What Is an Industry Model? Understanding Its Structure and Importance

An industry model can include many different elements, but several key components are commonly studied.

1. Market Players

Market players include manufacturers, suppliers, distributors, retailers, competitors, service providers, technology companies and customers.

Knowing who these players are and what they do gives a starting point for industry analysis.

2. Customers

Generally, consumers play a major role in shaping the industry. The choice, preference, buying behavior, income status, and expectations of consumers greatly influence the companies in the industry with respect to the types of products and services they offer and the marketing strategy in place.

3. Competitors

Another key element of an industry model is competition. Companies compete on pricing, quality, service, innovation, convenience, technology or brand image.

Looking at what the competition offers, a business can find out what’s available and where it can provide something unique.

4. Suppliers

Suppliers are the companies that provide the company with the things it needs. This could be materials, products, equipment, technology or a service.

Where an industry is reliant on only a few suppliers, then any changes in supply or price can have a major effect on the firms. Supplier relationships are therefore an important part of understanding the industry.

5. Value Chain

Value chain refers to the different stages throughout the process of producing and delivering a product or service. A manufacturing company, for instance, may rely on suppliers of raw materials, production facilities, logistics providers, distributors, retailers and customers.

By looking at the value chain, organizations can understand where value is created and where costs occur.

6. Industry Factors

A range of external industry factors can influence the market.

These may include:

• Technology

• Government regulations

• Economic conditions

• Customer preferences

• Raw material costs

• Labor availability

• Environmental requirements

• Global competition

• Social and cultural changes

Some factors may create new opportunities, while others may introduce new challenges.

Different Types of Industry Models

There is no one model for each industry. What model you need depends on what the company needs to find out.

Competitive analysis looks at competitors, pricing, market share, and barriers to entry. The value chain model analyzes how products or services are made and delivered. The market structure model considers competitors, size, customer power, and supplier power. The industry trends model focuses on technology, customer taste, sustainability, and market changes. The industry forecasting model allows you to investigate the future demand, competition, and growth of the industry.

The aim is to determine the model that allows you to conduct the industry analysis most effectively.

Real Examples of Industry Models

The automobile industry can be a great illustration of how an industry model could evolve in time. In the past, the business was concentrated on fuel-powered vehicles and large-scale manufacturing. Dealerships, traditional suppliers, and existing distribution models.

The rise of electric vehicles has altered the landscape of business. Technology for charging, battery technology software, new suppliers along with government policies, and shifting customer expectations play a larger role. These changes have led to new opportunities, while also increasing competition.

The media industry has undergone the same change. Television, newspapers and other physical media depended heavily on subscriptions, advertising as well as physical distribution. The evolution of streaming services and digital media has transformed not only the way people consume their media but also the way companies make money.

These examples demonstrate the fact that any industry model isn't indefinite. Technology, customer behavior regulations and economic circumstances can continually alter an industry's structure and open up new opportunities and new challenges.

Why Understanding Industry Models Is Useful

So, why should a business spend time understanding its industry?

The simple answer is that better information can lead to better decisions.

For a business proprietor, an industry model can serve as a guide for identifying opportunities, competition, threats, and changing customer needs.

For an entrepreneur, the industry model can provide an answer to whether a business concept has market potential and whether it is worth taking on competitors.

For an investor, understanding industries through analysis can potentially bring insights when trying to assess firms and their business environment.

Finally, an industry model can assist a business analyst in comparing companies, determining trends, and studying market changes.

Industry models can support decisions related to:

• Entering a new market

• Expanding a business

• Developing new products

• Setting prices

• Understanding competitors

• Planning investments

• Managing risks

• Creating long-term strategies

The aim is not to foresee every event taking place. Markets shift continuously and there is not any model that is capable of providing precise predictions.

Instead, the industry model functions to ensure understanding of current situation and safeguard against future shifts.

Industry Model vs. Business Model

Industry model and business model may look alike on the surface, but they pay attention to different factors.

The business model sheds light on the means used by the company to create value, serve its clients and make profit.

On the contrary, industry model studies the condition of the whole market and its different forces acting on business.

For instance, the business model of a software company, which makes profit based on subscription payments, means that the customers are charged for the use of software.

The industry model regarding the software industry would start from analyzing the whole market and taking into account competitors, demand among the clients, pricing trends, the use of technology, legislation, suppliers and overall growth of the industry.

In other words, business models study one company, while industry models analyze many companies and their environment.

How to Create a Simple Industry Model