Understanding the Market Environment and Industry Drivers

What Is a Market Environment?

The market environment refers to the external conditions and factors that influence a company’s performance and strategic decisions. With a comprehensive understanding of the market environment, companies can gain a competitive advantage by: 

• Identifying opportunities and threats
• Managing risks
• Enhancing their product mix
• Ensuring legal compliance
• Adapting to changing market trends

What Factors Impact the Market Environment?

The external conditions shaping the overall market environment include four main categories.

1. Economic

• Macroeconomic environment: Includes broad economic indicators such as a country’s total Gross Domestic Product (GDP)
• Microeconomic environment: Includes customers, competitors, suppliers, and other nodes along the value chain

2. Sociocultural

Includes user preferences, demographics, and cultural norms that affect consumer behavior and market trends

3. Technological

Includes the machinery and technology used in production, as well as innovations in products available in the market

4. Regulatory 

• Environmental regulations, such as restrictions on material use to protect the natural environment
• Government regulations, such as tariffs and building codes
• Legal regulations, such as anti-dumping regulations

What Are Industry Drivers?

Closely related to the market environment are industry drivers—forces that influence the growth of product demand and the overall performance of the market. These drivers can be internal, such as manufacturing innovations, or external, such as government regulations.

Types of Industry Drivers

• Macroeconomic indicators, such as construction expenditures and economic growth rates
• Market-specific indicators, such as manufacturing shipments
• Technological advancements and innovation, such as automation, artificial intelligence, and electrification
• Regulatory environment, including government and environmental regulations
• End-user behavior, such as customer preferences and purchase patterns
• Supply chain factors and cost considerations, such as the impact of freight on manufacturer-level pricing
• Level of globalization and trade, including imports, exports, and domestic production

Actionable Insights from Industry Drivers

By analyzing key industry drivers, companies can address a range of critical questions, such as: 

• What can manufacturers expect from end-users over the forecast period?
• What products are in the highest demand?
• Which industry participants are at the forefront of innovation?
• Which products will experience the fastest growth over the forecast period?
• What is the market potential for specific products or product features?

Case Study: Assessing Technology Trends

Understanding technology trends can help companies stay competitive, improve their product mix, and adjust to changes in market demand. However, staying abreast of specific new developments often requires more than simply reading news articles or conducting desk research. You may need access to in-depth primary research as well to uncover valuable information that is not publicly available.

For example, one of our clients, a leading manufacturer of bearings, wanted to investigate the development of alternate bearing solutions for wind turbines across the globe. The company wished to understand the market for current products as well as alternative solutions and when those might be entering the market.

To assess this new technology, our analysts took a multipronged approach:

• Performed 25 in-depth primary research interviews with representatives from bearing manufacturers, wind turbine OEMs, and wind turbine owners and operators
• Assessed the global market for wind turbines and bearings, segmented by region, providing current demand as well as five- and ten-year forecasts and discussion of factors driving growth
• Identified bearing suppliers and customers that are developing and/or implementing alternative bearing solutions, with details around each product’s design and current status
• Based on interviews with industry participants, analyzed wind turbine OEMs’ key considerations (such as lifespan, maintenance, and performance requirements) when shifting to use of alternative bearings

This comprehensive assessment allowed our client to gain a deeper understanding of the overall wind turbine market, specifically the bearings used, and how quickly or if customers will shift to alternative technologies, and what those technologies are expected to be.

By leveraging such detailed insights, companies can make more informed strategic decisions and stay ahead in a shifting market.

Case Study: Regulatory Factors

Regulations are another key factor that can impact supply and demand by dictating which products companies produce and which products end-users purchase. 
Specific product restrictions can significantly influence demand; for example, fee-based penalties at the time of sale, such as charging 10 cents for a paper bag at the grocery store, can affect consumer behavior. Additionally, regulations can impact the market through trade restrictions, such as tariffs.

One recent example that illustrates the impact regulations can have on a specific industry comes from our client the American Recyclable Plastic Bag Alliance (ARPBA). This organization commissioned a custom research study to quantify the environmental impact of a plastic bag ban in New Jersey.

For the study, our analysts:

• Conducted interviews with plastic bag suppliers, brokers, distributors, and leading retailers to gather data on the New Jersey retail bag market and the effects of the bag ban on business operations
• Performed a demand analysis before and after the ban to identify shifts in bag consumption, plastic volume, and greenhouse gas emissions
• Analyzed demand by plastic bag type (single-use and reusable) under various reuse scenarios
•  Analyzed retailer business costs before and after the ban to understand profit or loss associated with different bag types
• Conducted a voice of the market assessment with industry participants, including analysis and quotations on bag reusability, recyclability, the impact of pickup and delivery services, shifts in bag purchases, and business changes over time

The study found that New Jersey’s plastic consumption tripled after the ban was enacted. Due to the ban, consumers purchased reusable non-woven polypropylene bags from retailers as an alternative to single-use bags, but only used them an average of two to three times, spurring a significant increase in plastic and harmful greenhouse gas emissions.

The eye-opening data from the single-use bag ban study received a wave of media coverage including the Wall Street Journal, Fox News, Forbes, USA Today, and many other outlets. This case study underscores the profound and sometimes unexpected impacts that regulations can have on industry practices and environmental outcomes.

Partner with Us

If you need help understanding the overall market environment, key industry drivers, or the impact of technological trends or regulatory factors, turn to Freedonia Custom Research. Our expert team delivers unbiased market insights to support strategic decision-making for very specific market niches with little or no available published data. 

Reach out to us today to discuss your goals. Even if your research deliverables are not yet fully defined, we can work together to scope out the project and meet your information needs.