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Say you’re planning to launch a new product or enter a new market. How do you know what will work and what won’t? How do you ideate strategies to survive and thrive in a competitive business environment? Luckily, market analysis helps answer these questions.
After all, stepping into the world of business without proper knowledge and insight can leave you vulnerable to uncertainties and competitive pressure. A robust market analysis can help you reduce risk and ensure profitability.
In this article, we’ll see what is a market analysis, why you should conduct it, and all the steps needed to do so.
Market analysis is the qualitative and quantitative study of your external business environment. It gives a complete overview of your industry and its dynamics. With market analysis, you can predict how your industry will evolve and its effects on your company over time.
Market analysis provides you with useful insights into what works and what doesn’t. It also helps you discover untapped areas in the market and strategize to stand out from your competitors.
Without the data from market analysis, you’re more likely to make decisions based on assumptions increasing the risk of potential failure. Market analysis plays a key role in identifying where your solution falls short.
It helps you answer the following questions:
Your market analysis is valuable only if you have factual data to back up your claims. For this, there are two broad sources you can use to collect data for market research: primary and secondary.
However, the info you need might not always be readily available. In such cases, you can consider hiring a third-party data analytics company if you have the budget for it.
Although it can be expensive, this will enrich your analysis with accurate information. You can then use this info to gain a competitive edge over your rivals and capture a greater market share.
Depending on the purpose and extent of your research, your market analysis can be lengthy and costly or brief and inexpensive. Regardless, there are seven steps involved in conducting a market analysis.
Before you begin, specify the purposes of your analysis. It decides the scope of your research, keeps you on track, and helps you stick to your budget.
These are some of the reasons why you need to conduct a market analysis:
In this step, you describe the current state of your industry and make predictions on how it might change in the future. You can collect this data using metrics such as market size, projected growth, industry life cycle, and trends.
Through this data, you can understand how these changes will affect your product or service. This is especially important if you are applying for a loan or seeking funding. It also helps you forecast demand for your products to ensure profitability.
Once you’ve outlined your industry, you identify the people most likely to buy your products and services. Even though your product might be suitable for everyone, there is a high possibility that not all of them will be your customers due to many reasons.
When you speak to everyone, you speak to no one. – Meredith Hill
To identify your ideal customer, you can gather data through surveys, focus groups, interviews, etc. Then, you can filter out the results based on demographics such as:
Example: If you plan on setting up a fast-food restaurant, your ideal customer would be someone who:
One of the factors that directly impact your business is competition. There are two types of competitors you will be facing in the market.
On top of identifying your competitors, you should also understand how they do business. You can do this by:
Your market share is the portion of the total market sales you’re responsible for. It’s the part of the market that you make up. Calculating your estimated market share, also called sales forecasting, is an important step as it will define the viability of your business venture.
If your estimated market share is not big enough, chances are your business idea might not be profitable enough to pursue due to inadequate sales. You can forecast your market share using these metrics:
SOM is your estimated market share. Once you have calculated it, you can actualize it via suitable pricing strategies.
Example: You’re planning to set up a small pizza place somewhere in your city but you’re unsure whether it’ll be profitable. Through research, you forecast sales and gather the following data:
|Total annual revenue of all restaurant chains in the U.S.||Total annual revenue of restaurants in your city||Total annual revenue of a close riva|
|150 billion USD||166 million USD||700,000 USD|
From the above information, you identified that your:
Before entering a new market or starting a new business, you need to know the regulations and restrictions in your industry. Understanding these can help you stay out of legal pitfalls and inspire confidence in prospective investors. Some of the regulations you need to know are:
Great job, you have completed the research part of the analysis. Now, it’s time to make sense of all the data you’ve gathered. Organize all the data and write a market analysis section to include in your business plan.
Follow this structure to organize and record your data:
Once you’re done writing the market analysis section, use this data to advance your strategic marketing process and devise a marketing plan.
You can’t scale a business on guesswork; you need reliable data to back every step you take in your business roadmap. As we saw above, market analysis is the perfect tool for this purpose. It helps you identify gaps in the market, overcome threats, and understand industry dynamics.
Conduct market analysis regularly to stay on top of the industry trends and gain a competitive edge in an ever-changing business environment.
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