Industry Life Cycle Analysis
Candlefocus EditorIndustry life cycle analysis is especially useful for startups that are seeking to enter a new market or an established business that wants to maximize profits. In essence, it is an evaluation of the performance of a market/industry over a certain period of time. It helps companies identify opportunities and threats that may influence their operations. For example, a company can use industry cycle analysis to anticipate the emergence of a new competitor or the extinction of an existing competitor.
The four stages of the industry lifecycle include expansion, peak, contraction and trough. During the expansion stage, demand is high, and the industry privileges innovation as competition increases. During this stage, companies have the most opportunities to capitalize on the growth of an industry.
The peak stage marks the productivity and profitability of an industry. During this period, supply catches up with demand and competition begins to decline. Companies typically enjoy the highest profits in the peak stage, but the success can be temporary.
The contraction stage marks a decline in demand for a certain product or service and higher competition due to new entrants in the market. Companies face tight budgets and fewer opportunities to enter new markets. During this stage, companies must become creative in order to remain competitive.
Finally, the trough stage is when the industry begins to decline to a point where most companies struggle to remain profitable. Companies can no longer rely on the same strategies that were successful during the peak stage, and are forced to adjust their strategies accordingly.
Understanding the stages of an industry life cycle is key to making the right strategic and operational decisions. Industry life cycle analysis can help companies both identify opportunities and threats that may arise in a market before they actually occur. Companies can then use this information to plan ahead and ensure that they remain competitive in the industry. Understanding the industry lifecycle, and the stages of expansion, peak, contraction, and trough, can be critical to a company's success.