A market analysis is a thorough analysis of the market within a specific industry.
Moreover, market analysis has a number of benefits, like reducing risk for your business, and better informing your business decisions.
Understanding your customer base is one of the first crucial steps to success in business.
Without understanding who your customers are, what they want, and how they want to get it from you, your business can struggle to come up with an effective marketing strategy.
Thus, this is where market analysis comes into play.
It can be a time-intensive process.
However, it is straightforward and easy to do on your own.
Keep on reading.
Market analysis in business is an assessment of a specific industry, niche, or vertical market.
It is a subset of market research that will help you understand your target market and the competitive landscape, as well as where your product and product fit in.
Starting a business with a market analysis will help to make sure you have an easier path to success.
This will help to validate your idea.
And that there is demand in the market and people are willing to pay for what you have to offer.
Market analysis also helps you better understand how to promote your products more effectively as it will give you a comprehensive understanding of your audience.
If you need to get or secure funding from external investors or lenders, it will show that you have done your research.
And can demonstrate the viability of your idea and its investment.
Furthermore, your market analysis focuses on external factors rather than internal analysis.
It will serve as a gut check for whether or not your business idea will make it.
Your market analysis should identify the following at minimum:
- your target customer
- where, why, and how they shop
- the size of your target market
- price people are willing to pay for what you sell
- competitors you have and their strengths and weaknesses
It is important to keep in mind that the market tends to change, so conducting a market analysis is not just for new businesses.
An established business can also use market analysis to validate new product ideas or address challenges.
Benefits of Market Analysis
With market analysis, you can reduce risk, identify emerging trends, and help project revenue.
You can use it at several stages of your business.
And it can be beneficial to conduct one every year to keep you up to date with any major changes in the market.
It is important to note that detailed market analysis is a part of the business plan as it gives you are greater understanding of your audience and competition.
Moreover, it will help you build a more targeted marketing strategy.
Some benefits of conducting a market analysis are:
Risk Reduction: Knowing your market can help reduce risks in your business as you will have a better understanding of:
- major market trends
- main players in your business
- what it takes to be successful
All of these will inform your business decisions.
To help you further protect your business, you can also conduct a SWOT analysis which will help identify the strengths, weaknesses, opportunities, and threats.
Targeted Products or Services: With market analysis, you will be in a better position to serve your customers when you understand what they are looking for.
When you know who your customers are, you can use that information to tailor the offerings of your business to the needs of your customers.
Emerging Trends: Staying ahead in business is about being able to spot a new opportunity or trend.
And use a marketing analysis to stay on top of the industry is a great way to position yourself so that you can take advantage of this information.
Revenue Projections: A market forecast is a key component of most marketing analyses.
It will help project the future numbers, characteristics, and trends in your target market.
This will give you an idea of the profits to expect, allowing you to adjust your business plan and budget accordingly.
Some other benefits of a market analysis are:
Evaluation of Benchmarks: It can be hard to show the success of your business outside of pure numbers.
With market analysis, you will get benchmarks or key performance indicators, KPIs against what you judge your company and how well you are doing, in comparison to others.
The context for past mistakes: A market analysis can explain the past mistakes of your business or industry anomalies.
For instance, in-depth analytics can explain what impacted the sale of a certain product or what a certain metric performed the way it did.
This, in turn, will help you avoid making those mistakes again or experiencing anomalies as you will be able to analyze and describe what went wrong and why.
Marketing Optimization: This is where annual marketing comes in handy.
Regular analysis tends to inform your ongoing marketing efforts and show which aspects of your marketing need work and which are performing well in comparison to others in the industry.
Are there any Drawbacks?
The following are some drawbacks of running a market analysis:
Can be Expensive: If you are not as familiar with marketing concepts like market volume and customer segmentation, you may want to outsource your market analysis.
Doing this can be great for your analysis quality, however, it can also leave a big dent in your budget.
Thus, you can narrow your market analysis to a certain group, like current customers, to lower your cost.
Time-Consuming: Market analysis can take your time from more directly related-business tasks.
You can analyze one area at a time, like buying patterns or competition according to your day-to-day schedule.
Extra Staff: Some larger companies can retain in-house market analysis staff and you can also follow their lead.
Though, it comes with the usual costs of hiring a new employee.
You may be wondering whether you should conduct the analysis yourself or outsource it.
It is important to note that the more expensive options can yield more meaningful insights.
Can be Narrow: The most successful market analyses use actual customer feedback.
You can get it through customer surveys.
These surveys can reach only a portion of your entire customer base, which can lead to an inaccurate sample size.
The result is that market analysis may not be fully detailed about your customers and inform what you should know about them.
Market Analysis vs. Conjoint Analysis vs. Sentiment Analysis
Market analysis is a broad and comprehensive analysis, conjoint analysis tends to focus on how customers value what you offer.
Surveys are often the focal point of conjoint analysis and are a great way for customers to share what drives their purchases.
Moreover, product texting is an especially common application of conjoint analysis.
This method tends to yield insights into pricing and product features and configurations.
On the other hand, sentiment analysis goes beyond number-driven market and conjoint analysis to identify how customers qualitatively feel about your offerings.
It shows what your customers are happy and unhappy about with your offerings or buying process.
You can also wade into deeper emotional territory like anger, urgency, and intention, or you can find descriptive feedback.
It is a great tool you can use along with market analysis, whereas conjoint analysis is all but included in market analysis.
Steps of Conducting a Market Analysis
Though conducting a market analysis is not a complicated process, it will take a lot of dedicated research.
The following are the steps for conducting a market analysis:
1# Determine your purpose
There are a number of reasons you may want to conduct a market analysis.
This can include gauging your competition or understanding a new market.
Whatever your reason is, it is important to define it the right way to keep you on track throughout the process.
You will need to start by deciding whether your purpose is internal, like improving your cash flow, or business operations.
Or whether you want to improve tap into external factors like seeking a business loan.
Your purpose will dictate the type and amount of research you will need to do.
2# Research the State of your Industry
Map a detailed outline of the current state of your industry.
Include where to industry seems to be heading, using metrics like size, trends, and projected growth, with plenty of data to support your findings.
Moreover, you can also conduct a comparative market analysis to help you find the competitive advantage within your specific market.
3# Identify your Target Customer
Not everyone is going to be your customer and it will be a waste of time to try to get everyone interested in your product.
Instead, you will need to use a target market analysis to decide who is most likely to want your product and focus your efforts there.
You need to understand your market size, who your customers are, where they come from, and what can influence their buying decisions.
To do so, make sure to look at demographic factors like age, gender, location, occupation, education, needs, and interests.
During your research, you may want to consider creating a customer profile or persona that reflects your ideal customer to serve as a model for your marketing efforts.
4# Understand your Competition
In order to be successful, you will need a good understanding of your competitors.
This includes their market saturation, what they do differently than you, and their strengths, weakness, and advantages in the market.
You will need to start by listing all your main competitors, then go through that list and conduct a SWOT analysis for each competitor.
Answering questions like what businesses have that you don’t, what will lead a customer to choose that business over yours, etc.
Then, rank your list of competitors for most to least threatening, and decide on a timeline to conduct regular SWOT analyses on your most threatening competitors.
5# Gather Additional Data
When conducting market analyses, information is your friend.
You can never have too much data. It is important that the data you are using is credible and factual, so make sure to b cautious of where you get your number from.
For instance, if you are residing in the U.S, some reputable business data resources are:
- U.S. Bureau of Labor Statistics
- U.S. Census Bureau
- State and local commerce sites
- Trade journals
- Your own SWOT analyses
- Market surveys or questionnaires
6# Analyze your Data
After collecting all the information you can and verifying that it is accurate, you will need to analyze the data to make it useful to you.
You will need to organize your research into sections that makes sense to you.
However, try to include ones for your purpose, target market, and competition.
The following are the main elements you should include:
- an overview of the size and growth rate of your industry
- the projected market share percentage of your business
- customer buying trends
- forecasted growth
- how many customers are willing to pay for your product or service
7# Put your Analysis to Work
Once you are done, it is time to work.
Internally, you will look for where you can use your research and findings to improve your business.
However, if you conduct an analysis for external purposes, organize your research and data into an easily readable and digestible document to make it easier with lenders.
Moreover, retain all your information and research for your next analysis.
Consider making a calendar reminder each year so that you can stay on top of your market.
Making the Process Easy
In case you want to conduct a market analysis you can do so easily with the help of this guide.
However, in case you do not have time, you can hire an in-house expert or outsource your analysis which is often worth the cost.
Your analysis will help you figure out who to target and how, and that is a huge part of business success.