Difference Between Industry and Market Analysis

A small business owner can create an effective business plan only after he identifies factors in the business environment that impact his company’s ability to generate sales and a positive cash flow. Aspects of a company’s internal environment, such as policies and procedures, are under the control of a company’s management. However, variables in the external environment, which are not under the control of a company, also affect business performance. The industry and market in which a company operates are two such factors that influence the commercial and financial performance of a company.

Business leaders commit company resources to achieve particular objectives according to the desirability of each alternative in terms of profit potential. A company's competitive advantage influences the profit potential of a business alternative. In turn, the structure of the industry in which the business operates influences the company's competitive advantage. For this reason, an industry analysis is a critical element of any strategic planning process in that the analysis reveals why and how a company will achieve commercial success. As a result, a company's financial, operating and marketing strategies are developed only after the completion of an industry analysis.

An industry consists of businesses that produce or supply related products or services and the companies that support these producers and suppliers, such as the distributors that move a product from a manufacturer to a market. The industry analysis identifies and describes defining characteristics of the industry's major competitors and customers. For example, the industry analysis describes the products and services the industry provides and the scope of the industry's market. Also described are the economic, legal, cultural and political issues that might affect the industry's performance. Historical industry sales trends and profits are also discussed, as is the outlook for sales and profits. In addition, the analysis describes the company's strategic opportunities and the ways a company plans to exploit the opportunities.

A market analysis, like the industry analysis, is an element of a business plan used to confirm the commercial feasibility of a company. While an industry analysis confirms the existence of a strategic opportunity, the market analysis confirms the existence of a profitable market for a company's products or services. The market analysis serves as the basis of both a sales forecast, which confirms the commercial feasibility of the company, and production and operational targets for all other company activities.

A market is defined by geographic boundaries. For example, the area defined by a zip code is a market as is an international market that consists of several countries. Within the market is a target market, which is the group of potential customers to which a product or service should appeal. In turn, market competition refers to substitute products and alternative products that are available to consumers within a market. A market analysis describes each of these three factors, as well as the way a firm will position itself to benefit from the market opportunities. For example, the market analysis will refer to the market boundaries and the economic and competitive factors that influence market activity, such as the market's unemployment level and living standard. Also described is the market niche -- the customer group to which a company's products will appeal -- and the characteristics of a product's target market, such as purchasing attitude and purchasing criteria. The market analysis will also state the potential sales volume or value and the products and businesses with which a company will compete for profits.