How to define an industry

The last couple of hours, I´ve been sitting at work creating an Excel sheet containing our reference sites. One of the columns I have to fill in covers the industry of our customers. Boy I was wrong assuming this  to be an easy task.

It started well. Commercial. Healthcare. Transportation. But quickly it became much more of a headache. What industry do steel suppliers belong to? Duh, the steel industry of course, some may argue. But is it really that easy? How do we define industries? By the similarities in the products/solutions offered by the companies? Or should we stretch it and include substitutes, i.e. products/solutions that respond to same or similar customer needs?

And how to know when a definition of an industry  is too wide? Or too narrow? 

One famous figure (at least within the marketing field), who has some thoughts on this topic, is Michael E. Porter. He has come up with a list of things that are good to consider when analyzing an industry; such as who are the buyers, suppliers, competitors, potential entrants and substitutes (anyone recognizes these as the ”five forces”?). What is the geographic scope of the competition? What products are in the industry?  And so on.

When taking time and analyzing an industry (using Porter´s toolbox), one might get quite amazed by the fact that for example the same company may be operating within several industries simultaniously (not to speak of the consequences of that, i.e. customized business strategies for each industry are often required).

It is also quite striking (and oh so interesting!) how fast some industries tend to change structure by shifting the balance of the bargaining power of suppliers and buyers or threat of substitutes and new entrants. Or even more interesting, the fact that many industries have the potential to achieve great things (read: more profitability for everyone in the value chain BUT MORE IMPORTANTLY better customer value) if they dare to change the existing mix of forces.

And for those (read: me) who work within the marketing field, particularly B2B, I find industry definition to be a challanging task, though a very interesting one. Not only when having to segment customers, but also when creating communication and strategies. It is so tempting to label an audience with a certain industry-stamp, but if that label
doesn´t correspond to their or others view of the industry they actually belong to, then no matter how good the communication happens to be, one will most certain end up talking in a language the audience doesn´t understand.

 

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