Understanding the market dynamics of the industry in which a company operates is critical to assess if the company has a viable chance for succeeding.
There are several ways one can ascertain whether a company operates in a favorable or unfavorable market environment. These are:
Research industry reports
Analyze industry reports to assess the level of market growth, nature of consumer expenditure and relative positioning of the firm in the industry. Approach these vis-a-vis other firms producing identical products or services. Also analyze the suppliers’ and buyers’ bargaining power, exit barriers and demand conditions of the industry.
Develop a list of competitors and their strategies
Analyze the competitive dynamics of the industry to check the following threats: new potential entrants, substitute products and level of competitive intensity.
Research the history of the development of standards
Standards development and regulation (being market environment dependent) impact firms’ innovation capacity in market uncertainty. Regulatory frameworks are standards that facilitate technological development, aid in business building while still complying with the environmental norms.
Interview customers and channel partners
Working with customers and channel partners allows a company to understand changes in technology and consumer preferences. Doing so accelerates growth, augments brand awareness, and provides access to enter new markets and verticals.
Interview experts on the manufacturing or service processes
Producing products that meet the market needs (customer quality expectation) is crucial for perfecting process-product life cycle (matrix). Interviewing experts on these parameters will render vital details on customer-centric production planning and control, and operational improvements.
Research industrial pricing trends
Discovering the psychological impacts of price points on demand and the interplay of pricing dynamics can inform the company of how consumers may perceive price changes.
Develop a view on price erosion in the market
Price erosion stems from customer consolidation plus policymakers’ attempts to lower prices for customers. Analyzing industrial stats can inform on the magnitude of price erosion and the resultant impact on businesses due to lost revenues. Channel fragmentation and higher competition also lead to price erosion.
Meet or interview competitors, if possible
Specialist competitor intelligence is a key strategic information element for decision-makers to avail access to valuable (specific and validated) information. Interviews will aid in identifying and forming these market strategies: opportunity, penetration, and development. The aim should be to get a sense of competitor vulnerabilities, capabilities, and intent.
Investors should select companies operating in good neighborhoods since neighborhood quality can significantly impact the company’s prospects.