There are few pat answers. 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? Competitive research starts with a good web search.
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.
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.
Or you can take the basic idea from this illustration:. Follow him on Twitter Timberry. Competitors are a Fundamental Reality of Doing Business. Your Online Competitive Analysis. Read Starting By: Tim Berry. A complete business plan discusses: General industry economics Participants Distribution patterns Factors in the competition And whatever else describes the nature of your business to outsiders A note on finding industry information The internet has had an enormous impact on the state of business information.
Industry participants You should know who else sells in your market. Distribution patterns 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? Competition and buying patterns It is essential to understand the nature of competition in your market. 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?
The Five Forces mainly help to determine the attractiveness of an industry. They are:. The amount of other companies in an industry and their market shares is a direct indication of that industry's competitiveness. There are a lot of factors that affect these. A lack of diverse products and high exit costs fixed assets, government restrictions, labor unions, etc.
If it's easy for new businesses to enter the industry, the risk of having more competition is extremely high. It it's difficult, companies who have small competitive advantages can benefit from them for longer. Also, business's competition remains more constant. Low operational costs 2. Established distribution networks in both urban and rural areas 3. Presence of well-known brands in the FMCG sector.
The lower scope of investing in technology and achieving economies of scale, especially in small sectors 2. Low exports levels 3. Copy products narrow the scope of FMCG products in the rural and semi-urban market. Rural market is mostly Untapped 2. The increased purchasing power of consumers 3.
Large domestic market- a population of over one billion. Export potential. Removal of import restrictions resulting in replacing of domestic brands 2. Tax and regulatory structure. The above industry analysis of the Indian FMCG sector is extremely brief, just to give a gist of what industry analysis in a business plan should include.
The actual industry analysis report may be quite exhaustive detailing all the important factors. Hope that the above article has added some value to your learning. Share this with your friends and you may also comment on anything I may have missed including in this Industry Analysis in a business plan Article. Here are some articles that will help you to get more detail about the Industry Analysis in a business plan so just go through the link.
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On the other hand, in industries that are difficult to enter, sources of competitive advantage last longer, and firms also tend to benefit from having a constant set of competitors. The ease of entry into an industry depends upon two factors: the reaction of existing competitors to new entrants; and the barriers to market entry that prevail in the industry.
Existing competitors are most likely to react strongly against new entrants when there is a history of such behavior, when the competitors have invested substantial resources in the industry, and when the industry is characterized by slow growth.
Some of the major barriers to market entry include economies of scale, high capital requirements, switching costs for the customer, limited access to the channels of distribution, a high degree of product differentiation, and restrictive government policies. Suppliers can gain bargaining power within an industry through a number of different situations. For example, suppliers gain power when an industry relies on just a few suppliers, when there are no substitutes available for the suppliers' product, when there are switching costs associated with changing suppliers, when each purchaser accounts for just a small portion of the suppliers' business, and when suppliers have the resources to move forward in the chain of distribution and take on the role of their customers.
Supplier power can affect the relationship between a small business and its customers by influencing the quality and price of the final product. The reverse situation occurs when bargaining power rests in the hands of buyers. Powerful buyers can exert pressure on small businesses by demanding lower prices, higher quality, or additional services, or by playing competitors off one another. The power of buyers tends to increase when single customers account for large volumes of the business's product, when a substitutes are available for the product, when the costs associated with switching suppliers are low, and when buyers possess the resources to move backward in the chain of distribution.
Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge," Porter explained. Product substitution occurs when a small business's customer comes to believe that a similar product can perform the same function at a better price. Substitution can be subtle—for example, insurance agents have gradually moved into the investment field formerly controlled by financial planners—or sudden—for example, compact disc technology has taken the place of vinyl record albums.
The main defense available against substitution is product differentiation. By forming a deep understanding of the customer, some companies are able to create demand specifically for their products. Competitive battles can take the form of price wars, advertising campaigns, new product introductions, or expanded service offerings—all of which can reduce the profitability of firms within an industry. The intensity of competition tends to increase when an industry is characterized by a number of well-balanced competitors, a slow rate of industry growth, high fixed costs, or a lack of differentiation between products.
Another factor increasing the intensity of competition is high exit barriers—including specialized assets, emotional ties, government or social restrictions, strategic interrelationships with other business units, labor agreements, or other fixed costs—which make competitors stay and fight even when they find the industry unprofitable.
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