risks associated with operating in the target country. Develop risk mitigation strategies.

By carefully analyzing your competitors and crafting effective market entry and expansion strategies, you can position your business for success in both domestic and international markets.

Risk Assessment and Mitigation

Risk assessment and mitigation are crucial aspects of industry analysis and strategic planning. Identifying potential risks, assessing vulnerabilities, and implementing effective risk management strategies are essential for business continuity and success.

1. Identify Industry Risks

• Market Risks: These risks pertain to factors such as changes in market demand, economic downturns, shifts in consumer preferences, and fluctuations in market prices. For example, the hospitality industry faced significant market risks during the COVID-19 pandemic, resulting in decreased travel and tourism .
• Regulatory and Compliance Risks: Regulatory changes, compliance requirements, and government policies can pose risks to businesses. Industries like healthcare are particularly susceptible to regulatory changes that impact operations and reimbursement.
• Technological Risks: Rapid technological advancements can disrupt industries and render existing products or services obsolete. Companies that fail to adapt to technological shifts may face obsolescence.
• Operational Risks: These risks encompass internal factors that can disrupt operations, such as supply chain disruptions, equipment failures, or cybersecurity breaches.
• Financial Risks: Financial risks include factors like liquidity issues, credit risk , and market volatility. Industries with high capital requirements, such as real estate development, are particularly vulnerable to financial risks.
• Competitive Risks: Intense competition and market saturation can pose challenges to businesses. Failing to respond to competitive threats can result in loss of market share.
• Global Risks: Industries with a worldwide presence face geopolitical risks, currency fluctuations, and international trade uncertainties. For instance, the automotive industry is susceptible to trade disputes affecting the supply chain.

2. Assess Business Vulnerabilities

• SWOT Analysis: Revisit your SWOT analysis to identify internal weaknesses and threats. Assess how these weaknesses may exacerbate industry risks.
• Financial Health: Evaluate your company's financial stability, debt levels, and cash flow. Identify vulnerabilities related to financial health that could hinder your ability to withstand industry-specific challenges.
• Operational Resilience: Assess the robustness of your operational processes and supply chain. Identify areas where disruptions could occur and develop mitigation strategies.
• Market Positioning: Analyze your competitive positioning and market share. Recognize vulnerabilities in your market position that could be exploited by competitors.
• Compliance and Regulatory Adherence: Ensure that your business complies with relevant regulations and standards. Identify vulnerabilities related to non-compliance or regulatory changes.

3. Risk Management Strategies

• Risk Avoidance: In some cases, the best strategy is to avoid high-risk ventures or markets altogether. This may involve refraining from entering certain markets or discontinuing products or services with excessive risk.
• Risk Reduction: Implement measures to reduce identified risks. For example, diversifying your product offerings or customer base can reduce dependence on a single revenue source.
• Risk Transfer: Transfer some risks through methods such as insurance or outsourcing. For instance, businesses can mitigate cybersecurity risks by purchasing cyber insurance.
• Risk Acceptance: In cases where risks cannot be entirely mitigated, it may be necessary to accept a certain level of risk and have contingency plans in place to address potential issues.
• Continuous Monitoring: Establish a system for continuous risk monitoring. Regularly assess the changing landscape and adjust risk management strategies accordingly.

4. Contingency Planning

Contingency planning involves developing strategies and action plans to respond effectively to unforeseen events or crises. It ensures that your business can maintain operations and minimize disruptions in the face of adverse circumstances. Key elements of contingency planning include:

• Risk Scenarios: Identify potential risk scenarios specific to your industry and business. These scenarios should encompass a range of possibilities, from minor disruptions to major crises.
• Response Teams: Establish response teams with clearly defined roles and responsibilities. Ensure that team members are trained and ready to act in the event of a crisis.
• Communication Plans: Develop communication plans that outline how you will communicate with employees, customers, suppliers, and other stakeholders during a crisis. Transparency and timely communication are critical.
• Resource Allocation: Determine how resources, including personnel, finances, and equipment, will be allocated in response to various scenarios.
• Testing and Simulation: Regularly conduct tests and simulations of your contingency plans to identify weaknesses and areas for improvement. Ensure your response teams are well-practiced and ready to execute the plans effectively.
• Documentation and Record Keeping: Maintain comprehensive documentation of contingency plans, response procedures, and communication protocols. This documentation should be easily accessible to relevant personnel.
• Review and Update: Continuously review and update your contingency plans to reflect changing industry dynamics and evolving risks. Regularly seek feedback from response teams to make improvements.

By identifying industry risks, assessing vulnerabilities, implementing risk management strategies, and developing robust contingency plans, your business can navigate the complexities of the industry landscape with greater resilience and preparedness.

Industry Analysis Template

When embarking on the journey of Industry Analysis, having a well-structured template is akin to having a reliable map for your exploration. It provides a systematic framework to ensure you cover all essential aspects of the analysis. Here's a breakdown of an industry analysis template with insights into each section.

Industry Overview

• Objective: Provide a broad perspective of the industry.
• Market Definition: Define the scope and boundaries of the industry, including its products, services, and target audience.
• Market Size and Growth: Present current market size, historical growth trends, and future projections.
• Key Players: Identify major competitors and their market share.
• Market Trends: Highlight significant trends impacting the industry.

Competitive Analysis

• Objective: Understand the competitive landscape within the industry.
• Competitor Identification: List direct and indirect competitors.
• Competitor Profiles: Provide detailed profiles of major competitors, including their strengths, weaknesses, strategies, and market positioning.
• SWOT Analysis: Conduct a SWOT analysis for each major competitor.
• Market Share Analysis: Analyze market share distribution among competitors.

Market Analysis

• Objective: Explore the characteristics and dynamics of the market.
• Customer Segmentation: Define customer segments and their demographics, behavior, and preferences.
• Demand Analysis: Examine factors driving demand and customer buying behavior.
• Supply Chain Analysis: Map out the supply chain, identifying key suppliers and distribution channels.
• Regulatory Environment: Discuss relevant regulations, policies, and compliance requirements.

Technological Analysis

• Objective: Evaluate the technological landscape impacting the industry.
• Technological Trends: Identify emerging technologies and innovations relevant to the industry.
• Digital Transformation: Assess the level of digitalization within the industry and its impact on operations and customer engagement.
• Innovation Opportunities: Explore opportunities for leveraging technology to gain a competitive edge.

Financial Analysis

• Objective: Analyze the financial health of the industry and key players.
• Revenue and Profitability: Review industry-wide revenue trends and profitability ratios.
• Financial Stability: Assess financial stability by examining debt levels and cash flow.
• Investment Patterns: Analyze capital expenditure and investment trends within the industry.

Consumer Insights

• Objective: Understand consumer behavior and preferences.
• Consumer Surveys: Conduct surveys or gather data on consumer preferences, buying habits , and satisfaction levels.
• Market Perception: Gauge consumer perception of brands and products in the industry.
• Consumer Feedback: Collect and analyze customer feedback and reviews.

SWOT Analysis for Your Business

• Objective: Assess your own business within the industry context.
• Strengths: Identify internal strengths that give your business a competitive advantage.
• Weaknesses: Recognize internal weaknesses that may hinder your performance.
• Opportunities: Explore external opportunities that your business can capitalize on.
• Threats: Recognize external threats that may impact your business.

Conclusion and Recommendations

• Objective: Summarize key findings and provide actionable recommendations.
• Summary: Recap the most critical insights from the analysis.
• Recommendations: Offer strategic recommendations for your business based on the analysis.
• Future Outlook: Discuss potential future developments in the industry.

While this template provides a structured approach, adapt it to the specific needs and objectives of your Industry Analysis. It serves as your guide, helping you navigate through the complex landscape of your chosen industry, uncovering opportunities, and mitigating risks along the way.

Remember that the depth and complexity of your industry analysis may vary depending on your specific goals and the industry you are assessing. You can adapt this template to focus on the most relevant aspects and conduct thorough research to gather accurate data and insights. Additionally, consider using industry-specific data sources, reports, and expert opinions to enhance the quality of your analysis.

Industry Analysis Examples

To grasp the practical application of industry analysis, let's delve into a few diverse examples across different sectors. These real-world scenarios demonstrate how industry analysis can guide strategic decision-making.

Tech Industry - Smartphone Segment

Scenario: Imagine you are a product manager at a tech company planning to enter the smartphone market. Industry analysis reveals that the market is highly competitive, dominated by established players like Apple and Samsung.

Use of Industry Analysis:

• Competitive Landscape: Analyze the strengths and weaknesses of competitors, identifying areas where they excel (e.g., Apple's brand loyalty ) and where they might have vulnerabilities (e.g., consumer demand for more affordable options).
• Market Trends: Identify trends like the growing demand for sustainable technology and 5G connectivity, guiding product development and marketing strategies.
• Regulatory Factors: Consider regulatory factors related to intellectual property rights, patents, and international trade agreements that can impact market entry and operations.
• Outcome: Armed with insights from industry analysis, you decide to focus on innovation, emphasizing features like eco-friendliness and affordability. This niche approach helps your company gain a foothold in the competitive market.

Healthcare Industry - Telehealth Services

Scenario: You are a healthcare entrepreneur exploring opportunities in the telehealth sector, especially in the wake of the COVID-19 pandemic. Industry analysis is critical due to rapid market changes.

• Market Size and Growth: Evaluate the growing demand for telehealth services, driven by the need for remote healthcare during the pandemic and convenience factors.
• Regulatory Environment: Understand the evolving regulatory landscape, including changes in telemedicine reimbursement policies and licensing requirements.
• Technological Trends: Explore emerging technologies such as AI-powered diagnosis and remote monitoring that can enhance service offerings.
• Outcome: Industry analysis underscores the potential for telehealth growth. You adapt your business model to align with regulatory changes, invest in cutting-edge technology, and focus on patient-centric care, positioning your telehealth service for success.

Food Industry - Plant-Based Foods

Scenario: As a food industry entrepreneur , you are considering entering the plant-based foods market, driven by increasing consumer interest in health and sustainability.

• Market Trends: Analyze the trend toward plant-based diets and sustainability, reflecting changing consumer preferences.
• Competitive Landscape: Assess the competitive landscape, understanding that established companies and startups are vying for market share.
• Consumer Behavior: Study consumer behavior, recognizing that health-conscious consumers seek plant-based alternatives.
• Outcome: Informed by industry analysis, you launch a line of plant-based products emphasizing both health benefits and sustainability. Effective marketing and product quality gain traction among health-conscious consumers, making your brand a success in the plant-based food industry.

These examples illustrate how industry analysis can guide strategic decisions, whether entering competitive tech markets, navigating dynamic healthcare regulations, or capitalizing on shifting consumer preferences in the food industry. By applying industry analysis effectively, businesses can adapt, innovate, and thrive in their respective sectors.

Industry Analysis is the compass that helps businesses chart their course in the vast sea of markets. By understanding the industry's dynamics, risks, and opportunities, you gain a strategic advantage that can steer your business towards success. From identifying competitors to mitigating risks and formulating competitive strategies, this guide has equipped you with the tools and knowledge needed to navigate the complexities of the business world.

Remember, Industry Analysis is not a one-time task; it's an ongoing journey. Keep monitoring market trends, adapting to changes, and staying ahead of the curve. With a solid foundation in industry analysis, you're well-prepared to tackle challenges, seize opportunities, and make well-informed decisions that drive your business toward prosperity. So, set sail with confidence and let industry analysis be your guiding star on the path to success.

How to Conduct Industry Analysis in Minutes?

Introducing Appinio , the real-time market research platform that transforms how you conduct Industry Analysis. Imagine getting real-time consumer insights in minutes, putting the power of data-driven decision-making at your fingertips. With Appinio, you can:

• Gain insights swiftly: Say goodbye to lengthy research processes. Appinio delivers answers fast, ensuring you stay ahead in the competitive landscape.
• No research degree required: Our intuitive platform is designed for everyone. You don't need a PhD in research to harness its capabilities.
• Global reach, local insights: Define your target group precisely from over 1200 characteristics and access consumer data in over 90 countries.

Join the loop 💌

Be the first to hear about new updates, product news, and data insights. We'll send it all straight to your inbox.

Get the latest market research news straight to your inbox! 💌

Wait, there's more

14.05.2024 | 30min read

Experimental Research: Definition, Types, Design, Examples

07.05.2024 | 29min read

Interval Scale: Definition, Characteristics, Examples

03.05.2024 | 29min read

What is Qualitative Observation? Definition, Types, Examples

How to Conduct an Industry Analysis

8 min. read

Updated March 18, 2024

I bet you agree: You need to know the industry you want to start a business in, and the kind of business you want to start, before you can start it.

Industry analysis is part of good management. That’s not just for the business planning, but rather for business survival, beginning to end. Most of the people who successfully start their own business have already had relevant business experience before they start, most often as employees.

But in this article, I focus on how to consolidate and formalize that industry knowledge into a formal business plan .

Although all business owners need to know their industry, the documented details and explanations are mainly for when you’re writing a business plan you need to show to outsiders, like bank lenders or investors . You’ll need to do some industry analysis so you’re able to explain the general state of your industry, its growth potential, and how your business model fits into the landscape.

And if your business plan is more of an internal strategic roadmap, you should still be very sure—whether you have to prove it to others or not—that you know your market, even if you don’t do a formal industry analysis. Whether you’re a service business, manufacturer, retailer, or something else, you want to know your industry inside and out.

• What to cover in your industry analysis

Whether you write it all out in a formal business plan or not, when you’re doing your industry analysis, you’re looking at the following:

• Industry participants
• Distribution patterns
• Competition and buying patterns

Everything in your industry that happens outside of your business will affect your company. The more you know about your industry, the more advantage and protection you will have.

A complete business plan discusses:

• General industry economics
• Participants
• Factors in the competition
• And whatever else describes the nature of your business to outsiders

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

A note on finding industry information

The internet has had an enormous impact on the state of business information. Finding information isn’t really the problem anymore, after the information explosion and the huge growth in the internet beginning in the 1990s and continuing in the 21st century.

Even 10 or 15 years ago, dealing with information was more a problem of sorting through it all than of finding raw data. That generality is truer every day. There are websites for business analysis, financial statistics, demographics, trade associations, and just about everything you’ll need for a complete business plan.

You should know who else sells in your market. You can’t easily describe a type of business without describing the nature of the participants. There is a huge difference, for example, between an industry like broadband television services, in which there are only a few huge companies in any one country, and one like dry cleaning, in which there are tens of thousands of smaller participants.

This can make a big difference to a business and a business plan. The restaurant industry, for example, is what we call “pulverized,” meaning that it, like the dry cleaning industry, is made up of many small participants. The fast-food business, on the other hand, is composed of a few national brands participating in thousands of branded outlets, many of them franchised .

Economists talk of consolidation in an industry as a time when many small participants tend to disappear and a few large players emerge. In accounting, for example, there are a few large international firms whose names are well-known, and tens of thousands of smaller firms. The automobile business is composed of a few national brands participating in thousands of branded dealerships, and in computer manufacturing, for example, there are a few large international firms whose names are well-known, and thousands of smaller firms.

Products and services can follow many paths between suppliers and users.

Explain how distribution works in your industry:

• Is this an industry in which retailers are supported by regional distributors, as is the case for computer products, magazines, or auto parts?
• Does your industry depend on direct sales to large industrial customers?
• Do manufacturers support their own direct sales forces, or do they work with product representatives?

Some products are almost always sold through retail stores to consumers, and sometimes these are distributed by distribution companies that buy from manufacturers. In other cases, the products are sold directly from manufacturers to stores. Some products are sold directly from the manufacturer to the final consumer through mail campaigns, national advertising, or other promotional means.

In many product categories, there are several alternatives, and distribution choices are strategic.

Amazon made direct delivery a huge competitive advantage, especially in its earlier years. Doordash and competitors chose to be intermediaries between restaurants and customers, and several businesses offer prepackaged meal ingredients delivered with instructions for finishing the preparations in the consumers’ kitchens. Now major grocery chains offer grocery delivery. Red Box made a strategy of DVDs in kiosks. An entire industry of food delivery options gives consumers choices like restaurant meals or fresh meals ingredients being delivered. Many products are distributed through direct business-to-business (B2B) sales and in long-term contracts such as the ones between car manufacturers and their suppliers of parts, materials, and components. In some industries, companies use representatives, agents, or commissioned salespeople.

Technology can change the patterns of distribution in an industry or product category. The internet, for example, changed options for software distribution, books, music, and other products. Cable communication first, and more recently streaming, changed the options for distributing video products and video games. Some kinds of specialty items sell best with late-night infomercials on television, but others end up working on the web instead of television.

Distribution patterns may not be as critical to most service companies, because distribution is normally about physical distribution of specific physical products such as a restaurant, graphic artist, professional services practice, or architect.

For a few services, the distribution may still be relevant. A phone service, cable provider, or an internet provider might describe distribution related to physical infrastructure. Some publishers may prefer to treat their business as a service, rather than a manufacturing company, and in that case distribution may also be relevant.

It is essential to understand the nature of competition in your market. This is still in the general area of describing the industry or type of business.

Explain the general nature of competition in this business, and how the customers seem to choose one provider over another:

• What are the keys to success?
• What buying factors make the most difference—is it price? Product features? Service? Support? Training? Software? Delivery dates?
• Are brand names important?

In the computer business, for example, competition might depend on reputation and trends in one part of the market, and on channels of distribution and advertising in another. In many business-to-business industries, the nature of competition depends on direct selling, because channels are impractical.

Price is vital in products competing with each other on retail shelves, but delivery and reliability might be much more important for materials used by manufacturers in volume, for which a shortage can affect an entire production line.

In the restaurant business, for example, competition might depend on reputation and trends in one part of the market, and on location and parking in another.

In many professional service practices, the nature of competition depends on word of mouth, because advertising is not completely accepted. Is there price competition between accountants, doctors, and lawyers? How powerful are the insurance decisions in medicine, like in or out of network? How do people choose travel agencies or florists for weddings? Why does someone hire one landscape architect over another? Why choose Starbucks, a national brand, over the local coffee house? All of this is the nature of competition.

The key to your specific industry analysis is a collection of decisions and educated guesses you’ll probably have to make for yourself. There are few pat answers. Maybe it’s easy parking, a great location, great reviews on Amazon or Yelp, or recommendations on social media. You can’t necessarily look this up. It’s the kind of educated guessing that makes some businesses more successful than others.

• Main competitors

Do a very complete analysis of your main competitors. Make a list, determining who your main competitors are. What are the strengths and weaknesses of each?

Consider your competitors’:

• Financial position
• Channels of distribution
• Brand awareness
• Business development
• Technology,  or other factors that you feel are important
• In what segments of the market do they operate? What seems to be their strategy? How much do they impact your products, and what threats and opportunities do they represent?

Finding competitive information

Competitive research starts with a good web search. Look up competitors’ websites and social media, then search for mentions, reviews, announcements, and even vacancies and job search information. An amazing array of competitive information is posted in plain sight, where anybody can find it.

From, there, for a good review of additional sources of information, I suggest Practical Market Research Resources for Entrepreneurs , also here on Bplans.

Competitive matrix

A lot of businesses organize competitive analysis into a competitive matrix. The standard competitive matrix shows how different competitors stack up according to significant factors.

Some people also use a SWOT analysis to think about competition in terms of opportunities and threats, the “OT” of SWOT. Opportunities and threats are generally taken as externals, which would include competition, so it’s valuable to run a SWOT analysis on your business to help figure this out.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

Related Articles

9 Min. Read

How to Write a Customer Analysis

7 Min. Read

Target Market Examples

3 Min. Read

How to Use TAM, SAM, SOM to Determine Market Size

10 Min. Read

How to Create a Detailed User or Buyer Persona

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

• Skip to main content
• Skip to primary sidebar
• Skip to footer
• QuestionPro

• Solutions Industries Gaming Automotive Sports and events Education Government Travel & Hospitality Financial Services Healthcare Cannabis Technology Use Case NPS+ Communities Audience Contactless surveys Mobile LivePolls Member Experience GDPR Positive People Science 360 Feedback Surveys
• Resources Blog eBooks Survey Templates Case Studies Training Help center

Home Workforce

What is Environmental Analysis? Steps, Benefits & Tools

Organizations can use an environmental analysis to uncover both internal and external factors. This could have a beneficial or negative impact on their company. Businesses can identify possible opportunities and challenges by analyzing factors such as the economy and technology.

Several factors come to mind when analyzing what makes a business successful. It’s all about the resources. However, the environment in which the business operates or exists also has a significant impact.

In this article, we look at what environmental analysis is, why it’s useful, how to do one, the analytical research process, and the tool’s analysis.

Content Index

What is environmental analysis?

Importance of environmental analysis, environmental analysis process, environmental analysis tools, environmental analysis techniques, benefits of environmental analysis.

An environmental analysis is a strategic technique used to identify all internal and external factors that could affect a company’s success. Internal components reveal the strengths and shortcomings of a company, while external components represent the opportunities and risks. This exists outside of the company.

Trends and high-level factors are considered in it; another name for this is environmental scanning.

Interest rates, for example, and how they may affect a company’s operations. These analyses can help businesses achieve attractiveness in their market.

Organizations need to do environmental analysis because it helps them:

• Find opportunities: By looking at the outside world, organizations can find new trends and chances to enter new markets or make new products or services.
• Identify threats: It helps businesses find threats to their business, such as new competitors, changes in regulations, or a slowing economy.
• Create effective strategies: Organizations can create effective strategies that are in line with their goals and objectives when they understand how the outside world affects their business.
• Anticipate change: Environmental scanning helps organizations plan ahead for changes in the outside world and create strategies to deal with them.
• Make informed decisions: It helps organizations learn more about the outside factors that affect their business so that they can make better decisions.

Organizations that want to stay competitive and successful in a business world that is changing quickly need to do environmental analysis. It helps them take advantage of opportunities, lower risks, and come up with good plans that lead to growth and success.

Environmental analysis is the process of assessing and evaluating the internal and external factors that can have an effect on an organization’s performance and strategy. This analysis aims to find opportunities, threats, strengths, and weaknesses so that the organization can make a good workforce strategy that fits its goals and objectives.

The environmental analysis process usually involves the following steps:

1. Determine the effects on the environment

To begin a business environmental analysis procedure, select environmental factors evaluating. Your industry determines this. 

For example, if you work in a medical facility, you might want to think about legal implications. Regulations managing healthcare experience and safety, for example. Choose factors that have the potential to influence how you make deals.

2. Obtain information

Collect information about your chosen environmental factors once you decide which ones to evaluate. You can observe your factors and conduct research here. There are two types of information to gather: verbal and written data. Hearing is how people obtain verbal information.

As an example, consider listening to a radio broadcast. They obtain written information from sources such as newspapers and magazines. 

Using the preceding example, this would involve conducting research online and in medical magazines.

It will assist you in determining whether or not there have been any changes to health and safety regulations because this may have an impact on your healthcare facility.

3. Consider your competitors

You may want to gather information about your competitors. To see if they pose any threats. You can accomplish this by employing a technique known as spying. This involves unusually gathering information.

Using the same example, you could spy on a nearby health facility to learn about recent activity.

4. Examine your strategies

Finally, evaluate your present and prospective strategies to determine how future environmental changes will impact your organization. This assists you in resolving potential issues. These factors could have been to blame.

For example, the health facility may wish to develop a new strategy. It will clearly show how they aim to deal with the decrease in clients caused by their competitor’s new branch.

Environmental analysis is frequently used to assist businesses. It is used before launching a new product or service. 

For example, survey the landscape of competitors, customers, economic conditions, market conditions, and so on. PESTEL is a popular project management tool for performing this analysis.

It refers to the factors that are political, economic, social, and technological. The various components of a PESTEL analysis are listed alphabetically below.

Political issues refer to the level of government intrusion into an organization’s operations. Primary concerns include taxes, tariffs, regulations, elections, and political stability. 

For example, different political parties hold divergent viewpoints on raising the minimum wage. Small businesses may be affected by an election.

When one candidate proposes raising the minimum wage, it may impact their product/service prices and ability to retain current employees.

LEARN ABOUT:   Workforce Planning Model

Businesses in the United States first consider the overall health of the American economic factors. Growth, employment, inflation, and interest rates are just a few examples. Organizations operating outside of the United States will concentrate on exchange rates. 

A startup, for example, may assess the current state of the economy to determine whether or not it will be able to survive. The long-term revenue and expenses of a company are affected by economic conditions.

Shifts in age, demographic changes, changing attitudes toward safety and health, customer preferences, and technical improvements. All are examples of social challenges. 86 percent of young people, for example, use social media.

As a result, of successful business strategies, millennials are more likely to run promotional ads, especially on social media platforms.

The technology involves research and development, robotics, automation, and any other type of technological advancement. New technologies are referred to as “technological disruption.” It has the ability to change the cast of leading competitors dramatically.

For example, the popularity of Facebook was a technological challenge for Myspace. It was once the most popular social media network in the early 2000s.

Environmental

Climate change, weather, air quality, and natural disasters are examples of environmental factors. Changes in the environment threaten some industries more than others.

Farmers, for example, could watch the Weather Channel or read the Farmer’s Almanac. Because pesticide treatment, irrigation schedule, planting dates, and fungicide application are all affected by the weather.

Legal factors involve employment, health, and safety policies. Customer safety and discrimination laws can also have an impact on a company’s capacity to operate.

Congress, for example, passed the Dodd-Frank Act in 2009. Following the Great Recession, banks were subjected to strict requirements to protect customers.

A corporation can use environmental analysis techniques in a variety of ways. But some are more frequent. The PESTLE study is the most widely used tool for conducting a complete business or industry environment analysis.

PESTLE Analysis

This is essentially a bird’s eye view of corporate behavior. Because we take a broad look at some macro issues that significantly impact the health of a particular business or industry, this study is used by managers and strategists to determine where their market is right now. It also assists in evaluating the company’s future position.

The PESTLE study considers several factors that have an impact on the business environment. It is a macroeconomic instrument that is used to understand the external environment through more extensive environmental analysis. 

Each letter in the acronym represents a different component. These factors can directly or indirectly impact any sector or organization.

SWOT Analysis

SWOT stands for strengths, opportunities, weaknesses, and threats, in case you didn’t know. These four factors are utilized to determine where a company stands regarding strategy.

These four elements are divided into two groups. We must talk about them a bit to see how they can assist us in conducting an environmental study.

• Internal Factors

Internal factors in this type of analysis are strengths and weaknesses. Because they can be affected and even controlled by the organization, they are referred to as internal analysis if a corporation has a firm brand name.

This is a strength because it was made possible by the organization’s efficient use of resources. As a result, this is an internally generated element that highlights one of the causes of the company’s success.

• External Factors

External considerations in this type of environmental assessment include threats and opportunities. Unlike the elements listed above, the company cannot control them in any way. In fact, these circumstances frequently occur on their own.

Competition is a concern to all businesses since it is impossible to eliminate it. As a result, external factors function in this manner.

Now that you know how to do a SWOT analysis , you can include your findings in your environmental study. Strengths may be enhanced, weaknesses can be eliminated by taking advantage of opportunities when they arise, and threats can be minimized by remaining vigilant.

Environmental evaluations help organizations in detecting potential effects. That could pose a hazard or an opportunity. This assists them in anticipating changes in their environment.

The internal insights from the environmental analysis are used to evaluate things like how well employees are doing their jobs, how happy customers are, how much maintenance costs, etc., so that corrective action can be taken where needed.

Also, the external metrics help the organization positively respond to its environment and ensure its strategies align with its goals.

This helps to find threats early on, which helps the organization come up with plans for how to stay alive. On top of that, it looks for opportunities, like potential customers, new products, segments, and technologies, so that it can take up the most market share possible compared to its competitors.

Using environmental factors analysis has several advantages, including the following

• Predicting the future
• Recognizing threats and allowing them to develop a response strategy
• Assisting in the achievement of business goals
• Increasing organizational effectiveness

The analysis examines revenue, profitability, and company success in depth analysis . An environmental analysis can help you make the best decisions for your company. The nature of your business determines the type of environmental analysis you should perform.

It helps companies uncover opportunities, minimize risks, and create successful strategies that meet their goals. 

SWOT, PESTEL, and Porter’s Five Forces analyses are used to evaluate an organization’s performance and strategy.

Environmental analysis helps organizations anticipate change, make informed decisions, and stay competitive in today’s fast-changing business environment. Environmental scanning has several benefits and is vital for today’s businesses.

QuestionPro can help with environmental analysis by giving you tools for gathering, analyzing, and displaying data. It can also help you target specific audiences and work together as a team.

QuestionPro makes it easier for businesses to learn about environmental factors that affect their business and make decisions based on that information.

FREE TRIAL         LEARN MORE

MORE LIKE THIS

Data Information vs Insight: Essential differences

May 14, 2024

Pricing Analytics Software: Optimize Your Pricing Strategy

May 13, 2024

Relationship Marketing: What It Is, Examples & Top 7 Benefits

May 8, 2024

The Best Email Survey Tool to Boost Your Feedback Game

May 7, 2024

Other categories

• Academic Research
• Artificial Intelligence
• Assessments
• Brand Awareness
• Case Studies
• Communities
• Consumer Insights
• Customer effort score
• Customer Engagement
• Customer Experience
• Customer Loyalty
• Customer Research
• Customer Satisfaction
• Employee Benefits
• Employee Engagement
• Employee Retention
• Friday Five
• General Data Protection Regulation
• Insights Hub
• Life@QuestionPro
• Market Research
• Mobile diaries
• Mobile Surveys
• New Features
• Online Communities
• Question Types
• Questionnaire
• QuestionPro Products
• Release Notes
• Research Tools and Apps
• Revenue at Risk
• Survey Templates
• Training Tips
• Uncategorized
• Video Learning Series
• What’s Coming Up
• Workforce Intelligence

• Skip to primary navigation
• Skip to main content
• Skip to primary sidebar

PESTLE Analysis

Insights and resources on business analysis tools

PEST Analysis: Examples and Meaning in Business

Last Updated: Apr 8, 2024 by Jim Makos Filed Under: PEST Analysis

What is a PEST analysis, and what are its four parts? What is the difference between PESTLE analysis and PEST, and why is it important for every business? As a business student, analyst, manager or owner, you are called to conduct a PEST analysis sooner or later. In the next 10 minutes, I’ll go through everything you need to know about PEST analysis and how you can do a PEST analysis of an organization starting from scratch. I promise you’ll know more about PEST analysis than 99% of people out there, as I’m explaining everything as concisely as possible. Let’s start with the PEST analysis definition.

What is a PEST Analysis?

PEST analysis is a strategic tool for organizations to identify and assess how Political, Economic, Social, and Technological external factors impact operations so that they can gain a competitive edge. A PEST analysis helps you determine how these factors will affect a business’s performance and strategy in the long term. It is often used in collaboration with other analytical business tools. For example:

• A combination of PEST and SWOT analysis usually gives a clearer understanding of a situation with related internal and external factors
• PESTLE analysis is an extension of PEST analysis that covers legal and environmental factors

I’m going to explain the PEST analysis as simply as possible with examples and a template for better understanding. I will also show how to do a PEST analysis starting from scratch, even for people without any business education like me!

Why Do a PEST Analysis

It’s simple: to succeed. For a business to be successful, they need a few things:

• A solid product
• Marketing plan
• Identifiable brand
• Happy customers
• Thorough budget
• An investor or two
• Unique selling position
• And a whole lot of research

Throughout the endless market research, customer acquisition costs, and project risk assessments, business managers could forget about outside influences ( we call these external factors in this type of analysis). Aside from the company’s internal resources and industry factors, PEST’s macroeconomic factors can impact a company’s performance in a big way.

By being aware of external factors, managers can aid their business. But if they don’t know them, they can cripple their business before it begins. That’s how advantageous PEST analysis is .

What are the four parts of PEST analysis?

Now, let me explain each of the four parts of a PEST analysis more thoroughly. You’ll better understand what each of these external factors in this analysis is all about.

• Political – Here, government regulations and legal factors are assessed in terms of their ability to affect the business environment and trade markets. The main issues addressed in this section include political stability, tax guidelines, trade regulations, safety regulations, and employment laws.
• Economic – Next, businesses examine the economic issues that have an impact on the company. This would include factors like inflation, interest rates, economic growth, the unemployment rate and policies, and the business cycle followed in the country.
• Social – At this stage, businesses focus on the society and people. Elements like customer demographics, cultural limitations, lifestyle attitudes, and education come into play here. This part allows a business to understand how consumer needs are shaped.
• Technological – This may come as a surprise, but technology may not always be an ally for businesses. Depending on the product, technology may affect the organization positively but also negatively. In PEST’s last section we find technological advancements, the role of the Internet, and how an industry’s innovation creates winners and losers.

Every business is different. Some factors may not affect a firm or industry as they would with others. But it’s beneficial to have a well-rounded view of the many factors that could affect them. Along with the ones that will affect them.

This is why we do PEST analysis for a business — to be aware of risks, opportunities, influences, and limitations. Let’s go deeper into these external factors that impact the success of a business. I’ll also briefly mention a specific example for each of them.

Political Factors

Political factors in PEST analysis refer to the extent to which the government and political actions in a country influence the business climate. Here are some examples that will occasionally make it into the (P) of my PEST analysis:

• Tax policies
• Tax incentives
• Political tensions
• Employment laws
• Import restrictions
• Health and safety laws
• Consumer protection laws
• Tariff and Trade restrictions
• Regulation and deregulation

For instance, a country’s foreign policy often plays an important role in determining trade regulations. This can either result in trade restrictions or trade incentives and can affect an organization’s operations. Read my dedicated page on political factors with more examples here .

Economic Factors

In the (E) part of PEST Analysis, we run into how the economy affects the organization. I consider the following economic factors when doing a PEST analysis:

• Interest rate
• Inflation rates
• Exchange rates
• Unemployment rate

For instance, exchange rates affect a global organization by influencing the cost of imported and exported goods. Furthermore, interest rates influence the cost of capital available to the organization. Thus they are significant in the expansion and growth of a business. Find more economic factors and examples of how they affect businesses here .

Social Factors

Social factors include different cultural and demographic aspects of society. These can affect the macro-environment in which the organization operates.

In the ‘S’ part of the PEST analysis I usually examine:

• Age distribution
• Cultural diversity
• Demographics shifts
• Population growth rate
• Health consciousness and trends
• Changing consumer lifestyles and preferences

A study of these factors can help organizations understand the dynamics of existing and emerging potential markets along with future customer needs.

Social factors are more unpredictable than economic and political factors, simply because people are unpredictable. But every business needs customers. And what and how they buy has an immediate effect on an organization’s profitability.

Based on these social factors, marketers create buyer personas. These avatars are necessary for businesses to target the ideal customer.

For example, if you’re selling whey powder, you go after fitness enthusiasts and bodybuilders. You are looking for people that follow an active lifestyle. Hence, a declining trend in health consciousness doesn’t seem encouraging.

That’s the tip of the iceberg. Learn more about social factors here .

Technological Factors

Technological factors aren’t important only for tech-related businesses. The (T) part in PEST analysis may affect even the most old-school organization that’s been operating for a century.

Technology is evolving at a rapid pace and consumers are becoming extremely tech-savvy. With the advent of new technology, older technology gets outdated and obsolete. If an organization does not look out for technological changes, it can lag behind its competitors.

I often include the following technological factors when conducting a PEST analysis:

• Cybersecurity Threats
• Emerging Technologies
• Big data and computing
• AI and Machine Learning
• Supply Chain Automation

Let’s consider the advancements in computing; more specifically, networking.

If a business offers the latest and fastest Wi-Fi in their store, it’s an added luxury. It’s annoying if it still operates on 3G speeds, but won’t ruin sales. However, if they handle all receipts in an online database and that goes offline because they didn’t keep their network infrastucture up-to-date then they have a major problem. Especially in big holidays like Black Friday.

Again, this is about impact on the business operation. How will ‘X’ technology affect the business in the long and short term? That’s what we’re trying to figure out with PEST analysis.

A ton more technological factors can be found here .

PEST Analysis Examples

Here is a hypothetical PEST analysis example that can give you a clear understanding of how this works:

Here at PESTLEanalysis.com I rarely limit myself to PEST analysis. I almost always go the extra mile and include the Legal and Environmental factors when I initiate a PEST analysis. This leads to a more detailed analysis called PESTLE.

PESTLE Analysis: An extension of PEST Analysis

PESTLE analysis is an extension of PEST that is used to assess two additional macroeconomic factors. These factors are the  Legal and Environmental conditions that can have an impact on a organization. Examples of PESTLE analysis are similar to those of a PEST analysis, but they will include factors such as these:

• Discrimination laws
• Copyright and patent laws

Environment:

• Waste management
• Changes in weather and climate
• Laws regarding pollution and recycling
• Use of green or eco-friendly products and practices

So, if you want to assess a business situation comprehensively, a PESTLE analysis is a definite must. You can find more about that analysis here .

Why PEST Analysis Is Important For Every Business

So, now that we did a PEST analysis, how’s that going to help the business?

What does a five-year business plan look like? Or a ten-year plan? It likely involves growth.

Whether it’s the expansion of a product line or opening stores in new locations, business changes need proper preparation. And that’s where the PEST analysis comes in.

PEST analysis is the foolproof plan for business expansion !

Both new business owners and veterans should include PEST analysis in their business plan. By breaking down the critical influences in the P.E.S.T. categories, businesses get a better understanding of whether their next business move is strategic or doesn’t make sense.

For example, politics isn’t just about political tensions, unrest and elections. Politics are also about trade policies, regulations and taxation. Companies doing business worldwide have to consider laws in the countries they operate, as well. Even if they aren’t doing international trade yet, it could be a possibility in the future, and going in blind is a good way to toss success out the window.

PEST analysis helps people become aware.

Aware of how political parties and regulations can impact a business. And how the economy (past, present, and future) affects an industry. It allows people to understand consumers — who they are, what they buy, and why they don’t buy. And finally, it identifies what technology is necessary for the development and success of a product, business, or industry.

It’s almost like an outline. It shows people what influences impact the quality, success, or devastation of businesses and industries. You can’t stop the four influences, but if you’re aware of them and their impact, you can plan around, against, or with them.

PEST analysis is often used by business analysts, marketers, students, and business owners, since it’s super important for every business!

All you need to do a proper PEST analysis is time. And the payoff is worth every second.

How PEST analysis works

PEST analysis requires research and data, sometimes ten years old, sometimes only a couple. The more information I have to go through, the more accurate my final results will be. By looking into the past and the present, I can make predictions for the future.

By studying these recent developments through a PEST analysis lens, organizations are deciding whether to jump into this for the long haul or for the time being.

You want to look at your industry in a similar light. Ten years ago, did it exist? Has it slowed down within the last two years or are more companies diving in? More competition can be a strong sign an industry is booming, but it could also be the first sign of oversaturation.

Break down your assessment into the four categories of PEST analysis. Start with politics and work your way through the remaining factors. Or start from the bottom. Whatever gets the job done and makes the analysis enjoyable.

How to Do a PEST Analysis From Scratch

I’ve written dozens of PEST analyses over the last couple of years. Below I document my process on how to do a PEST analysis , even when you’ve never written one before.

You should have a topic in mind. Most PEST analyses are about a specific business, industry, or product. However, they can also be applied to countries, too. You can’t start without a topic, though, so have it ready.

Where to find information for your PEST analysis

It’ll be easier to find and segment information if you break your analysis down into four sections, like the acronym implies:

• Technological

Each section will require its own information. However, some of this information will overlap.

For instance, the economy is often closely tied to political (in)stability. And the state of the economy always affects consumers (social). You don’t need to look for these patterns specifically— it’ll become apparent as you discover new information.

Start with the history

You should be familiar with your topic. If you’re not, read about its history. Learn how it was established, how long it has been around, and who founded it. Read about any major achievements on the organization in question over the last few years. Jot down notes whenever something that seems relevant or important pops up.

After this informational primer, it’s time to start on the four sections. I do my PEST analysis in order of the acronym because the information often bleeds into the next section.

Finding Political Information

Political information is easier to find than in other sections of the analysis (social and technological, specifically). Here, you’ll want to investigate the current political climate.

For instance, if the organization originates from America, you’ll research the current political parties. Who is in charge? Has this affected business operations in any way?

If your topic (business, product, industry) was established years ago, what was the political climate like then? Are different parties in power now? If this is the case, then you’ll want to compare how things have changed for your topic from then to now.

This is also the section where you’ll look into laws and regulations affecting business. Remember the list we went through in the beginning.

I find this information with a simple Google search. Such as “tariff laws USA” (plug in the country you’re searching for if it’s not the United States).

It’s best to get this information from a government site. These sites end in .gov. You may also find information from organizations (websites ending in .org) but not all of these sites are legitimate organizations. Be wary while you research.

Honestly, most of the information you’ll find is dense. But it’s easier if you have a goal. Look for signs of:

• Government (in)stability
• Possible political corruption
• New bills/regulations that may impact your topic
• Any issues your topic has had with current/former regulations or political parties

If your topic is a company, finding the right information may be easier. Search for “company name + political issues” or “company name + policies” and see what comes up. Avoid any information from untrustworthy sites and sites with no legitimate source.

Finding Economic Information

While you’re researching political information, you may come across connections to the current economy. For instance, political instability often leads to economic instability. This causes unemployment rates to rise and employee strikes. This affects how much disposable income people have.

You may have already found information in your political section that confirms economic problems. But if you haven’t, search government sites for current tax rates, interest rates (if your topic involves international business), and the current state of the economy. Is it good? Thriving? Or bad and declining?

Again, use government websites. Search for economic statistics over the last few years. If your topic is an industry, see how many companies (startups) have started within the last few years.

If your topic is a business that has international stores, look into the relationship between the country of origin and each country the company does business. If the relationship is good, it’s often a good outlook for the company. But if it’s bad, it may lead to problems. What problems? Do a bit of digging online.

Also, if your PEST analysis is for a company, you may look into stocks . Have they been declining? On the rise? Because if it’s the former, then the business may not be looking good. And you’ll want to find out why .

If my topic is a business, I sometimes check out the competition. I’ll look into how that other company has been fairing economically, specifically how its sales have risen or fallen over the last couple of years. If it’s dropped products, shifted marketing efforts, etc., I want to know why . A competitor analysis isn’t always necessary , but it can shed light on possible problems your topic may face.

Finding Social Information

This section is a bit trickier. Political and economic sectors rely heavily on data and evidence. You can find this information on government websites. News sites too, even. And although you can find databases about demographics and population growth for this section — all applicable in a PEST analysis — I wouldn’t stop there.

In the social section, I often examine how consumers are impacted by political and economic factors. You can draw conclusions based on the information you’ve already gathered from your political and economic segments.

For instance, if there is political instability and the economy is on the fritz, then consumers may feel uneasy. They may have fewer job options. And that means they’re less likely to spend frivolously. If your topic is a luxury product, it may mean the company that makes it may have lower sales this year.

But you also want to learn about how consumers feel about your topic. If it’s a company, do consumers generally like it? Or is public opinion souring? There should be a reason for why.

Consider Facebook. The company’s CEO, Mark Zuckerberg, has consistently been in hot water over the years. If not for data breaches affecting millions of users, but for their shady involvement with fake news and political tampering.

This has led many consumers to shy away from using Facebook. And this affects businesses that use Facebook to reach new customers.

In this section of the PEST analysis, I’m more likely to search for my topic on news sites and publications. The more popular the topic, the easier it’ll be to find articles written about it. But if the topic has ever been in the news, you’ll likely find it online.

Websites to search include :

• Consumer Reports
• Local news websites
• Other reputable sources

If you know your topic has been in the news for something bad, you can search the topic + the problem.

Although the information may overlap, take keynotes here. See how the problem is affecting consumer opinion. You may even want to take a look at the comments (if there are any) and see what people are saying. It’s coming straight from the lion’s mouth (consumers).

I think many PEST analyses favor numbers too much. We live in a world where anyone with an opinion can be heard, thanks to the internet. And enough of those voices can cause a business to change its policies and products. It can even cause the company to collapse.

So it’s important to search for how consumers feel about your topic too.

Finding Technological Information

This section of the PEST analysis is a bit abstract as well. You’re looking into how new technological advancements has affected your topic positively or negatively. You should also look into what technology your topic uses (currently). And what technology they may want to incorporate.

You may want to look at competitors if your topic is a product or business. See what others are using. And think about why they are.

Press releases

It may be beneficial to search for press releases involving your topic, if possible. If your company is using new technology, they may have announced it through a press release. You can search “company name + press release” or search through these press release websites:

• PR NewsWire
• NPR: National Public Radio

You may also find other information here for the other sections of the PEST analysis. Which is just an overall bonus. If all else fails, check if your topic has a website (unless it’s an industry or country). Discuss how they use social media (if they don’t, then… discuss that too!). In this section, you’re assessing what your topic uses, what it doesn’t, and why.

Putting it all together in a final PEST analysis

You’ll likely have heaps of information at hand. For some it’ll feel like too much — but that’s never the case for a PEST analysis. As you begin to read through each section’s notes, incorporate the most interesting, pressing, or surprising information. If anything overlaps with other sections, include that too.

I write each section of a PEST analysis at a time. I take my notes and create coherent sentences. Sometimes I make a list of the most important points and include them that way. If the section is long, I’ll use subheadings to break up the information.

Work on each section separately. And then if there are overlapping themes, incorporate those in. You may want to use those at the end of each section to connect to the next.

Once you’ve done this, you’ve completed your PEST analysis! Most of the work is in finding the information and making it coherent. The last 10-20 percent is putting it all together. So, once the research phase is done, you’re basically done too!

Understanding PEST Analysis: Taking Action

In conclusion, developing an understanding of what is PEST analysis becomes even more important when a company is about to launch a new business or a new product. In general, when they are about to change something drastically. That’s when all these factors play an important role in determining the feasibility and profitability of the new venture.

Therefore, developing an understanding of PEST analysis is useful for organizations for analyzing and understanding the ground realities of the environment they have to operate in.

Realizing what is PEST and knowing how to take this analysis into consideration, the organization can be in a better position to analyze the challenges, environment, factors, opportunities, restrictions and incentives it faces. In case an organization fails to take into account any one of these factors, it may fail to plan and operate properly.

But don’t PEST analysis stop you. Here are some variations that may come in handy when assessing how the external environment affects an organization:

• STEEP Analysis
• STEEPLED Analysis
• SWOT Analysis

ZenBusinessPlans

Home » Business Plans

How to Write a Business Plan Industry Analysis

How do you conduct industry analysis for a business plan? Do you need help conducting market research and industry analysis for your business plan? Then I advice you read on. So you have a great business idea, you have refined and fine-tuned it, and you are ready to launch. You are going to offer a product or service with a clearly defined customer base, and you are confident that you will be successful in the long term.

Well, if the above applies perfectly to you, then you have not completed your assignment. What happens when you enter an examination hall without having studied for the exam at all? You’d spend all your time in the hall blaming yourself for being silly, right? Now, starting a business is even much more important because there’s a lot more at stake than passing or failing a grade. So, you must not leave out any aspect of research undone.

In this section of your business plan, you will demonstrate that the industry’s market size is worth going after, who your main competitors will be if you decide to take a plunge, and how you will be able to carve out a niche for yourself and give your competitors a run for their money. Planning a business goes beyond analyzing the potential of your offer. You must analyze the following three factors as well:

• The strengths and weaknesses of your business
• The competition
• Who your customers are, what they want, and how they want it

These are the major components of a business plan’s market or industrial analysis and it is also known as a SWOT (Strength, Weaknesses, Opportunities and Threats) analysis. This section of your business plan reveals the chances of your business to achieve success with its offers. And that’s why the industry analysis is a very important section of your business plan, which must be carefully conducted and documented.

So in this article, we will be looking at how to conduct industry analysis for a business plan. If you are a budding entrepreneur, or you are planning to start a new business; then below are the exact steps to follow when conducting an industry analysis for a new business:

How to Conduct Industry Analysis for a Business Plan

1.  analyze the competition.

Of the three factors listed above, the competition may prove the most difficult to analyze, especially if you are new to the industry. But there are ways to simplify the task. You can start by looking at your direct competitors. If you are planning to start a new restaurant in an area, your direct competitors are other restaurants within that locality, while your indirect competitors are those that are slightly remote but still around.

Now, you are not just counting the number of rivals you have. You are trying to see how you can push ahead of them by filling a loophole they never noticed all these while. Some people find it hard to leave their workplace for the restaurant at lunchtime, but it’s either they do it or go hungry. You can disrupt the market’s status quo by offering to deliver lunch to people right in their workplaces. Filling loopholes like this one should be your goal.

If you don’t device strategies for pushing ahead of the competition, you will just enter the industry and join the survival race that you may never win. So, you need to introduce an innovation that will threaten your rivals. Remember, it’s either you differentiate or you fizzle out fast!

2.  Assess the industry / market size

After analyzing your direct and indirect competitors, you will need to analyze your chances of standing firm even in the face of stiffer competition. Your first step in market research is to get an idea of how big the opportunity is and why it’s worth going after.

This means finding out how many customers you are catering to and much revenue you are likely to make. This is a convincing first step to lure in whoever is reading your business plan to become intrigued and dig further into your findings. Here are some factors you should consider:

• The individual strengths and weaknesses of your competitors.
• The rate at which new competitors enter the market or the rate at which old competitors are leaving the market.
• The products or services that fetch most revenue for your competitors.
• How you will overcome the threat of substitute goods.

You can get lots of helpful information about your market from government sources, trade associations, financial services firms, online data providers, and free resources on the web.

3. Analyze industry forces and trends

You will need to outline what’s happening in the industry from many perspectives that would help the reader get the full gist on whether the market is lucrative or not. A great general-purpose tool for doing just that is the PEST Analysis. Here’s what it stands for and what you should consider:

• P – Political factors ( the role government plays in your industry )
• E – Economic factors ( the state of the economy on both local and national level )
• S – Social factors ( relevant changes in matters like lifestyle trends, demographics, consumer attitudes, buying patterns and opinions )
• T – Technological factors ( the impact of changing technological trends on your industry )

4.  Develop your marketing plan

Developing your marketing plan entails answering the following questions:

• What products or services are you offering?
• How much will you charge for your offers?
• Where will you sell your product, and who are your target customers?
• What special incentives would you use to encourage customers to buy your product?

In short, this section of your industry analysis outlines how you will deliver your product to the customers and how you will win customers to your side.

5.  Craft your growth plan

While some entrepreneurs are of the opinion that this step should come only after you have established your business, crafting your market development plan helps you envision your company growing in a few years. Your growth plan should address the following questions:

• According to recent data, is the market for your product growing or dwindling?
• Do you plan to introduce new products or line extensions in the next few years?
• If you plan to introduce new offers, would they be closely related to your current offers or within another niche entirely?
• Are there strategies for giving your business the competitive advantage in the industry?
• Are there plans to handle increasing demand?

6.  Fine-tune your analysis

After the steps discussed above, cross check your analyses to ensure that your findings are factual and your figures are accurate. Another handy tool to have in your arsenal when conducting industry research is the almighty Porter’s 5 Forces Analysis . ( Don’t worry if you’ve never attended a business strategy class in your life, it’s actually quite straightforward ). Here’s the breakdown:

Threat of new entrants

How difficult ( or easy ) is it for someone to enter your specific vertical? If it’s very easy then most likely the space will be crowded with competitors fighting for margins. Conversely, if it’s very difficult, that that in itself can become a competitive advantage.

Threat of substitute products or services

How likely is it that another product or service could decrease demand or displace you and potentially the entire industry all together?

Bargaining power of customers

When it comes to pricing and terms, how much power does your customer have? Are they organized enough to exercise their purchase power, or is there so much competition that they have their pick resulting in pricing wars amongst providers?

Bargaining power of suppliers

This refers to how dependent you are on a given supplier to operate your business. If it’s difficult or near impossible for you to switch, that means they have the upper hand, whereas, if the switching costs are low, you can negotiate better terms for yourself.

Competitive rivalry of the market

Factoring in the first four forces, you can arrive at a good understanding of the playing field and whether it’s in your favor if you enter it, how long you’ll be able to last, through what means you’ll carve a space for yourself, and what you’re up against.

As a final note, you must never forget that the industry analysis is a vital part of your business plan and it will probably be the most extensive portion of it. So, take your time to conduct extensive research on your competitors and market trends over the recent years.

• Go to Chapter 9 Part B: Writing a Business Plan Competitive Market Analysis
• Go Back to Chapter 8: Writing your Company’s Profile
• Go Back to Introduction and Table of Content

More on Business Plans

How to Write the Market Analysis Section of a Business Plan

Written by Dave Lavinsky

What is the Market Analysis in a Business Plan?

The market analysis section of your business plan is where you discuss the size of the market in which you’re competing and market trends that might affect your future potential such as economic, political, social and/or technological shifts.

This helps you and readers understand if your market is big enough to support your business’ growth, and whether future conditions will help or hurt your business. For example, stating that your market size is $56 billion, has been growing by 10% for the last 10 years, and that trends are expected to further increase the market size bodes well for your company’s success.

Download our Ultimate Business Plan Template here

What Should a Market Analysis Include?

You’ll want to address these issues in your market analysis:

• Size of Industry – How big is the overall industry?
• Projected Growth Rate of Industry – Is the industry growing or shrinking? How fast?
• Target Market – Who are you targeting with this product or service?
• Competition – How many businesses are currently in the same industry?

Learn how to write the full market analysis below.

How to Write a Market Analysis

Here’s how to write the market analysis section of a business plan.

• Describe each industry that you are competing in or will be targeting.
• Identify direct competition, but don’t forget about indirect competition – this may include companies selling different products to the same potential customer segments.
• Highlight strengths and weaknesses for both direct and indirect competitors, along with how your company stacks up against them based on what makes your company uniquely positioned to succeed.
• Include specific data, statistics, graphs, or charts if possible to make the market analysis more convincing to investors or lenders.

    Finish Your Business Plan Today!

Industry overview.

In your industry overview, you will define the market in which you are competing (e.g., restaurant, medical devices, etc.).

You will then detail the sub-segment or niche of that market if applicable (e.g., within restaurants there are fast food restaurants, fine dining, etc.).

Next, you will describe the key characteristics of your industry. For example, discuss how big the market is in terms of units and revenues. Let the reader know if the market is growing or declining (and at what rate), and what key industry trends are facing your market.

Use third-party market research as much as possible to validate the discussion of your industry.

Here is a list of additional items you may analyze for a complete industry overview:

• An overview of the current state of the industry . How big is it, how much does it produce or sell? What are its key differentiators from competitors? What is its target customer base like – demographic information and psychographics? How has the industry performed over time (global, domestic)?
• Analyze the macro-economic factors impacting your industry . This includes items such as economic growth opportunities, inflation, exchange rates, interest rates, labor market trends, and technological improvements. You want to make sure that all of these are trending in a positive direction for you while also being realistic about them. For example, if the economy is in shambles you might want to wait before entering the particular market.
• Analyze the political factors impacting your industry . This is an often-overlooked section of any business plan, but it can be important depending on what type of company you are starting. If you’re in a highly regulated industry (such as medical devices), this is something that you’ll want to include.
• Analyze the social factors impacting your industry . This includes analyzing society’s interest in your product or service, historical trends in buying patterns in your industry, and any effects on the industry due to changes in culture. For example, if there is a growing counter-culture trend against big oil companies you might want to position yourself differently than a company in this industry.
• Analyze the technological factors impacting your industry . This includes analyzing new technologies being developed in software, hardware, or applications that can be used to improve your product or service. It also includes emerging consumer trends and will be highly dependent on your business type. In a technology-related venture, you would analyze how these changes are impacting consumers. For an educational-related venture, you would analyze how these changes are impacting students, teachers, and/or administrators.

For each of these items, you want to provide some detail about them including their current state as well as what external factors have played a role in the recent past. You can also include many other important factors if they apply to your business including demographic trends, legal issues, environmental concerns, and sustainability issues.

When you are done analyzing all of these factors, wrap it up by summing them up in a statement that includes your view on the future of the industry. This should be positive to attract investors, potential customers, and partners.

If you’re having trouble thinking about all of these factors then it might be helpful to first develop a SWOT analysis for your business.

Once you have an understanding of the market, you’ll need to think about how you will position yourself within that potential market.

Picking Your Niche

You want to think about how large your market is for this venture. You also want to consider whether you’d like to pick a niche within the overall industry or launch yourself into the mainstream.

If you have an innovative product it can be easier to enter the mainstream market – but at the same time, you might face some additional competition if there are similar products available.

You can choose to specialize in a niche market where you’ll face less competition – but might be able to sell your services at a higher price point (this could make it easier for you to get potential customers).

Of course, if your product or service is unique then there should be no competition. But, what happens if it isn’t unique? Will you be able to differentiate yourself enough to create a competitive advantage or edge?

If you are planning on entering the mainstream market, think about whether there are different sub-niches within your specific market. For example, within the technology industry, you can choose to specialize in laptops or smartphones or tablets, or other categories. While it will be more difficult to be unique in a mainstream market, you will still be able to focus on one type or category of products.

How Will You Stand Out?

Many companies are able to stand out – whether by offering a product that is unique or by marketing their products in a way that consumers notice. For example, Steve Jobs was able to take a business idea like the iPhone and make it into something that people talked about (while competitors struggled to play catch up).

You want your venture to stand out – whether with an innovative product or service or through marketing strategies. This might include a unique brand, name, or logo. It might also include packaging that stands out from competitors.

Write down how you will achieve this goal of standing out in the marketplace. If it’s a product, then what features do you have that other products don’t? If it’s a service, then what is it about this service that will make people want to use your company rather than your competition?

You also need to think about marketing. How are you going to promote yourself or sell your product or service? You’ll need a marketing plan for this – which might include writing copy, creating an advertisement, setting up a website, and several other activities. This should include a description of each of these strategies.

If you’re struggling with the details of any of these sections, it might be helpful to research what other companies in your market are doing and how they’ve been successful. You can use this business information to inform your own strategies and plans.

Relevant Market Size & Competition

In the second stage of your analysis, you must determine the size and competition in your specific market.

Target Market Section

Your company’s relevant market size is the amount of money it could make each year if it owned a complete market share.

It’s simple.

To begin, estimate how many consumers you expect to be interested in purchasing your products or services each year.

To generate a more precise estimate, enter the monetary amount these potential customers may be ready to spend on your goods or services each year.

The size of your market is the product of these two figures. Calculate this market value here so that your readers can see how big your market opportunity is (particularly if you are seeking debt or equity funding).

You’ll also want to include an analysis of your market conditions. Is this a growing or declining market? How fast is it growing (or declining)? What are the general trends in the market? How has your market shifted over time?

Include all of this information in your own business plan to give your readers a clear understanding of the market landscape you’re competing in.

The Competition

Next, you’ll need to create a comprehensive list of the competitors in your market. This competitive analysis includes:

• Direct Competitors – Companies that offer a similar product or service
• Indirect Competitors – Companies that sell products or services that are complementary to yours but not directly related

To show how large each competitor is, you can use metrics such as revenue, employees, number of locations, etc. If you have limited information about the company on hand then you may want to do some additional research or contact them directly for more information. You should also include their website so readers can learn more if they desire (along with social media profiles).

Once you complete this list, take a step back and try to determine how much market share each competitor has. You can use different methods to do this such as market research, surveys, or conduct focus groups or interviews with target customers.

You should also take into account the barriers to entry that exist in your market. What would it take for a new company to enter the market and start competing with you? This could be anything from capital requirements to licensing and permits.

When you have all of this information, you’ll want to create a table like the one below:

Once you have this data, you can start developing strategies to compete with the other companies which will be used again later to help you develop your marketing strategy and plan. 

Writing a Market Analysis Tips

• Include an explanation of how you determined the size of the market and how much share competitors have.
• Include tables like the one above that show competitor size, barriers to entry, etc.
• Decide where you’re going to place this section in your business plan – before or after your SWOT analysis. You can use other sections as well such as your company summary or product/service description. Make sure you consider which information should come first for the reader to make the most sense.
• Brainstorm how you’re going to stand out in this competitive market.

Formatting the Market Analysis Section of Your Business Plan

Now that you understand the different components of the market analysis, let’s take a look at how you should structure this section in your business plan.

Your market analysis should be divided into two sections: the industry overview and market size & competition.

Each section should include detailed information about the topic and supporting evidence to back up your claims.

You’ll also want to make sure that all of your data is up-to-date. Be sure to include the date of the analysis in your business plan so readers know when it was conducted and if there have been any major changes since then.

In addition, you should also provide a short summary of what this section covers at the beginning of each paragraph or page. You can do this by using a title such as “Industry Overview” or another descriptive phrase that is easy to follow.

As with all sections in a business plan, make sure your market analysis is concise and includes only the most relevant information to keep your audience engaged until they reach your conclusion.

A strong market analysis can give your company a competitive edge over other businesses in its industry, which is why it’s essential to include this section in your business plan. By providing detailed information about the market you’re competing in, you can show your readers that you understand the industry and know how to capitalize on current and future trends.

Business Plan Market Analysis Examples

The following are examples of how to write the market analysis section of a business plan:

Business Plan Market Analysis Example #1 – Hosmer Sunglasses, a sunglasses manufacturer based in California

According to the Sunglass Association of America, the retail sales volume of Plano (non-prescription) sunglasses, clip-on sunglasses, and children’s sunglasses (hereinafter collectively referred to as “Sunwear”) totaled $2.9 billion last year. Premium-priced sunglasses are driving the Plano Sunwear market. Plano sunglasses priced at $100 or more accounted for more than 49% of all Sunwear sales among independent retail locations last year. 

The Sunglass Association of America has projected that the dollar volume for retail sales of Plano Sunwear will grow 1.7% next year. Plano sunglass vendors are also bullish about sales in this year and beyond as a result of the growth of technology, particularly the growth of laser surgery and e-commerce.

Business Plan Market Analysis Example #2 – Nailed It!, a family-owned restaurant in Omaha, NE

According to the Nebraska Restaurant Association, last year total restaurant sales in Nebraska grew by 4.3%, reaching a record high of $2.8 billion. Sales at full-service restaurants were particularly strong, growing 7% over 2012 figures. This steady increase is being driven by population growth throughout the state. The Average Annual Growth Rate (AGR) since 2009 is 2.89%.

This fast growth has also encouraged the opening of new restaurants, with 3,035 operating statewide as of this year. The restaurant industry employs more than 41,000 workers in Nebraska and contributes nearly $3 billion to the state economy every year.

Nebraska’s population continues to increase – reaching 1.9 million in 2012, a 1.5% growth rate. In addition to population, the state has experienced record low unemployment every year since 2009 – with an average of 4.7% in 2013 and 2014.

Business Plan Market Analysis Example #3 – American Insurance Company (AIC), a chain of insurance agencies in Maine

American Insurance Company (AIC) offers high-quality insurance at low prices through its chain of retail outlets in the state of Maine. Since its inception, AIC has created an extensive network of agents and brokers across the country with expanding online, call center and retail business operations.

AIC is entering a market that will more than double in size over the next 50 years according to some industry forecasts. The insurance industry is enjoying low inflation rates, steady income growth, and improving standards of living for most Americans during what has been a difficult period for much of American business. This makes this a good time to enter the insurance industry as it enjoys higher margins because customers are purchasing more coverage due to increased costs from medical care and higher liability claims.

American Insurance Company provides affordable homeowners, auto, and business insurance through high-quality fulfillment centers across America that have earned a reputation for top-notch customer service.

AIC will face significant competition from both direct and indirect competitors. The indirect competition will come from a variety of businesses, including banks, other insurance companies, and online retailers. The direct competition will come from other well-funded start-ups as well as incumbents in the industry. AIC’s competitive advantages include its low prices, high quality, and excellent customer service.

AIC plans to grow at a rate that is above average for the industry as a whole. The company has identified a market that is expected to grow by more than 100% in the next decade. This growth is due to several factors: the increase in the number of two-income households, the aging population, and the impending retirement of many baby boomers will lead to an increase in the number of people who are purchasing insurance.

AIC projects revenues of $20M in year one, which is equivalent to 100% growth over the previous year. AIC forecasts revenue growth of 40%-60% each year on average for 10 years. After that, revenue growth is expected to slow down significantly due to market saturation.

The following table illustrates these projections:

Competitive Landscape

Direct Competition: P&C Insurance Market Leaders

Indirect Competition: Banks, Other Insurance Companies, Retailers

Market Analysis Conclusion

When writing the market analysis section, it is important to provide specific data and forecasts about the industry that your company operates in. This information can help make your business plan more convincing to potential investors.

If it’s helpful, you should also discuss how your company stacks up against its competitors based on what makes it unique. In addition, you can identify any strengths or weaknesses that your company has compared to its competitors.

Based on this data, provide projections for how much revenue your company expects to generate over the next few years. Providing this information early on in the business plan will help convince investors that you know what you are talking about and your company is well-positioned to succeed.  

How to Finish Your Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

Other Resources for Writing Your Business Plan

How to Write a Great Business Plan Executive Summary How to Expertly Write the Company Description in Your Business Plan The Customer Analysis Section of Your Business Plan Completing the Competitive Analysis Section of Your Business Plan The Management Team Section of Your Business Plan Financial Assumptions and Your Business Plan How to Create Financial Projections for Your Business Plan Everything You Need to Know about the Business Plan Appendix Best Business Plan Software Business Plan Conclusion: Summary & Recap  

Other Helpful Business Planning Articles & Templates

What Is an Environmental Analysis for a Business?

by Billie Nordmeyer MBA, MA

Published on 5 Aug 2019

Business leaders can control aspects of the internal environment that can positively or negatively affect a company's operating and financial results. However, the greatest challenges to business success may be a consequence of the external environment over which company leaders have little, if any, control. To address these challenges, business leaders often conduct an environmental analysis and develop policies and processes that adapt company operations and products to this environment.

An environmental analysis looks at the industry and the political, economic, technical, cultural and other environments in which the business operates. The aim is to identify challenges facing the business, and opportunities it could exploit.

What is an External Environment?

The external environment consists of a general environment and an operating environment. The general environment consists of the economic, political, cultural, technological, natural, demographic and international environments in which a company operates.

The operating environment consists of a company's suppliers, customers, market intermediaries who link the company to its customers, competitors and the public.

Both the general and operating environments provide business opportunities, harbor uncertainties and generate risks to which a business must adapt.

For example, countries with large populations may coincide with a large market size for particular products. However, to offer its products in these markets, a company may be required to contend with a government that erects obstacles to trade in the form of tariffs, product standards and customs procedures.

Purpose of Environmental Analysis

Successful businesses adapt their internal environment – including human and financial resources, policies, technologies and operations – to the external environment. The company performs an environmental analysis to identify the potential influence of particular aspects of the general and operating environments on business operations.

This analysis identifies the opportunities and threats in a business environment in terms of a company's strengths and weaknesses.

For example, a company may consider the impact of operating in a communist country and the threats posed by government-controlled resources. A company might also consider the opportunities of a government-controlled market in terms of competing products, the implications of well-educated and well-paid consumers to product development and sales and the impact of the location of its primary suppliers in a country in economic crises.

Environmental Analysis Process

An organization relies on strengths to capture opportunities and recognize weaknesses to avoid becoming a victim of environmental threats. A company performs an environmental analysis to gain an understanding of these strengths, weaknesses, opportunities and threats.

The environmental analysis then influences corporate planning and policy decisions.

An environmental analysis is a three-step process in which a company first identifies environmental factors that affect its business. For example, the company might consider if a market is “difficult” because of its remote geographic location or the area's unfavorable economic conditions.

The company then gathers information about the selected set of environmental factors that are most likely to impact business operations. For example, the company might review government and industry reports and surveys that relay information about trade barriers that companies face in particular countries.

This information serves as input to a forecast of the impact of each environmental factor on the business. For instance, a company might project the volume of products likely to be sold in a country in light of existing poor economic conditions and significant trade barriers.

Limitations of Environmental Analysis

An environmental analysis reviews current environmental conditions to forecast a future business environment.

The static nature of the analysis ensures that unexpected environmental changes cannot be considered in a company's business projections. In addition, the environmental analysis is but one source of information that's evaluated as a company develops a strategic plan.

The benefit of the analysis is also limited by the reliability and timeliness of data used in the analysis. As a result, the analysis does not guarantee business success.

• Skip to content.
• Jump to Page Footer.

Strategic expansion: Canadian companies' roadmap to US capital success

Our latest guide will give you direct-application tools to help tap into the US funding market.

Environmental analysis (or PEST)—an element of your startup’s strategic plan

Researching a market? Our free online course Introduction to Market Sizing offers a practical 30-minute primer on market research and calculating market size.

An  environmental analysis , or PEST analysis, categorizes the changes and forces that affect your startup either directly or indirectly through your customers, suppliers and competitors. PEST is an acronym that stands for the Political, Economic, Social and Technological market forces. This type of analysis is usually conducted in the process of preparing a strategic plan, with the goal being to identify  threats and opportunities  for your business.

PEST is a common framework for conducting this macro-environmental scan that summarizes high-level trends as they relate to your  target customers ,  markets and technology. To perform an environmental, or PEST, analysis, answer the following questions:

1. What key political and regulatory developments are taking place now? How do these changes affect your market and customers? How do these trends affect your industry, suppliers,  partners  and customers? Focus your analysis on:

• tax regulations
• trade rules
• environmental legislation

2. Are economic changes affecting your company, your customers or your suppliers? Does this create opportunities, or does it threaten your market potential or your customers’ economy? Focus your analysis on:

• economic growth rate
• interest rates
• currency changes

3. What social and cultural changes are occurring? Focus on shifts in the demographic profile, any broad attitudinal changes, and any cultural trends that may impact the potential of your startup in the short and long term. Look for movement in:

• demographic trends such as birth rates, aging, and migration patterns
• attitudes towards healthy lifestyles, organic foods, the environment, and so forth
• attitudes on issues such as security, executive compensation, and anti-terrorism

4. What key technological trends impact your business? Consider also technology advances that affect your customers and suppliers. Do any of these changes create opportunities or threaten your potential? Focus your analysis on:

• specific technological breakthroughs
• the launch of innovative new products
• areas that undergo much research and development
• patents  that receive publicity

Schewe, C.D. & Hiam, A. (1998).  The Portable MBA in Marketing.  New York: Wiley.

Sign up for our monthly Startup Resources newsletter about building high-growth companies.

• Enter your email *

You may unsubscribe at any time. To find out more, please visit our Privacy Policy .

What is an environmental analysis in marketing?

Last updated

1 April 2024

Reviewed by

Marketing is a crucial component in any business. For businesses to succeed in any industry, they must be aware of various challenges, like competition, trends, new technology, and regulatory changes. 

That’s where environmental analysis comes in. It evaluates the opportunities and threats in a business environment, allowing businesses to make informed decisions. 

This article will explore environmental analysis, its purpose, and its techniques.

Market analysis template

Save time, highlight crucial insights, and drive strategic decision-making

• What is an environmental analysis?

An environmental analysis is a strategic tool that businesses use to evaluate the internal and external factors that impact their operations. 

An analysis looks at factors like: 

Technological

This provides businesses with vital information that influences their marketing strategies.

Another important factor is social trends. Businesses need to be aware of changes in societal values and attitudes toward certain issues. For example, a beauty company may need to adjust its marketing strategy in response to the growing trend toward natural, organic products.

Technological advancements are also a crucial element in an environmental analysis. We saw the rise of e-commerce and mobile devices shift the business landscape, so it’s crucial to be aware of emerging technologies that could impact operations. 

They also need to consider how they can use technology to their advantage, such as developing new products or improving their supply chain management.

Legal and political factors are another critical consideration. Regulation changes can significantly impact businesses, particularly those operating in highly regulated industries such as healthcare or finance. 

Companies need to stay on top of legislation changes and adapt their operations accordingly.

Considering economic, social, technological, legal, and political forces means companies can make informed decisions about their marketing strategies and overall business operations.

• What is the purpose of environmental analysis?

An environmental analysis primarily aims to evaluate a business's external environment to identify opportunities and threats. With this information, a business can create a roadmap with strategies that take advantage of the opportunities and mitigate the threats. 

An environmental analysis also allows businesses to remain competitive by identifying technology, consumer, and market trends .

Environmental analysis is a critical component of strategic planning. It helps businesses understand their current position in the market and identify potential risks and opportunities. Analyzing the external environment means businesses can develop effective strategies to achieve their goals and objectives.

As we mentioned earlier, businesses must consider several factors when conducting an environmental analysis:

Political factors may include policies and regulations that impact the business.

Economic factors may include inflation, interest rates, and exchange rates.

Social factors may include cultural norms, beliefs, and demographic trends, such as population growth and aging.

Technological factors may include advancements in technology and innovation. 

Legal factors may include laws and regulations that impact the business.

Environmental factors may include climate change and natural disasters.

A comprehensive understanding of the external environment can help businesses implement effective strategies to achieve their goals and objectives.

• Environmental analysis techniques

Businesses can use several techniques to conduct an environmental analysis, which we can broadly categorize as quantitative and qualitative. 

Quantitative techniques involve mathematical models, surveys , and statistical methods to collect and analyze data. 

Qualitative techniques use interviews , focus groups , and expert judgment to gather opinions, attitudes, and perceptions.

Quantitative techniques

One of the most common quantitative techniques for environmental analysis is statistical analysis. Statistical analysis involves using mathematical models to analyze data and identify patterns and trends. This technique is handy for analyzing large data sets and identifying correlations between variables.

Another quantitative technique for environmental analysis is surveys. They’re a powerful tool for collecting data from many people. Businesses can conduct surveys online, over the phone, or in person. Survey data can identify trends and patterns in the external environment.

Qualitative techniques

One of the most common qualitative techniques for environmental analysis is expert interviews. Expert interviews involve gathering the opinions and perceptions of experts in a particular field. This technique is particularly useful for identifying emerging trends and potential threats.

Another qualitative technique in environmental analysis is focus groups. These involve gathering a small group of people to discuss a particular topic. The data from focus groups can identify attitudes and perceptions toward a particular product or service.

PESTLE analysis

PESTLE analysis is a commonly used technique for environmental analysis. 

PESTLE stands for: 

T echnological

E nvironmental

PESTLE analysis involves delving into these factors to identify potential opportunities and threats in the external environment.

SWOT analysis

SWOT analysis is another common technique for environmental analysis. 

SWOT stands for: 

W eaknesses

O pportunities

SWOT analysis involves identifying the strengths and weaknesses of a company and the opportunities and threats in the external environment.

Industry analysis

Industry analysis looks at the external environment of an industry. This technique is particularly useful for identifying potential opportunities and threats in the external environment. Industry analysis involves analyzing factors such as competition, market size, and market trends.

Competitor analysis

Competitor analysis involves analyzing the external environment of a company's competitors. This technique is beneficial for identifying potential threats in the external environment. Competitor analysis involves analyzing factors such as market share, product offerings, and pricing strategies.

Competitor analysis templates

What is an environmental analysis example.

For instance, if a business sells environmentally friendly products, it may conduct an environmental analysis to determine how government regulations may impact its operations. 

The business may evaluate the political forces to determine whether the government intends to tighten regulations or introduce new ones. It may also investigate the legal forces to check the existing regulations related to environmental issues. 

Benefits of environmental analysis

An environmental analysis offers numerous benefits to businesses:

Gaining a clear understanding of their market position and strengths and weaknesses

Identifying emerging trends and acting before their competitors gain an edge

Remaining competitive by understanding the ever-changing business environment

Limitations of environmental analysis

However, it's worth noting that environmental analysis has its limitations, including: 

It’s impossible to predict the future with certainty, so there’s always a risk of unforeseen events affecting business operations, regardless of a detailed environmental analysis.

The cost and time to conduct an environmental analysis may be challenging for businesses that lack resources.

Environmental analysis is an important tool that businesses need to master. Evaluating external forces and identifying opportunities and threats means businesses can make informed decisions and remain competitive. 

While not foolproof, environmental analysis is still worth conducting to stay ahead of emerging trends and protect businesses from unforeseen events.

Should you be using a customer insights hub?

Do you want to discover previous research faster?

Do you share your research findings with others?

Do you analyze research data?

Start for free today, add your research, and get to key insights faster

Editor’s picks

Last updated: 3 April 2024

Last updated: 30 April 2024

Last updated: 13 May 2024

Last updated: 22 July 2023

Latest articles

Related topics, .css-je19u9{-webkit-align-items:flex-end;-webkit-box-align:flex-end;-ms-flex-align:flex-end;align-items:flex-end;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:row;-ms-flex-direction:row;flex-direction:row;-webkit-box-flex-wrap:wrap;-webkit-flex-wrap:wrap;-ms-flex-wrap:wrap;flex-wrap:wrap;-webkit-box-pack:center;-ms-flex-pack:center;-webkit-justify-content:center;justify-content:center;row-gap:0;text-align:center;max-width:671px;}@media (max-width: 1079px){.css-je19u9{max-width:400px;}.css-je19u9>span{white-space:pre;}}@media (max-width: 799px){.css-je19u9{max-width:400px;}.css-je19u9>span{white-space:pre;}} decide what to .css-1kiodld{max-height:56px;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-align-items:center;-webkit-box-align:center;-ms-flex-align:center;align-items:center;}@media (max-width: 1079px){.css-1kiodld{display:none;}} build next, decide what to build next.

Users report unexpectedly high data usage, especially during streaming sessions.

Users find it hard to navigate from the home page to relevant playlists in the app.

It would be great to have a sleep timer feature, especially for bedtime listening.

I need better filters to find the songs or artists I’m looking for.

Log in or sign up

Get started for free

Environmental Analysis: Steps, Examples & Benefits

A business environment refers to all the external and internal factors that affect its operation. It comprises economic, social, political, financial, and institutional elements. 

Environmental analysis helps a business identify its strengths, weaknesses, threats, and opportunities so organizations can operate efficiently.

What Is Environmental Analysis?

Environmental analysis refers to the study of external factors that impact a business. In this analysis, analysts study the economic conditions, financial position, political landscape, technical advancements, etc. 

Companies develop strategies after studying external factors. This improves business performance and optimizes operations. Analysts examine external factors, identify issues, and derive solutions.

Environmental Analysis Techniques 

1- pestle .

PESTLE analysis is the study of macroeconomic factors that impact a business. It helps enterprises make decisions after analyzing the external environment. Through PESTLE analysis, businesses can understand the overall industry sentiment. It provides future predictions about where the business is headed. 

It consists of six elements:

• Political factors that analyze a country’s political environment. It studies international relations, geopolitics, national and international politics. This helps the business understand how the country’s political environment can affect the business. Government policies and regulations are also studied in this analysis. 
• Economic factors study the economy. It provides businesses with information about where the economy is leading. It explores economic factors like GDP, unemployment, and the forex rate. A positive economic condition is beneficial for business operations. 
• Social factors such as values, people’s mindsets, norms, and traditions impact the business. The business’s sales, revenue, and income depend on human beings. Hence, social factors directly impact them. This includes wealth distribution, lifestyle, gender, and more.
• Technological factors refer to the advancement of industry or country. Advanced technology positively affects a business. The environmental analysis investigates discoveries, innovative technologies, etc., and increases operational efficiency.
• Legal factors such as regulations change over time. A business is impacted by the laws put in place by the government. If not, they can be sanctioned for violating the rules. Unfortunately, as regulations are stricter, the business process is weakened and slowed down. 
• Environmental factors like weather, climate, location, and waste disposal impact all businesses. How companies use a certain resource or product defines the implications of environmental analysis. 

2- SWOT 

SWOT analysis helps businesses understand their strengths, weaknesses, opportunities, and threats. These factors help understand where the business stands and where it is headed. It provides the analysts with a framework for what needs to be done next. 

It consists of two elements:

• Internal factors , aka strengths and weaknesses, are influenced by the business and can control these factors. A business’s strength can be the brand name or a lack of substitute products. A weakness can be inadequate product development. Both these factors are caused internally. 
• External factors , aka opportunities and threats, are outside of the business influence. The business has no control over them, and the factors occur independently. For example, a business threat is the presence of several competitors. An opportunity can be a drop in tariffs for import/export. Hence, the business has no control over the factors but is impacted by them.

Benefits of Environmental Analysis 

1- helps in forecasting .

Environmental analysis helps businesses understand where they stand and where they can be. This helps in forecasting future trends and market conditions. By doing this, businesses can make decisions that benefit them in the long term. 

2- Enables Achieving Business Objectives 

When a business adjusts its strategies based on environmental analysis, it moves closer to success. They can attain their goals by formulating strategies based on the analysis. 

3- Makes Business Aware of the Market 

With environmental analysis, businesses are in constant touch with the market. This helps businesses understand what is happening in the industry, allowing them to react and adjust to market demands and achieve corporate objectives. Additionally, businesses change their stages based on market requirements. 

4- Anticipate Opportunities and Threats

The environmental analysis makes organizations aware of business opportunities and threats. Companies can then respond to the opportunities and manage threats. This helps the firms gain a competitive advantage in the market. 

5- Understand the Causes of Disequilibrium

With the fast-changing environment and dynamic industry, a business can witness disequilibrium. Environmental analysis helps firms to identify the reasons behind this disequilibrium. Thereof, analysts can devise solutions to bring the business back into equilibrium. 

Limitations of Environmental Analysis 

1- does not warn against unforeseen events.

The environmental analysis does not warn businesses against unforeseen or adverse events. It does help businesses forecast future trends. However, it does not help eliminate the uncertainty. Through this analysis, businesses cannot avoid unexpected events that occur during analysis. Though, it does decrease the frequency of such shocks to occur. 

2- Does Not Follow a Strategic Approach 

Businesses can build strategies based on environmental analysis. However, the analysis itself does not follow a strategic risk-taking approach. This means it leads the businesses to operate cautiously and has no rigid strategy. 

3- Not Independently Reliable

The environmental analysis provides businesses with solutions but is not independently reliable. This means that businesses must conduct other analyses as well to confirm solutions. If an analyst only decides based on environmental analysis, it may or may not work in the business’s favor. However, when an environmental analysis is combined with other strategic approaches and analyses, the results are more reliable. 

4- Does Not Guarantee Effectiveness 

Environmental analysis is conducted to improve business effectiveness and operations. However, it does not guarantee the same. The analysis acts as an input in the strategy to develop an output. Hence, it is not advised to trust a single study to build organizational effectiveness critically. The data’s verifiability and accuracy must be confirmed to ensure ideal outcomes. If the data is not accurate, reliable, and verified, it may lead businesses to make wrong decisions. 

5- Creates Confusion

The environmental analysis focuses on too much business information at once. It considers both the advantages and disadvantages of a business. This may lead to confusion amongst analysts. The more information on hand, the more challenging to derive a solution. Hence, the abundance of information acts as a hindrance to solving issues. 

Steps To Conduct Environmental Analysis 

1. identify factors .

The first step in conducting an environmental analysis is to select the factors needing evaluation. These factors can be legal, social, technical, economical, or more. The factors for analysis depend on the industry the business belongs to. For example, an IT business focuses more on technical aspects. A healthcare business would want to analyze its legal factors. When analysts select the factors they plan to anatomize; they ensure the ones impacting the business are chosen. 

2. Critically Examine the Factors 

After choosing the factors, analysts examine them. Information is collected related to all these factors. Analysts research and observe the factors. They can either collect information verbally or in writing. 

Verbal information is collected through observation and note-taking. In contrast, written information is collected by reading and examining. Analysts can use online resources or read print magazines, journals, and books to research what will impact the business. 

3. Scan Competitors 

Analysts then scan the competitors and evaluate their position in the industry. This helps them determine threats and opportunities for the business. Analysts collect information about competitors in traditional or nontraditional ways. 

The traditional way of collecting information is through primary or secondary sources. A non-traditional way of collecting information is through spying. They learn the new events with competitors, so they implement the same in their businesses. Businesses also learn from other business mistakes and avoid them. This helps in increasing business effectiveness and efficiency. 

4. Evaluate Organizational Impacts

Once analysts know what other rival firms are doing, it is time to evaluate organizational impacts. This is done through forecasting. With forecasting, they can predict how certain factors impact a business. This helps in identifying threats, opportunities, weaknesses, and strengths. 

Analysts use brainstorming, surveying, and more to forecast the impact. Forecasting can also be done based on competitors and how they may impact the business. Decisions are taken based on such impacts for the betterment of the business. 

5. Devise A Plan

After evaluating organizational impacts, analysts devise a plan after surveying all environmental factors. The plan consists of problem statements and solutions focusing on bettering business operations and productivity. Through this plan, businesses can achieve their core objectives. 

6. Implement the Strategy 

After the analysts devise the plan, it is finally time to implement the strategy. The plan consists of solutions that the business must use to enhance efficiency. These solutions are factor-driven, meaning there is a specific solution for each problem concerning a particular factor. Once the strategy is implemented, businesses can use the opportunities and avoid threats. 

Example of an Environmental Analysis 

Consider Mr. X an analyst at ABC Pvt. Ltd., a financial services firm. The recent developments in the financial industry lead Mr. X to conduct an environmental analysis. Since technological advancements drive the financial sector, Mr. X decides to do a PESTLE analysis. 

In this analysis, Mr. X considers the political, economic, social, technological, legal, and environmental aspects. However, he focuses on the technical aspects more. He compares the technological advancements happening in other companies in the same industry. 

The results show the emerging technical sound service advancements. It shares that robust chatbots in financial services help increase business profitability. Since ABC Pvt. Ltd. does not have a powerful chatbot yet, Mr. X decides to build one. The solution from the analysis states that strengthening their after-sales services through technical advancements is needed. Once that is done, the business witnesses a 15% jump in revenue and profitability. Hence, the analysis is deemed successful.

Final Words

Environmental analysis helps organizations understand internal and external factors affecting the business. The strategic tool successfully assesses all factors affecting the business. It identifies problems and what needs to be done to solve them. This results in attaining business objectives. 

The environmental analysis process is lengthy and requires much time. However, the solution derived from the process improves organizational performance. Businesses can benefit from efficient strategies that help in enhancing operations. This results in increased revenue and business profitability.

Leave a Comment Cancel reply

• Search Search Please fill out this field.
• Building Your Business
• Becoming an Owner
• Business Plans

How to Write The Industry Section of a Business Plan

Writing a Business Plan: Section 2

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

Geber86 / Getty Images

When writing a business plan, the Industry section is best organized as two parts: an overview of the industry and a summary of your business's position within the overall industry.

Before writing this section of the business plan, use these questions to focus your research:

• What is the size of your industry?
• What sectors does this industry include?
• Who are the major players in this industry?
• What are the markets and customers for this industry?
• What are the industry's estimated sales this year? Last year? The year before?
• What national and economic trends have affected this industry and how?
• What national and economic trends might affect it in the future and how?
• What is the long-term outlook for this industry?
• What products or services will your business be selling?
• What is your Unique Selling Proposition? (What is it about your business that makes it unique and sets it apart from competitors?)
• What are the barriers to entry in your industry?
• How will you overcome these barriers?
• Who are your competitors?
• What is the market share of your competitors?
• What is your business's competitive advantage (i.e., your market niche or estimated market share)?
• What is your target market?
• How are you protecting your product or process (i.e., patents, copyrights, trademarks, franchise rights that you either hold or plan to acquire)?

Once you have all this information, you'll write this section of the business plan in the form of several short paragraphs. (Remember, each of these paragraphs is a summary, not a detailed point-by-point explanation.) Use appropriate headings for each paragraph. 

Finding Information on Your Industry

But where do you find the information that you need for writing the Industry Overview section of your business plan?

United States Research

In the United States, you may want to start your research by reviewing information from the U.S. Census Bureau, Industry Statistics Portal. This site provides data for selected industries separated into categories using the North American Industry Classification System (NAICS). The Bureau of Labor Statistics also offers a large selection of information grouped by NAICS industry.

There are also other sources of information—some free and some paid sources—including IBIS World, Select USA, and the U.S. the Department of Commerce Bureau of Economic Analysis.

Canadian Research

When you're writing a business plan and looking for information on Canadian industries, Industry Canada is your logical first stop. Their Find Statistics by Industry  page lets you see key economic indicators for different sectors of the Canadian economy, access industry profiles, and analysis and research small businesses in Canada generally.

Another primary source for industry and economic information that you can easily access online when you're writing a business plan is Statistics Canada. From this homepage you can find a wealth of free statistical information; use this page, to search for Statistics Canada publications back to 1980.

There are also provincial statistics websites where you'll be able to find more economic, social, and demographic statistics relating to your industry and the business environment.

The Canada Business Service Centres located in each province also offer excellent collections of resources online, and telephone and email information services. You'll find a list of links to the Canada Business Service Centre in each province in my Provincial Programs and Services Resources.

The business sections of national newspapers and business magazines will also be helpful; these often carry features on the past and future business trends.

And don't forget your local sources of business information when you're researching your business plans, such as your Economic Development Centre, Chamber of Commerce, or Women's Enterprise Centre, or the business section of the local library.

Doing Business Plan Research

If your business is related to manufacturing when you're writing a business plan begin by determining the NAICS of your particular industry, and the sector and sub-sector if applicable. It will make it easier for you to find statistical information relating to your industry. If your business is a service, begin with Industry Canada's service industry profiles.

Refer to the list of questions earlier in this article on how to write a business plan as a research guide. Whenever you find a piece of information that you want:

• Check its date and determine whether or not the information is current enough to be valid;
• Write down the date and source of the information, as you'll need to cite your information sources in the business plan.

When you're writing a business plan, you want your research information to be as up-to-date as possible. After all, there's no point in starting a business if you don't want it to succeed.

• Marketing Strategy
• Five Forces
• Business Lists
• Competitors
• Marketing and Strategy ›

Industry Environment Analysis - Meaning, Importance & Example

What is industry environment analysis.

Industry Environment Analysis is a study or exercise done to assess the current industry environment. This exercise helps understand the various aspects and predict trends of the industry better, and helps in many other ways. Generally, industry analysis is done by external research agencies, consulting firms or businesses themselves.

Importance of Industry Environment Analysis

To be successful in any business, the ecosystem or the environment of business, industry, geography, trends should be well understood. To understand this, proper study and analysis of the industry environment has to be performed.

The major objectives of such industry environment analysis are:

-          To identify key success factors of that industry

-          To assess attractiveness and growth prospects for entry

-          To formulate competitive strategy

-          To study changes over time and predict trends

The industry environment is composed of the following stakeholders, around which analysis is done. Namely: Competitors, Suppliers and Buyers. There are also other major considerations like the political, legal, technological aspects which are a part of the environment analysis.

To analyze these aspects of the industry, models such as PEST/PESTEL, and PORTER’s 5 forces have been developed. 

A successful industry environment analysis will tell about the important factors like customers, suppliers/vendors, competitive landscape etc. which is critical for business success. If a business doesn't understand and assess the environment then the risk of failing is high. It is equivalent to entering a market without planning or strategy. The changes of being successful would be then chance based and not based on any plan.

• Political Environment
• Task Environment
• Cultural Environment
• External Environment Analysis
• Environmental Scanning

Examples of Industry Environment Analysis

Let us look at the automobile industry.

PEST and PESTEL are two models used to analyze political, legal, economic, social, environmental and technological factors pertaining to that particular industry.

Example: PEST analysis for the automobile industry

Porter’s 5 forces analysis is done to study aspects like Suppliers, Buyers, Competitors, new potential entrants and substitutes of that industry.

Example: Porter’s 5 force analysis for automobile industry:

Hence, this concludes the definition of Industry Environment Analysis along with its overview.

This article has been researched & authored by the Business Concepts Team . It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 1800 business concepts from 5 categories.

Continue Reading:

• Sales Management
• Market Segmentation
• Brand Equity
• Positioning
• Selling Concept
• Marketing & Strategy Terms
• Human Resources (HR) Terms
• Operations & SCM Terms
• IT & Systems Terms
• Statistics Terms

What is MBA Skool? About Us

MBA Skool is a Knowledge Resource for Management Students, Aspirants & Professionals.

Business Courses

• Operations & SCM
• Human Resources

Quizzes & Skills

• Management Quizzes
• Skills Tests

Quizzes test your expertise in business and Skill tests evaluate your management traits

Related Content

• Inventory Costs
• Sales Quota
• Quality Control
• Training and Development
• Capacity Management
• Work Life Balance
• More Definitions

All Business Sections

• Business Concepts
• SWOT Analysis
• Marketing Strategy & Mix
• PESTLE Analysis
• Five Forces Analysis
• Top Brand Lists

Write for Us

• Submit Content
• Privacy Policy
• Contribute Content
• Web Stories

Environment Go!

The Environment | Nature | Humans

Environmental Analysis, Types, Techniques, Importance, and Examples

Organizations can find internal and external factors that could have a positive or negative impact on their business by conducting an environmental study.

Through the examination of variables like technology and economics, firms can predict future opportunities as well as risks but developing your environmental analysis skills will enable you to create a corporate marketing plan that works.

This page defines an environmental analysis, explains its use, and walks readers through the environmental analysis procedure.

Table of Contents

What is Environmental Analysis?

A strategic tool for identifying and evaluating the internal and external components of a corporate environment is an environmental analysis, sometimes known as an environmental scan.

It looks at aspects of the industry and organizations that can have a good or bad impact on the company and its success. Anticipating both immediate and long-term effects allows the organization to be ready to react quickly when problems arise.

Organizations can identify elements that may have an impact on their business operations with the use of an environment study. They can predict the future course of their firm under the current conditions by evaluating these factors. They can create a plan that minimizes risks and seizes chances thanks to this method.

Strategic planning sessions benefit from the inclusion of an environmental study, which gives organizations a methodical approach to decision-making. In this manner, businesses can accomplish their objectives and raise the bar on their performance.

The two main parts of an environmental analysis are external variables and internal factors. They will be covered in detail in this section.

1. Internal Factors

These elements require organizations to examine themselves. Based on the organization’s goal and vision, they assess its strong and weak elements. These elements also enable companies to evaluate their goals and course of action after a predetermined amount of time, such as five or 10 years.

2. External Factors

Conversely, external variables are high-level influences that are not part of the organization. Businesses need to assess the potential and risks associated with the following areas, according to SHRM:

• Market and industry developments
• The advantages and disadvantages of the competition
• Clientele—both your clientele and your customer support
• Economic factors that can affect an organization
• Labor supply, labor markets in the regions of operation;
• Technology, technological breakthroughs that help expedite operations;
• Politics, and legal situations

Types of Environmental Analysis

PESTLE and SWOT analyses are the two most used forms of environmental analysis techniques. These methods assist companies in evaluating their strategic positioning in light of several internal and external variables. Continue reading to discover these techniques.

PESTLE Analysis

The PESTLE study, also known as the PEST analysis in short, looks at the external factors that can have a bigger impact on a firm. Based on broad trends in the market, consumers, technology, and other areas, it gives businesses insights into the state of the industry.

Six essential components make up the PESTLE approach, which provides a thorough understanding of the macro environment of the business:

• Technological
• Environmental

1. Political

Political factors examine the country’s current political situation. This frequently entails assessing whether the government is stable or likely to change shortly. Political elements to consider are as follows:

• Government policies
• Trade restrictions

2. Economical

Businesses frequently include economic issues, or the state of the economy at the time, when doing an environmental analysis. This enables them to formulate strategies according to the apparent trajectory of the economy.

For example, a business may believe the economy is doing well and contemplate building another branch if the unemployment rate is low. The following other economic elements should be considered in your review:

• Interest rate,
• Inflation rate,
• Foreign currency rate,
• Credit accessibility.

A nation’s social aspects are its attitudes, which can affect business. For example, people in some cultures follow a diet prescribed by their faith. The sales of particular foods in that area might be impacted by this. Among the social aspects are, for instance:

• Family structure
• Gender roles
• Distribution of wealth
• Education levels

4. Technological

Innovations and technological breakthroughs have the potential to alter how a firm operates. This could have a favorable effect on some businesses’ operations by using automation to expedite creation. But certain jobs may also be replaced by technology. The following technological aspects should be considered in your analysis:

• New product discoveries and launches;
• Rate of technological advancements;
• Consumer access to technology;
• Technology incentives.

Legislative changes that could affect a business’s environment are examined by legal aspects. An industry may be impacted when regulatory organizations impose new rules, as in the case of the healthcare sector. A few legal considerations are:

• Employment laws;
• Health and safety legislation;
• Patent infringements;
• Product restrictions;
• Employment Laws

6. Environmental

Environmental aspects consider the potential effects of a business’s location. A specific area’s conditions may affect trade. Things to take into account when reviewing the environment are:

• Weather conditions
• Waste disposal laws
• Energy consumption regulations
• Environmental policies

SWOT Analysis

The SWOT analysis evaluates an organization’s strategic position by taking into account both internal (strengths and weaknesses) and external (threats and opportunities) factors.

It reveals the benefits and drawbacks of a business based on its strong and weak characteristics. By doing this, businesses may create a plan that minimizes risks and optimizes opportunities.

The following components make up the 2×2 matrix used in the SWOT method:

• What advantages does your business provide?
• What special or affordable resources are available to you that are not available to others?
• In your market, what skills do clients think you possess?
• What qualities lead one to “win business”?
• What could you alter?
• What should you avoid doing?
• What shortcomings is your economy most likely to perceive in you?
• What factors are involved in the downturn of your business?

Opportunities

• What promising opportunities do you see?
• What intriguing patterns are you aware of?
• What difficulties do you face?
• What are your competitors doing?
• Is the rapid advancement of technology putting your employment at risk?
• Do you struggle with the financial flow or bad debt?

SWOT analysis can help a business challenge performance assumptions and reveal dangerous weaknesses. If a firm uses it carefully and cooperatively, it can offer new insights into where it is at and help it create the best plan of action for any situation.

Process of Environmental Analysis

While doing an environmental scan has no set guidelines, following these stages will help you get the most out of the process. An environmental analysis is a methodical approach to identifying the elements that impact your company and its operations.

• Identify the environmental factors
• Gather data regarding these variables
• Check the competitors
• Determine the impacts on the organization
• Create a tactical plan

1. Identify the environmental factors

A list of the variables to be assessed is the most important prerequisite for an environmental study. These variables will vary based on the industry and region of your company.

Micro- and macroenvironmental elements that affect their operations both temporarily and permanently should be on this list. A mining business, for instance, may describe the most recent developments in their sector and local environmental laws.

2. Gather data regarding these variables

The next stage is to collect data about the environmental factors that have been described. To ensure the material is current and relevant, you might consult a variety of sources.

You can look at your factors and conduct some studies here. Written and verbal information are the two primary categories of data that need to be gathered.

People read newspapers or magazines to receive written information, while they listen to radio broadcasts or other spoken forms of communication such as radio broadcasts.

Using the aforementioned example, this would entail looking up any updates to health and safety laws online and in medical periodicals to determine whether they would affect your medical facility.

3. Check the competitors

When doing an environmental scan, you look beyond the financial standing of your company. It’s also important to research the performance of your rivals. A competitor study can assist you in identifying potential risks to your company as well as chances to differentiate yourself from the competition.

4. Determine the impacts on the organization

You can now use the environmental data you’ve gathered to forecast potential effects on your business. By taking this step, you set your expectations and may be ready for whatever may happen should these variables materialize. When evaluating risks and their effects, it’s critical to consider the following:

• What effects does this factor have on your company?
• How much time will this last?
• Will this have a positive, negative, or no effect on the business?
• How significant is this component to the general operations of the business?

5. Create a tactical plan

You can come up with ideas and create strategies for potential changes resulting from these elements in the last phase. It entails evaluating the strategic plans you now have and making necessary adjustments in light of the knowledge you have gained about your company’s surroundings. In addition, you can list actions to reduce risks and increase possibilities.

Example of Environmental Analysis

Think of Mr. X as an analyst for the financial services company ABC Pvt. Ltd. Mr. X decided to perform an environmental analysis in response to the latest happenings in the financial business. Given that technology advancements drive the finance industry, Mr. X decided to conduct a PESTLE analysis.

Mr. X takes into account the political, economic, social, legal, and environmental elements in this analysis. He does, however, pay more attention to the technical details. He makes comparisons between the technological developments occurring in other businesses within the same industry.

The findings demonstrate the new developments in sound technological services. It reveals how reliable chatbots in the financial services industry boost company profitability. Mr. X decided to construct a strong chatbot because ABC Pvt. Ltd. does not currently have one.

According to the analysis’s answer, they must improve their after-sales services by advancing technology. After that is finished, the company’s revenue and profitability increase by 15%. The analysis is therefore considered successful.

Importance of Environmental Analysis

The following are some benefits of conducting environmental analyses for organizations:

• Identify opportunities: Organisations can identify emerging trends and opportunities to enter new markets or develop new goods or services by observing the outside world.
• Identify threats: It assists companies in identifying risks to their operations, such as emerging rivals, altered laws, or a faltering economy.
• Develop strategies that work: When organizations know how the external environment impacts their operations, they can develop strategies that work and align with their aims and objectives.
• Prepare for change: Environmental scanning assists companies in anticipating external changes and developing contingency plans for them.
• Make smarter decisions: By learning more about the external issues affecting their business, organizations can make more informed decisions.

An organization must do an environmental analysis if it hopes to succeed and remain competitive in the ever-evolving commercial world. It assists them in seizing opportunities, reducing risks, and formulating sound plans that result in expansion and prosperity.

Environmental Analysis in Marketing

Business developers and marketers utilize environmental analysis as a strategic tool to pinpoint the internal and external, controllable and uncontrolled aspects that affect an organization’s performance.

The term “marketing environmental analysis” refers to all non-marketing variables that have an impact on a company’s capacity to establish and preserve fruitful customer connections. A company can find opportunities and strengths and lessen threats and weaknesses by performing a marketing environment analysis.

In marketing, environmental study typically comes before any marketing strategy. The results of the marketing environmental study will be taken into account and used as a guide to help develop and improve the optimal business plan.

Through the continuous observation of the variables influencing the marketing landscape, marketers can anticipate shifts, seize opportunities, and fine-tune their business plans to achieve superior outcomes.

Analysis of the marketing environment is essential to a company’s success. This aids in recognizing every component linked to the enterprise and the functions that each of these components fulfills in the enterprise’s triumph.

For every business to succeed in the long run, environmental analysis in marketing is therefore not just necessary but also required.

Business Environmental Analysis

Analysis of a business’s external environment is the study of those external influences. This covers a variety of topics, such as the state of politics, the economy, the technology sector, and more. A business can create strategies to maximize its success in this environment by knowing these aspects.

The organizational and industrial elements that have a positive or negative impact on the firm are examined in this environmental analysis. Organizations can quickly address them when they arise by assessing the short- and long-term effects.

Understanding environmental analysis is a crucial skill for organizations. Businesses can make educated decisions and maintain their competitiveness by assessing external influences and recognizing opportunities and challenges.

Even if it’s not infallible, environmental analysis is nonetheless valuable for keeping up with trends and safeguarding companies against unanticipated disasters.

Recommendations

• Hydroponic Farming – Advantages, Disadvantages & Environmental Impact .
• 10 Leading Environmental Impacts of Vegetarianism .
• 12 Worst Environmental Impacts of Solid Waste .
•  7 Deadly Environmental Impacts of Soil Erosion .
• 8 Environmental Ethics Issues and Possible Solutions .
• 14 Intelligent Ways to Raise Awareness about Environmental Issues

Providence Amaechi

A passion-driven environmentalist by heart. Lead content writer at EnvironmentGo. I strive to educate the public about the environment and its problems. It has always been about nature, we ought to protect not destroy.

• Providence Amaechi https://environmentgo.com/author/amaechi-providence/ Overpopulation in Lagos State: Impacts and Possible Remedies
• Providence Amaechi https://environmentgo.com/author/amaechi-providence/ 3 Environmental Services in a Hospital
• Providence Amaechi https://environmentgo.com/author/amaechi-providence/ 19 Environmental Startups in Boston
• Providence Amaechi https://environmentgo.com/author/amaechi-providence/ Environmental Accounting, Types, Objectives, Examples
• Environment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Notify me of follow-up comments by email.

Notify me of new posts by email.

Recent Posts

• Overpopulation in Lagos State: Impacts and Possible Remedies
• 10 Best Practices for an Eco-Friendly Building Foundation
• Top 10 Longest-Living Moth Species (Photos)
• 5 Negative Environmental Impacts of Soy Milk
• Best Business Practices for Sustainable Landscaping

Free Industry Analysis Templates: 5 Types, Multiple Formats

By Kate Eby | August 10, 2023

• Share on Facebook
• Share on LinkedIn

Link copied

We’ve collected the most effective industry analysis templates for small business owners, marketers, and business analysts. Use these templates to gain an understanding of competitors, along with the current state and future trends of your industry. 

Included on this page, you’ll find a strengths, weaknesses, opportunities, and threats (SWOT) template , a political, economic, social, and technological (PEST) template , a Porter’s five forces analysis template , a seven forces model by Thompson and Strickland template , and a structure-conduct-performance paradigm template . 

You’ll also learn about the different types of industry analysis, how to conduct an industry analysis , why industry analysis is important , and what are the objectives of industry analysis .

Basic Industry Analysis Template

Download a Basic Industry Analysis Template for Excel | Microsoft Word | PowerPoint | Adobe PDF

Ensure that marketers, analysts, and other stakeholders are aware of your industry-analysis findings with this basic industry analysis template. List each of your competitor’s strengths and weaknesses to help you make informed decisions and develop effective strategies to win key market share in your industry. Use this template to guide business decisions, such as determining which products or services to offer, how to position the company in the market, and which marketing tactics you should employ.

SWOT Analysis Template

Download a SWOT Analysis Template for  Excel | Microsoft Word | PowerPoint | Adobe PDF

SWOT analysis is a valuable tool for any company looking to improve its strategic planning and decision-making capabilities. By completing this SWOT analysis template, you’ll be on the road to increasing your competitiveness with improved research, enhanced decision-making, and effective strategic planning. Use this SWOT analysis template as a strategic planning tool to help your organization identify your internal strengths and weaknesses, as well as external opportunities and threats (SWOT). 

For free resources and templates related to SWOT analysis, check out our strategic marketing planning guide . 

For more SWOT templates and resources, see our collection of free SWOT templates .

PEST Analysis Template 

Download a PEST Analysis Template for  Excel | Microsoft Word | PowerPoint | Adobe PDF

A political, economic, social, and technological (PEST) analysis is useful for assessing the external environment and identifying potential opportunities and threats. By understanding the impact of PEST factors on your business, you can develop effective strategies and mitigate risks. Completing this PEST analysis template will help you assess any external factors that might impact your organization’s effectiveness and advantages compared to the competition. 

For more resources and expert tips, see this article with free PEST analysis templates .

Porter’s Five Forces Analysis Template

Download a Porter’s Five Forces Model Template with Sample Text for  Excel | Microsoft Word | PowerPoint | Adobe PDF

Download a Blank Five Forces Model Template for  Excel | Microsoft Word | PowerPoint | Adobe PDF   

Use this Porter's five forces analysis template for evaluating the competitive forces at work within your industry, including the threat of new entrants, the bargaining power of suppliers and buyers, the threat of substitutes, and competitive rivalry. For help in completing the template, download the template with sample text. Strategic managers use this analysis to understand the competitive dynamics of any given industry, including the following five forces: 

• Threat of New Entrants: Assess the ease of entry for new competitors in the market. 
• Bargaining Power of Suppliers: Evaluate the power of suppliers to dictate the terms of the supply relationship. 
• Bargaining Power of Buyers: Determine the power of buyers to dictate the terms of the sales relationship. 
• Threat of Substitute Products or Services: Analyze the likelihood that customers will switch to a substitute product or service. 
• Rivalry: Estimate the effectiveness and intensity of your competition. 

By using the Porter's five forces analysis template, you can effectively assess these key five forces, identify the key drivers of competition in your industry, and develop strategies to improve your position in the market.

Seven Forces Model by Thompson and Strickland Template

Download a Strickland Seven Force Model Template with Sample Text for  Excel | Microsoft Word | PowerPoint | Adobe PDF

Download a Blank Strickland Seven Force Model Template for  Excel | Microsoft Word | PowerPoint | Adobe PDF   

Proactively assess areas for improvement in your organization with this comprehensive Strickland seven force model template, also known as the Seven-S Framework . The template with sample copy can serve as a guide while you use this strategic planning tool to help you assess these seven key forces for developing strategies to enhance your organization’s overall effectiveness. This Strickland seven force model template is key to effectively evaluating your internal environment and ensuring that you have a strong foundation for success. 

Use one of our free competitor analysis templates to proactively focus your analysis on your competitor’s offerings, strengths, and weaknesses.

Structure-Conduct-Performance Paradigm Template

Download a Structure-Conduct-Performance Paradigm Template with Sample Text for  Excel | Microsoft Word | PowerPoint | Adobe PDF

Download a Blank Structure-Conduct-Performance Paradigm Template for  Excel | Microsoft Word | PowerPoint | Adobe PDF

A structure-conduct-performance (SCP) paradigm analysis can help explain the relationship between the structure of your particular industry, the conduct of your organization, and its performance. Use this SCP paradigm template with sample text to guide you through the process. 

Evaluate the following categories in the SPC paradigm: 

• Structure: Includes factors such as the number of firms, barriers to entry, and degree of product differentiation to see how it affects the conduct of firms operating in that market. 
• Conduct: Refers to the actions and strategies of individual firms, such as pricing, advertising, and innovation, which are influenced by the industry structure.  
• Performance: Looks at the economic outcomes of the industry, such as profits, market share, and innovation. 

By using this SPC paradigm template, you can gain valuable insight into your organization’s market structure and conduct in an industry, which ultimately leads to performance improvements.

What Are the Different Types of Industry Analysis? 

Several types of industry analysis are available for companies that want to identify areas for improvement and develop strategies to enhance their competitive position. The types of analysis include SWOT, PEST, Porter’s Five Forces, Seven Forces Model, and SCP Paradigm.

Here’s a brief explanation of some of the most common types of industry analysis: 

• SWOT Analysis: This analysis evaluates the strengths, weaknesses, opportunities, and threats (SWOT) of a particular industry. Businesses use SWOT analysis to identify their internal strengths and weaknesses, as well as external opportunities and threats that could impact success. 
• PEST Analysis: This analysis evaluates the political, economic, social, and technological (PEST) factors that could impact an industry. PEST analysis helps businesses understand the external factors that could impact their industry and develop strategies to mitigate risks and capitalize on opportunities. 
• Porter's Five Forces Analysis: This type of analysis focuses on the competitive forces within an industry, including the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and intensity of competitive rivalry.  
• Seven Forces Model by Thompson and Strickland: The seven forces model is a strategic analysis framework that expands on Porter's five forces model by considering two additional forces. By analyzing these seven forces, businesses can develop strategies to leverage their strengths and address the challenges presented by each force.
• The Structure-Conduct-Performance (SCP) Paradigm: This model helps explain the relationship between the structure of an industry, the conduct of its firms, and their performance. 

Overall, each type of industry analysis serves a unique purpose and can provide businesses with valuable insights into their industry and competitive landscape.

How Do You Conduct an Industry Analysis? 

Companies can conduct an industry analysis effectively by gathering data and identifying key opportunities and threats in the market. They use that information to develop effective strategies to succeed. 

Conducting an industry analysis effectively typically involves the following seven steps: 

• Define the Industry  Define the industry you want to analyze. You should identify the scope of the industry, including the products or services offered, customer segments, and geographic area in which it operates. 
• Gather Data  Collect data from various sources, such as industry reports, government statistics, and trade publications. Gather information on market size, growth rates, industry trends, key players, and other relevant factors that impact the industry. 
• Analyze the Competitive Landscape   Conduct a Porter's five forces analysis to evaluate the intensity of competition within the industry. Identify the key players in the market, their market share, and their competitive advantages and disadvantages. 
• Assess the Industry's Economic Characteristics  Use a value chain analysis to identify the cost drivers and areas where companies can improve their efficiency. Analyze the profitability of the industry, including the profit margins, return on investment, and other financial metrics.
• Conduct a PEST Analysis  Evaluate the external factors that impact the industry, including political, economic, social, and technological factors. List potential opportunities and threats that might arise from changes in the external environment. 
• Identify Key Success Factors Identify the factors that are critical to success in the industry, such as innovation, cost management, customer service, or distribution capabilities. 
• Make Strategic Recommendations  Based on the findings of your analysis, make recommendations for how the company can improve its performance. This might include developing new products, increasing operational efficiency, or pursuing new markets. 

Conducting an industry analysis requires a thorough understanding of the industry and the key factors that impact its performance. By gathering and analyzing this data, businesses can make informed decisions about their strategic direction and resource allocation.

To learn more about analyzing your competitors, see our guide to competitive analysis .

Why Industry Analysis Is Important 

Industry analysis is important because it provides an essential tool for businesses and organizations to gain critical insights into the competition. Businesses use the findings to make informed decisions and develop effective strategies for growth and success.

Industry analysis also helps you identify key competitors and understand their competitive strengths and weaknesses. This can help your businesses make informed decisions about their strategic direction, resource allocation, and market positioning, ultimately leading to greater success in the market.

What Are the Objectives of Industry Analysis 

The objectives of industry analysis are to understand the current and future states of an industry. It also identifies key factors that impact profitability and competitiveness. Industry analysis can help inform decisions about strategic direction, resource allocation, and market positioning. 

In short, the primary objective of industry analysis is to provide businesses with a comprehensive understanding of their industry, including its opportunities, challenges, and competitive landscape.

The key objectives to effective industry analysis are the following: 

• Identify Market Trends: A critical component of industry analysis, market trends help businesses identify and understand emerging tendencies in their industry. To successfully identify trends, you might conduct market research and look for patterns in the data, including consumer preferences and economic indicators. 
• Assess Market Size and Growth Potential: A critical objective of industry analysis is that it helps businesses analyze industry data, so they can determine the size of their potential market and evaluate the opportunities for future growth. Assessing market size and growth potential might involve clearly defining your market, analyzing marketing data, and conducting primary research data directly from customers and industry experts.  
• Understand the Competitive Landscape: By analyzing your competitors, you can identify industry trends and understand how your rivals are adapting to these trends. These details can help you develop strategies to compete effectively in the market.
• Identify Opportunities and Threats: By identifying and responding to opportunities and threats, you can develop effective strategies, allocate resources efficiently, and manage risk effectively.
• Determine Industry Profitability: Determining industry profitability helps you understand the economic viability of your industry and the potential returns on investment. Use this information to make informed decisions on where to invest capital, allocate resources efficiently, and develop effective strategies to increase profitability and gain a competitive advantage.

Create and Implement a Plan from Your Industry Analysis Findings with Smartsheet

Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. 

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

Discover why over 90% of Fortune 100 companies trust Smartsheet to get work done.

Competitive Analysis for a Tools Rental Business (Example)

• May 14, 2024
• Business Plan , Competitive Analysis

A competitive analysis is not just a tool for gauging the position of your tools rental business in the market and its key competitors; it’s also a fundamental component of your business plan.

This analysis helps in identifying your tools rental business’s unique selling points, essential for differentiating your business in a competitive market.

In addition, the competitive analysis is integral in laying a solid foundation for your business plan. By examining various operational aspects of your competitors, you gain valuable information that ensures your business plan is robust, informed, and tailored to succeed in the current market environment.

Tools Rental Business Plan

Fully editable 30+ slides Powerpoint presentation business plan template.

Download an expert-built 30+ slides Powerpoint business plan template

Identifying Your Competitors in the Tools Rental Industry

The first step in a competitive analysis is to pinpoint your competitors. Begin by identifying other tools rental companies in your vicinity. If your business specializes in high-end power tools, your direct competitors include nearby tools rental businesses that offer similar products, as well as larger home improvement stores with rental services. Also, consider indirect competitors such as online tool rental services or equipment sales businesses that offer rental options.

Utilize online tools like Google Maps to visually assess the distribution of these competitors. Platforms like Yelp and other customer review sites can provide insights into the strengths and weaknesses of these competitors from user feedback. For instance, if a competitor consistently receives praise for its flexible rental terms and excellent customer service, these are significant competitive strengths.

Tools Rental Competitors’ Strategies

Analyzing the strategies of these competitors involves several key areas:

• Tool and Equipment Range: Scrutinize the variety of tools and equipment they offer. If “ProTool Rentals” nearby is becoming popular for its comprehensive selection of construction equipment, it indicates a market trend or demand that you might need to address.
• Rental Terms: Examine the flexibility and attractiveness of their rental agreements. A competitor like “EasyRent Tools” that offers customizable rental periods could appeal to a broad customer base, from professional contractors to DIY enthusiasts.
• Pricing Strategy : Compare your pricing with those of competitors. Are your rental fees competitive with budget-friendly options like “Budget Tool Hire,” or do they align more closely with premium providers like “Elite Equipment Rentals”?
• Marketing Tactics: Evaluate how competitors market their offerings. Do they leverage digital marketing, engage in local trade shows, or rely on partnerships with construction companies and local contractors?
• Customer Service: Assess the quality of customer service. For example, “Helpful Hire” might be known for its knowledgeable staff and proactive customer support, enhancing the rental experience.
• Operational Efficiency: Note if competitors utilize technology or innovative processes to improve service delivery, such as “Streamline Rentals” with its online booking system and mobile delivery service.

What’s Your Tools Rental Business’s Value Proposition?

Reflect on what sets your tools rental business apart. Perhaps you offer the latest in eco-friendly gardening equipment, or maybe your service includes free delivery and setup for heavy machinery.

Identify market opportunities through customer feedback and industry trends. For example, an increasing demand for smart home installation tools could represent a niche market if competitors have not yet tapped into this area.

Consider your location: A tools rental business in an urban setting might focus on light residential tools and small construction equipment, whereas one near industrial areas could specialize in heavy machinery and long-term leases.

How To Summarize It All In Your Business Plan?

Competitors’ strategies and market positioning can be superposed with your own tools rental business’s value proposition by laying out on a page (or a presentation slide) the main differentiating factors. These factors will show investors and banks:

• How each competitor is positioned in the market
• How your tools rental business compares vs. competitors (what’s your value proposition )

In a competitive analysis, various parameters are used to compare and contrast your tools rental business with its competitors. The parameters listed below are examples of what you might include in your analysis. 

They are not exhaustive but serve as a guide to help you understand key aspects to consider. Each parameter provides insights into different facets of the competitive landscape, helping to paint a comprehensive picture of where your rental business stands.

The location of your tools rental business significantly influences its success. It affects foot traffic, accessibility, and the type of clientele attracted. For example, a tool rental shop near construction sites or residential areas might serve frequent DIYers or professional contractors.

Moreover, location plays into logistics like supply chain efficiency and equipment delivery reach. A tool rental business close to major roads or with easy access to a wide delivery radius has distinct advantages.

Range of Tools Offered

Offering a wide and varied range of tools sets a tools rental business apart in a competitive market. It reflects the business’s ability to cater to diverse customer needs—from basic home repair tools to specialized construction equipment.

This parameter helps identify market trends and potential gaps. If most competitors focus on basic tools, introducing a line of high-end, specialized equipment could capture a new customer segment.

Specialization

Specialization indicates a focus on particular types of tools or services, like landscaping or carpentry, which appeals to specific customer segments seeking expert advice and high-quality equipment.

Delivery Service

Delivery services expand a tool rental business’s reach beyond its immediate location. Offering delivery can cater to a broader audience, tapping into the convenience market. For instance, a tool rental business with a robust delivery system can serve busy contractors who value time efficiency.

In contrast, a business without delivery services might focus on providing exceptional in-store customer service, drawing customers into the shop.

Online Store

An online reservation and booking system allows customers to browse available tools, compare prices, and book rentals in advance. This not only improves the customer experience but also streamlines your operations and inventory management.

Knowing whether a competitor is part of a franchise provides insights into their operational model and brand strength. Franchises often have established brand recognition and marketing support. On the other hand, independent tools rental businesses might focus on local charm and personalized services, differentiating themselves from the standardized approach of franchises.

Other Comparison Factors

In addition to the parameters discussed, there are several other factors that can be included in a competitive analysis to provide a more comprehensive view:

• Marketing Strategies : Understanding how competitors market their products can offer insights into effective advertising channels and promotional tactics.
• Customer Service: Evaluating the level of customer service, including staff friendliness and responsiveness, can highlight areas for improvement in your own business.
• Brand Presence : Assessing the online and offline presence of competitors, including social media activity and community engagement, can inform your branding strategies.
• Product Innovation: Keeping track of new product launches or unique offerings by competitors can inspire innovation and help in staying ahead of market trends.
• Supplier Relationships : Information about suppliers and partnerships can reveal insights into product quality, sourcing ethics, and cost efficiency.

Management plan 2024 – Internal Market, Industry, Entrepreneurship and SMEs

Share this page