If you aren’t aware of who your target customers are, what they want from you, and how they want it, you as a business owner could struggle to develop an effective marketing strategy. The first key element to achieving business success is understanding your customer base. Here comes the role of market analysis. Although market analysis is a time-intensive process, it’s a straightforward process and easy to conduct a market analysis.
Read this article if you want to know what is market analysis, its, benefits, drawbacks and how you should conduct a market analysis.
What is market analysis?
Market analysis is a thorough assessment of all the variables of your business’s target market within a specific industry. This analysis is aimed at obtaining a clear look at the success you can expect when you are introducing a new product to your consumers within the market.
In market analysis, you’ll study the dynamics of the market such as qualitative data which will include the actual size of the market you’ll serve, revenue projection and the prices consumers are ready to pay as well as qualitative data which includes consumer’s value and volume, desires, and buying patterns.
While researching this topic, you may come across the term “marketing analysis” with similar meanings. Marketing analysis focuses only on the marketing part whereas market analysis means analysis of the condition of the market as a whole. Well, marketing analysis is the subset of market analysis.
Here in this article, we are focusing on market analysis as an important component of a thorough business plan. To know more about marketing analysis, you can read our previous article where we talked about what is marketing analysis and everything you need to know when conducting a marketing analysis. (hyperlink the previous article)
What are the benefits of conducting a market analysis?
A detailed market analysis can benefit you in several ways. They are:
Spot a new opportunity or trend to stay ahead in the business
Reduce the risks in the business and costs of launching a new business
Know your competitors, their strength and weakness
Tailor the products and services to the needs of your target customers
Optimize your marketing efforts
Analyse successes and failures by monitoring the performance of your business
Reach new market segments
Turn your business in new directions as and when required
What are the drawbacks of conducting a market analysis?
Here are some drawbacks of conducting a market analysis:
Outsourcing your market analysis can be expensive if not familiar with the marketing concepts
It can be time-consuming and take away your precious time from more directly business-related tasks
It can require you to hire in-house staff for market analysis
It can be narrow because the customer surveys conducted may reach only a portion of your entire customer base which can lead to an inaccurate sample size.
How to conduct a market analysis?
Market analysis is not a complicated process but it does involve a lot of dedicated research. Here are 10 steps on how to conduct a market analysis.
Define the purpose
You may conduct a market analysis for several reasons. Whatever your reasons, the first thing you need to do is determine the reason right away to stay on track throughout the process. Decide whether your purpose is internal or external. This will determine the amount and type of research you’ll do.
Research your industry
The purpose of this step is to map a detailed understanding of the current state of your industry so that you are aware of how to enter it, how to compete with other brands and can spot trends. Find out where the industry seems to be heading with the help of metrics such as trends, size, projected growth, generated revenue, new technologies, and many more data to support your findings.
Understand your target customers
Use a target market analysis to know who your target customers are and who are more likely interested in your product and focus your efforts on them. Identify who are your customers, what is their market size, where they come from and what are their buying patterns. You can conduct so by looking at some demographic factors such as age, gender, occupation, needs, location, education and interests. Create a customer profile or persona that will reflect your target customer.
Understand your competition
This step will provide you with an insight into the brands you’ll be competing against because you want to attract potential customers in your target market. You need to have an understanding of your competitors, what different are they doing, their market saturation, and their strengths, and weaknesses in the market. Make a list of all your competitors and conduct a SWOT analysis of each of them.
Put yourself in the shoes of the customers and ask the following questions.
What brands are famous in the industry?
What do your competitors have that you don’t?
What factors of the product are attracting the attention of customers?
What offers, prices and value propositions are they offering?
What sales tactics, platforms and technologies are they using?
Rank your list of competitors and find answers to all your questions by conducting regular SWOT analyses on the most threatening competitors.
Identify market gaps
Find market gaps to differentiate your products or services from your competitors and stand out within your industry. Market gaps mean the needs of the customers that are not currently being fulfilled by the existing brands.
Define your target market
Know the unique characteristics of your customers and tailor your products, offers and marketing strategies accordingly. Define your target market in such a manner that the customers are more likely to purchase your products and services.
Determine barriers to entry
You should have a clear understanding of the factors that are preventing you from entering the market successfully. Ask questions such as what are the startup costs for building the business, what legal requirements are needed, and what political, social and economic factors are affecting the customer’s behaviour. Create an effective strategy to address these challenges.
Create a sale forecast
Estimate future sales so that you can secure funding from lenders and investors or make confident business decisions. Create forecasts for specific increments of times like the next year, six months or three months.
Analyse your data
After collecting and verifying the accuracy of all the information, it’s time to analyse the data to make it useful to you. The main elements of your research include the industry size, growth rate, industry outlook, customer buying trends, forecasted growth, and projected market share percentage. Make sections of your research and organise it according to the purpose, target market and competition.
Put your analyses to work
The last step is to put all your analyses to work. For analyzing internal purposes, find out where you can put your findings and research to improve your business, ways to make your marketing strategies more effective and what techniques you’d like to implement in your business. For external purposes, organize your research and data into a readable document to make it easily accessible to lenders.
Preserve all your research and information for the next analysis and make a calendar reminder every year to stay on top of the market.
The final verdict
Conducting a market analysis will help the business owner to identify who to target and how to target them, and that’s a massive part of business success.