Building an Industry Classification System for Market Research

Creating a robust industry classification system is a powerful approach for businesses seeking to understand market dynamics, identify competitors, and uncover growth opportunities. This classification provides a structured framework that enables businesses to categorize industries, making it easier to perform market research, target the right audiences, and build effective strategies. In this post, we’ll explore the essential steps and data sources needed to build an industry classification system, construct industry hierarchies, and understand its benefits for strategists and marketing teams.

Key Data Sources for Industry Classification

Building a meaningful industry classification requires reliable, standardized sources. Here are some of the most widely used and reputable sources to consider:

NAICS (North American Industry Classification System)

• What It Is: NAICS is a widely used classification system jointly developed by the U.S., Canada, and Mexico. It organizes industries based on their primary economic activities.
• How It’s Used: NAICS provides standardized 6-digit codes that categorize industries from broad sectors to more specific niches, making it ideal for broad economic analysis and reporting.
• Benefit: It’s government-backed and frequently updated, ensuring alignment with North American industries and reflecting emerging sectors.

Dun & Bradstreet (D&B)

• What It Is: Dun & Bradstreet provides proprietary business data, including a classification system organized around D-U-N-S Numbers, which assign unique identifiers to businesses.
• How It’s Used: D&B’s classification system allows users to drill down to specific companies and view business credit scores, financials, and industry information.
• Benefit: It is particularly useful for understanding individual companies, their financial health, and competitive positioning within their industry.

SIC (Standard Industrial Classification)

• What It Is: An older system developed by the U.S. government, SIC codes use a 4-digit structure to categorize industries. Though largely replaced by NAICS, SIC is still in use for legacy systems and historical data.
• How It’s Used: Primarily for continuity in historical research or where NAICS is not applicable.
• Benefit: Provides consistency for data analysis when working with datasets developed prior to 1997.

Bureau of Labor Statistics (BLS) and Census Bureau

• What It Is: Both agencies use NAICS codes to provide employment, wage, and productivity data across industries.
• How It’s Used: These databases offer access to demographic and economic data segmented by NAICS codes.
• Benefit: Useful for understanding workforce distribution, wage levels, and sector performance.

International Standard Industrial Classification (ISIC)

• What It Is: Created by the United Nations, ISIC is an international standard used to classify economic activities, allowing for global comparisons.
• How It’s Used: Often referenced in international trade analysis and by multinational companies needing a global view.
• Benefit: It helps businesses align their industry classification across international borders, especially useful for global market research.

Hoovers and LinkedIn Data

• What It Is: Hoovers (by D&B) and LinkedIn offer company and industry profiles, connecting users with industry specifics, trends, and business insights.
• How It’s Used: Provides access to targeted market intelligence and networking information for B2B research.
• Benefit: Useful for competitive analysis and market segmentation based on industry characteristics and trends.

Steps to Build an Industry Classification System

Step 1: Define Your Industry Segments

Before diving into data, clearly define the scope of industries relevant to your business or research objectives. Start with broad categories (e.g., technology, healthcare, manufacturing) and then segment these into more specific sub-industries (e.g., software, medical devices, renewable energy). NAICS codes are an excellent reference point for identifying these broad to specific categories.

Step 2: Select Core Data Sources and Gather Information

Use the aforementioned data sources to gather data and assign industry codes to your segments. NAICS codes offer a hierarchical structure from broad sectors down to niche segments, so they can serve as your primary categorization system, while D&B can add granularity and company-specific insights within each category.

For example, if you’re analyzing technology companies:

• NAICS Code: Start with the NAICS sector code for Technology (e.g., 51 for Information).
• D&B Data: Drill down to identify companies, their financials, and competitive standing within this category.
• ISIC Codes: If conducting international research, cross-reference ISIC codes to ensure global applicability.

Step 3: Build Industry Hierarchies

Using NAICS codes as a base, create an industry hierarchy that helps visualize relationships between broad categories and specific segments. A typical structure might look like this:

• Level 1: Sector (e.g., Healthcare, Manufacturing, Technology)
• Level 2: Sub-Sector (e.g., Pharmaceuticals, Software Development, Electronics Manufacturing)
• Level 3: Industry Group (e.g., Generic Pharmaceuticals, Application Software, Consumer Electronics)
• Level 4: Specific Industry (e.g., Anti-Infective Pharmaceuticals, Mobile App Development, Home Appliances)

Such a hierarchy provides a comprehensive breakdown of industries and is particularly useful for segmenting and targeting during market research.

Step 4: Link Companies to Each Segment

D&B’s proprietary data can enrich this classification by linking companies to specific segments within your hierarchy. For example, if analyzing the renewable energy sector, you can list individual companies under categories like Solar Power Equipment or Wind Turbine Manufacturing. This enhances market segmentation and aids in competitor analysis.

Step 5: Organize for Searchability and Usability

Use a database or Customer Relationship Management (CRM) platform to store, organize, and make this data easily searchable for marketing and strategy teams. Tools like Excel, Airtable, or more advanced data warehouses can help store and retrieve this structured data efficiently.

Benefits for Strategists and Marketing Teams

Creating a structured industry classification system is advantageous for marketing and strategic planning. Here’s how:

1. Targeted Market Research: A detailed industry classification enables teams to identify specific sub-industries and target them effectively. By drilling down into niche segments, teams can focus on emerging industries with growth potential, such as Telemedicine within Healthcare.
2. Competitive Analysis: With a structured classification, strategists can easily compare companies within specific sub-industries. For instance, they can track major players in Mobile App Development and analyze trends specific to that industry, using data from D&B or LinkedIn.
3. Customer Segmentation and Personas: Marketing teams can create precise buyer personas based on industry and segment, allowing them to tailor messaging and products to meet specific customer needs. This is especially effective in B2B marketing where industry-specific solutions are often required.
4. Trend Identification and Growth Forecasting: A well-organized classification system lets teams track growth trends in different segments, such as the rise of Biotech within Healthcare. Insights from BLS data, for instance, can help predict labor trends and economic impacts in these sectors, helping businesses anticipate market changes.
5. Sales Enablement and Lead Prioritization: With an organized industry classification, sales teams can prioritize high-potential industries. For example, if market research shows that Renewable Energy is a growing field, teams can use D&B data to identify top companies and prospects in Wind Energy Equipment and adjust their strategies accordingly.
6. Improved Reporting and Decision-Making: Detailed industry classifications enable more granular reporting, helping decision-makers understand performance across different sectors. Teams can easily assess KPIs and tailor strategies by industry segment, improving overall business agility.

Conclusion

Building an industry classification system is a strategic investment for market research, enabling marketing and strategy teams to better understand their target markets, spot growth opportunities, and stay competitive. By leveraging comprehensive data sources like NAICS and D&B, businesses can develop a structured, hierarchical view of their market landscape, allowing them to make data-driven decisions and gain a competitive edge. A robust industry classification system ultimately serves as a roadmap, guiding teams toward successful marketing campaigns and strategic growth.