An industry is a group of companies that sell products or services that are close substitutes of each other, such as the furniture industry,the car industry, or the financial services industry. Knowing the type of industry you’re competing in helps you predict changes, movements, or shifts that may impact your business and the strategy you develop. It’s also helpful to know how competitive your industry is because some are more cut throat than others.
What industry does your company operate in? You can most easily identify it by answering the question,“If customers were to purchase elsewhere, what are all the potential options that exist.”
Classify the different types of companies you identify with the small groups until you identify with the small groups until you have a big enough circle to define the entire set. For the most part, identifying your industry is intuitive, but sometimes the nets aren’t cast wide enough. For example, a charter sailing company isn’t int he cruise industry. Instead, the company is swimming in a bigger pond called the travel and tourism industry.
In an effort to understand he dynamic nature of an industry, you can break any industry into five components or forces: new competitors, substitute products, power of suppliers, power of buyers, and competitive rivalry. These five forces impact every industry in some form pr fashion and determine your industry’s attractiveness and long-run profitability. Each force is discussed in the next sections.