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How to Write a Market Analysis for a Business Plan
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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.
Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.
Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.
How to conduct a market analysis: A step-by-step guide
In your market analysis, you can expect to cover the following:
Barriers to entry
Let’s dive into an in-depth look into each section:
Step 1: Define your objective
Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?
If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .
The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.
Step 2: Provide an industry outlook
An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.
Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:
Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?
Product life cycle
If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:
Research and development
How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.
Step 3: Determine your target market
This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?
Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.
With that in mind, your target market section should include the following points:
This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:
Create a customer persona
Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.
What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?
Research and supporting material
Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:
Target group surveys
You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.
Step 4: Calculate market value
You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.
A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.
A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:
Where products are sold
Who your competition is
The price per unit
How many consumers you expect to reach
The average amount a customer would buy over time
While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.
Step 5: Get to know your competition
Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?
There are two types of competitors that you should be aware of: direct competitors and indirect competitors.
Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.
An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.
Also, here are some questions you want to answer when writing this section of your market analysis:
What are your competitor’s strengths?
What are your competitor’s weaknesses?
How can you cover your competitor’s weaknesses in your own business?
How can you solve the same problems better or differently than your competitors?
How can you leverage technology to better serve your customers?
How big of a threat are your competitors if you open your business?
Step 6: Identify your barriers
Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:
Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?
Branding: You need to establish your brand identity to stand out in a saturated market.
Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)
Location: You need to secure a prime location if you’re opening a physical store.
Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).
Step 7: Know the regulations
When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):
Employment and labor laws
If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.
Tips when writing your market analysis
We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:
Use visual aids
Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.
Include a summary
If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.
Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.
Get to the point
It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.
Revisit your market analysis regularly
Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.
Why should you write a market analysis?
Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:
1. Learn how to analyze the market need
Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.
2. Learn about your customers
The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.
3. Get approved for a business loan
Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.
A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.
4. Beat the competition
Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.
There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.
The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.
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How to Write the Market Analysis Section of a Business Plan
Alyssa Gregory is an entrepreneur, writer, and marketer with 20 years of experience in the business world. She is the founder of the Small Business Bonfire, a community for entrepreneurs, and has authored more than 2,500 articles for The Balance and other popular small business websites.
The market analysis section of your business plan comes after the products or services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims.
In general, the market analysis section should include information about the industry, your target market, your competition, and how you intend to make a place for your own product and service. Extensive data for this section should be added to the end of the business plan as appendices, with only the most important statistics included in the market analysis section itself.
What Should a Market Analysis Include?
The market analysis section of your small business plan should include the following:
- Industry Description and Outlook : Describe your industry both qualitatively and quantitatively by laying out the factors that make your industry an attractive place to start and grow a business. Be sure to include detailed statistics that define the industry including size, growth rate , trends, and outlook.
- Target Market : Who is your ideal client/customer? This data should include demographics on the group you are targeting including age, gender, income level, and lifestyle preferences. This section should also include data on the size of the target market, the purchase potential and motivations of the audience, and how you intend to reach the market.
- Market Test Results : This is where you include the results of the market research you conducted as part of your initial investigation into the market. Details about your testing process and supporting statistics should be included in the appendix.
- Lead Time : Lead time is the amount of time it takes for an order to be fulfilled once a customer makes a purchase. This is where you provide information on the research you've completed on how long it will take to handle individual orders and large volume purchases, if applicable.
- Competitive Analysis : Who is your competition? What are the strengths and weaknesses of the competition? What are the potential roadblocks preventing you from entering the market?
7 Tips for Writing a Market Analysis
Here is a collection of tips to help you write an effective and well-rounded market analysis for your small business plan.
- Use the Internet : Since much of the market analysis section relies on raw data, the Internet is a great place to start. Demographic data can be gathered from the U.S. Census Bureau. A series of searches can uncover information on your competition, and you can conduct a portion of your market research online.
- Be the Customer : One of the most effective ways to gauge opportunity among your target market is to look at your products and services through the eyes of a purchaser. What is the problem that needs to be solved? How does the competition solve that problem? How will you solve the problem better or differently?
- Cut to the Chase : It can be helpful to your business plan audience if you include a summary of the market analysis section before diving into the details. This gives the reader an idea about what's to come and helps them zero in on the most important details quickly.
- Conduct Thorough Market Research : Put in the necessary time during the initial exploration phase to research the market and gather as much information as you can. Send out surveys, conduct focus groups, and ask for feedback when you have an opportunity. Then use the data gathered as supporting materials for your market analysis.
- Use Visual Aids : Information that is highly number-driven, such as statistics and metrics included in the market analysis, is typically easier to grasp when it's presented visually. Use charts and graphs to illustrate the most important numbers.
- Be Concise : In most cases, those reading your business plan already have some understanding of the market. Include the most important data and results in the market analysis section and move the support documentation and statistics to the appendix.
- Relate Back to Your Business : All of the statistics and data you incorporate in your market analysis should be related back to your company and your products and services. When you outline the target market's needs, put the focus on how you are uniquely positioned to fulfill those needs.
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How to write your market analysis
Optional information to include, why conduct a market analysis.
How to Write and Conduct a Market Analysis
A market is the total sum of prospective buyers, individuals, or organizations that are willing and able to purchase a business’s potential offering. A market analysis is a detailed assessment of the market you intend to enter. It provides insight into the size and value of the market, potential customer segments, and their buying patterns.
In this section, we’ll be covering what information to include in your business plan after completing your research. If you’re struggling with the research itself, you should check out our market research resources for step-by-step guidance.
The information featured in your market analysis should focus on firmly defining who your customers are. Here are the two steps you need to take:
Define your target market
Finding your target market requires segmentation based on demographic and psychographic information until you reach the ideal customer. You need to address who they are and how you identified them.
Target market examples
A target market analysis is a key part of any business plan. Let’s walk you through some examples.
Determine your market size
Identifying your potential customers isn’t enough. You also need to prove that the size of the market can support your business. To do this, it’s helpful to define what’s available, serviceable, and can be obtained.
The main purpose of the market analysis is to show who your customers are. While defining your target market may be enough, it can be helpful to include some of the following supporting details.
Show that you know your industry
Before starting a business, you should know the state of your industry and where it’s headed. This includes industry metrics you’ve collected, any barriers to entry, emerging trends, or common success factors.
Write a customer analysis
Conducting a customer analysis provides additional depth to your target audience. You’ll know them better and go beyond just segmentation.
Use a customer persona to describe your customers
It can be difficult for you, your employees, and potential investors to visualize who your customers are based solely on data. Creating a customer persona can bring them to life and support your target market choice.
Conducting any sort of in-depth research can be a time-intensive process. However, the benefits far outweigh the investment—so much so that it’s recommended that you revisit your market analysis at least once a year in order to stay on top of emerging trends or changes in the market.
As part of your business plan, it demonstrates that you have a firm understanding of your customers. Here are the other benefits gained by completing a market analysis:
If you really understand your potential customers and market conditions, you’ll have a better chance of developing a viable product or service. It also helps you explore if your idea will work or not. If you determine that the market size can’t sustain your business, there are too many barriers, high starting costs, intense competition, or some other factor that would lead to a higher chance of failure—you can pivot and avoid wasting your hard-earned time and money.
Better position your business
Researching the market landscape will help you strategically position your business. This may be done through pricing, specific features, production/distribution, or any other method to differentiate your business and make it more attractive to your target audience.
Verify product/market fit
Part of positioning your business is determining if there is a sustainable market for your business. This starts with segmenting and identifying your ideal customers. It then involves a process of gathering feedback, gauging interest, and finding any sort of demonstrable traction. To learn more about finding product market fit, check out the market research section of our Starting a Business Guide.
Research is not only valuable for informing you as a business owner but in convincing investors and lenders that your idea is worth funding. In many ways, the fact that you spent time pulling together viable information is just as important as the information itself. It shows that you care about finding success as a business owner and are willing to put in the work, even at this early stage.
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How to Do a Market Analysis for a Business Plan?
- What is Market Analysis in a Business Plan?
Market analysis for a business plan serves the purpose of exploring the suitability of your product or service for the market.
Why you should do Market Analysis for a business plan?
What should you include in market analysis, how to do market analysis for a business plan, market research from wisebusinessplans.
- Market Research Institutes and Databases we use
Your market analysis for a business plan lets you see your position in the market. It helps you identify the market trends, product demand, buying trends, seasonality, competition, etc.
A good market analysis will prepare you for a successful launch and steady growth. The time you invest in exploring your target market is well-spent.
In this article, we have discussed how to conduct market research for a business plan. Make sure you read till the end to fully understand how to do a market analysis in business plan .
When you analyze your target market in-depth, you understand it better. You understand what market demands are and how your product can serve the market. This market knowledge will help you convince your lenders and investors to work with you.
These are some reasons why you should include a market analysis business plan.
Target on the right customer base, know the trend, project revenues, set growth benchmarks , optimize marketing strategy .
Doing a market analysis will lower your risk of failure by helping you spot market pitfalls. When you know what lies ahead, you can plan better and prepare better.
A market analysis for a business plan will help you identify the right customer base for your product or service.
Many people cast a wide net at the start but a market analysis proves them wrong.
For example, if we say that many Indians live in a neighborhood and an Indian food restaurant will be a sure hit there may be wrong. Maybe all they are eating at home is Indian food and they don’t wish to eat the same food at a restaurant.
Another example would be thinking that since your product or service is a good match for small businesses, all small businesses are your target customers.
When you do market analysis and look critically at your customer base, you can dodge false optimism.
All markets are unpredictable in one way or another. Knowing how the market behaves when changes occur and understanding the market trends is important for long-term success.
Check for seasonality, innovation in the market, and consumer behavior trends. See how your industry responds to the changes in economy.
A market analysis for a business plan can help you make sound revenue projections for your business. Your projections with data are no longer your wishful thoughts.
If your revenue forecast is based on solid market research, potential investors and lenders will know it and consider you a serious candidate for funding.
Every industry moves in a distinct way. Some industries have favorable business conditions and growth is rapid in that industry.
Doing a market analysis and knowing your industry will help you set realistic growth benchmarks. When you set aggressive growth benchmarks with a reasonable chance of success, you can maximize your business growth.
Your marketing strategy is how you’ll raise awareness and drive sales for your product or service. Your market analysis can tell you:
- how to reach your customers,
- how you should design your offers,
- how much will you need to spend
- When will you achieve your marketing goals
You will analyze the target market in business plan in this section. Here is what you should include in a market analysis for business plan.
Industry outlook shows the direction of your industry. It shows if you are in a growing industry, a stagnant, or a declining industry.
Consider adding these points to your industry outlook:
- Are you in a big market like casual wear clothing or a niche market like heavy snow coats
- Discuss the product life cycle
- Discuss projected year-over-year growth
Determine and specify your target market. Your initial, super-optimistic estimations about your target market may be incorrect.
Base your assumptions on data. Specify your target market by using these markers.
- Identify your target customers’ demographics like gender, age, location, income, education, etc.
- Create a buyer persona to show what your ideal customer looks like
- Include research and surveys about your target market like focus groups, and feedback surveys
Document your product or service demand in the market. See how many units of similar products or services are sold per year and how many people make the purchase.
Market Growth Prospects
Assess the overall change in your industry. Every industry has different dynamics. Some industries react to economic shocks with a rapid decline while others may show resilience.
Many consumer goods industries stay stable for a long stretch of time and you can spot the decline years ahead. On the same lines, discuss the growth prospects of your industry and the market.
Trends are the sudden changes that disrupt. The fashion industry is one of the best examples to study market trends.
Watch for similar market trends in your industry and document them.
Competitor analysis is the meat of your market analysis for a business plan. These businesses are like case studies as you can learn from their business practices and growth trajectories.
Industry Entry Barriers
If the industry entry barriers are low, you’ll compete with a lot of businesses. However, your chances of early success are higher in such industries as you can easily reach the breakeven point and sustain your business.
Hard entry barriers mean there are established players in that industry and it will take time for you to grab a share of the market.
See the level of regulations for your industry and make a plan ahead to deal with them. The regulations increase business operating and overhead costs.
When doing industry analysis in business plan, list the industry regulations you’ll need to care for.
A market analysis is about collecting all the necessary information and research and getting into the details of your industry and competitors.
You can do a market analysis using this simple framework.
Decide your Purpose
Do industry research, define your customer, understand competition, collect more data for the market , make use of this data .
You may be doing a market analysis for knowing your industry better or for convincing a potential lender or investor. Once you determine the purpose of market analysis, you can estimate the time and type of research the process will take.
Discuss the industry trends and see how the market is changing over the past few years. You’ll also need to include industry forecasts to complete the picture.
A comparative market analysis helps you identify your competitive advantage. Make sure to include this in the market analysis.
Defining your customer helps you understand their needs. Define your customer in terms of demographics like:
Build a buyer persona for your product or service. This will help you understand the customer well and design products and services for your ideal customer.
Pro Tips: Learn how to write a business plan products and services section.
Understanding your competition will prepare you for the market. Look into their strengths and weakness. See what businesses are successful in your industry and study them to understand how they are doing it.
Steps for doing competitor analysis business plan.
- List your top competitors
- Do a SWOT analysis for each competitor
- Compare their product or service with yours
- Analyze why a customer chooses their product over others
- Identify opportunities on how you can improve your product
The more data you have, the better your chances are of doing a top-notch market analysis.
Collect your data from credible sources. Make sure your data is factually correct. You will be making decisions on the basis of this data.
Here are some reliable and credible data sources that you use in your market analysis.
- U.S. Bureau of Labor Statistics
- U.S. Census Bureau
- Local Chamber of Commerce & Industries
- Trade Journals and Academic Research
- Your own SWOT analysis
- Market surveys or feedback
It is time to make sense of the numbers.
The market analysis includes details from business conditions to long-term success in the industry. It calculates risk for your business. Some factors may not be in your favor and you’ll have to decide on your chances of success.
Keep your data organized in sections. Organize your data with a goal to present it before investors, lenders, and the team. That way, you’ll keep it simple and easy to understand.
Do you want to see an example of market analysis in a business plan? See our business plan examples to understand how it is done.
Market Analysis Business Plan Examples
Still wondering what is a market analysis in a business plan? See this example of market analysis in a business plan and writer a killer market analysis. Download the Business Plan Market Analysis Example PDF here.
At Wise Business Plans™ we pride ourselves on giving you the best market research for business plans available. We subscribe to commercial software programs and pay hefty licensing fees to give your business a competitive edge.
Instead of spending hours on figuring out how to do market research for a business plan, hire professionals from WiseBusinessPlans and get a top-notch market research report for your business plan.
Market Research Institutes and Databases we use
IBIS World’s Industry Market Research Reports are powerful business tools that provide strategic insight and analysis on over 700 U.S. industries.
ESRI: Market Research combines GIS (Geographic Information System) technology with extensive demographic, consumer spending, and business data for the entire United States to deliver on-demand, boardroom-ready reports and maps.
Dun & Bradstreet: D&B’s products and services are drawn from a global database of more than 130 million companies.
Hoovers : Hoover’s database of industry information, 65 million company records, and 85 million people records you can deliver valuable business insight to your employees and customers.
First Research: First Market Research is the leading provider of market analysis tools that help sales and marketing teams perform faster and smarter, open doors, and close more deals.
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A market analysis in a business plan is an assessment of the target market and industry in which your business operates. It involves researching and analyzing factors such as market size, competition, customer needs, trends, and growth potential.
Gather information for a market analysis by conducting market research through various methods like surveys, interviews, online research, and analyzing industry reports. Collect data on customer demographics, market trends, competitors, and customer preferences.
Include key components in a market analysis, such as an overview of the industry, target market segmentation, customer profiles, competitor analysis, market trends and growth projections, and barriers to entry. Use this information to identify opportunities and assess the viability of your business.
Analyze the competition by identifying direct and indirect competitors in your target market. Assess their strengths, weaknesses, market share, pricing strategies, and unique selling propositions. This analysis will help you understand your competitive landscape and differentiate your business.
A market analysis is crucial for a business plan as it provides insights into the market potential, customer demand, and competitive landscape. It helps you make informed decisions, develop effective marketing strategies, and demonstrate to investors or lenders that there is a viable market for your products or services.
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Market Analysis: What It Is and How to Conduct One
Learn what market analysis is and the steps to conduct your own market analysis.
What is market analysis?
Market analysis is a detailed assessment of your business’s target market and the competitive landscape within a specific industry. This analysis lets you project the success you can expect when you introduce your brand and its products to consumers within the market. Market analysis includes quantitative data such as the actual size of the market you want to serve, prices consumers are willing to pay, revenue projections, and qualitative data such as consumers’ values, desires, and buying motives.
Conducting a market analysis can benefit you in several ways by helping you to:
Spot trends and opportunities in your industry
Differentiate your business from competitors
Reduce the risks and costs of launching a new business (or pivoting an existing one)
Tailor products and services to your target customers’ needs
Analyze successes and failures
Optimize your marketing efforts
Reach new market segments
Monitor your business’s performance
Pivot your business in new directions
In researching this topic, you may come across terms with similar meanings, including market research and marketing analytics. Here are some distinctions:
Market research is the process of gathering information about a target market, including its customers’ needs and behaviors, in order to market products to it effectively.
Marketing analytics is the process of studying the metrics of specific marketing efforts, such as landing page sign-ups and social media engagement, in order to increase return on investment.
Here, we focus on market analysis as one component of a thorough business plan. Continue reading to begin conducting your market analysis and lay a strong foundation for your business.
How to do a market analysis in 6 steps
This section covers six main steps of market analysis, including the purpose of each step and questions to guide your research and reflections.
1. Research your industry.
The purpose of this step is to gain an understanding of your industry at large so that you know how to enter it, can spot trends, and compete with other brands.
Here are questions to get you started:
What statistical information can you gather about your industry from sources like the US Bureau of Labor Statistics, BMI Research, and professional associations?
How many businesses are in this industry?
What’s the market size in terms of the number of potential customers?
How much revenue does the industry generate?
What are the industry standards by which companies and consumers operate?
What external factors affect how businesses in this industry operate, including laws and regulations, new technologies, world events, and economic and social change?
Where do you spot opportunities to innovate within the industry?
2. Investigate the competitive landscape.
This next step takes you from broad industry insights to looking specifically at brands you’ll be competing against as you seek to attract potential customers in your target market. Here are questions to guide your process:
What brands are the most well-known in your industry? Who sets the trends and captures the attention of customers?
What are these brands’ offers, price points, and value propositions?
What sales tactics, technologies, and platforms do these brands use to create a customer journey?
How do these brands use content to educate and engage an audience?
What can you learn from customer reviews of these brands?
3. Identify market gaps.
With insights into how competing brands fare, you can find market gaps, differentiate your products and services, and stand out within your industry.
Market gaps are needs that are currently not being filled by existing brands. For example, in the online education industry, learners might be interested in topics that existing courses do not cover, in which case you could develop a course to fill this need.
Here are some questions to help you identify market gaps:
Looking back at your industry research findings, what will external factors like social change and new laws mean for developing products and services?
Ask consumers directly: “What do you want or need that you currently can’t find?”
How specifically do competitors’ products and services fall short?
In what ways would you be able to create better products and services, given your strengths and expertise?
4. Define your target market.
Now that you know your industry, the competitive landscape, and the market gaps you can fill, the next thing to do is get specific about the kinds of customers you want to serve. Define your target market according to the characteristics that make individual consumers more likely to purchase products and services from you:
Of the potential customers in your industry, which specific market segment can you target effectively?
How can you describe this segment according to their demographics (age, ethnicity, income, location, etc.) and psychographics (beliefs, values, aspirations, lifestyle, etc.)?
What are their daily lives like?
What problems and challenges do they experience?
What words, phrases, ideas, and concepts do consumers in your target market use to describe these problems when posting on social media or engaging with your competitors?
What are the features and benefits of your offers, and how will these provide solutions to your target market’s needs?
What marketing messaging can you use to appeal to this target market and exhibit empathy and understanding?
5. Identify barriers to entry.
As you’re getting to know your target market and tailoring your offers and messaging to consumers, it’s important to have a clear sense of factors that might prevent you from entering your market successfully. That way, you can devise a strategy to address challenges.
Here are some questions to make barriers to entry more visible:
What are the startup costs of building your business, including product development, technology, suppliers, patents, and certifications?
What legal requirements will you need to fulfill before launching?
What political, economic, and social factors might affect customers' behavior and their likelihood of purchasing your offerings?
How much do your top competitors spend on their advertising to earn customers' loyalty?
What will you need to do to present your offerings as better alternatives in terms of value, price, and ease of purchase?
6. Create a sales forecast.
Sales forecasting is the process of estimating future sales so that you can make confident business decisions or secure funding from investors and lenders. You may find it useful to create forecasts for specific increments of time, such as the next three months, six months, or a year.
To generate a sales forecast, answer these questions:
What products and services do you intend to sell?
How many units do you expect to sell during each increment of time, based on your market size and the behaviors of your target market?
What prices will you assign to each product or service?
What is the cost of producing and advertising each offering?
Use this formula to quantify your forecast:
(No. of units to sell X price for each unit) – (cost per unit X No. of units) = sales forecast
Your market analysis checklist
Use this checklist and the steps above to guide your market analysis process.
Gain a holistic understanding of everything happening in your industry and prepare to navigate it.
2. Investigate competitors.
Know who the big players are and how you can differentiate your brand.
Find unsolved problems and unmet desires in your market.
Know your customers’ unique characteristics and tailor your offers and marketing accordingly.
Know what stands in your way and address challenges head-on.
Estimate future sales and make confident business decisions.
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How to Write a Market Analysis for Your Business Plan
An important part of any good business plan is the Market Analysis. Before you can describe your marketing and sales strategies, you need to figure out what market you serve and what need you fulfill. Then, your Marketing Strategy and Implementation Plan, ideally covered in the next section of your business plan, will fit into a logical flow.
I have read many business plans that make the mistake of starting a Market Analysis section, only to wander off into a description of what the company sells, how it will promote its products, and how its product or service is different. These are all undeniably important points; however, they deserve a their own section and should be addressed in turn.
Let’s start with what a market is. A market, in this instance, refers either to a place where goods can be sold, or to a particular class of buyers. So the market is the “Where?” that your product or service is sold, and the “Who?” you sell it to.
So what should you include in the Market Analysis section of your business plan?
Size of the Market
The first number you need to identify is the total annual sales, in dollars, of the market you serve. If you are selling cars, state the total sales of cars in your geographical area for the most recently ended year. This number will be important later when you forecast your sales because it will enable you to calculate what share of the market you expect to capture.
Besides stating the current size of the market, it is also valuable to include forecasts of the future size of the market. Such market projections should be offered only if they come from acknowledged government or research organizations. Certainly you can make up your own projection, but it will lack the credibility of a recognized authority on the subject and probably will serve only to make you look amateurish.
We hope you find this article helpful. For more great information about writing a quality business plan, check out “How to Write a Shark-Ready Business Plan” by our Founder Al Lierman.
There are several ways that you can break a market down into segments. Doing so will help you and the reader of your plan understand where your specific product fits into the total market, and who the potential customers are.
Geography and Location
It is a good idea to indicate the geographic segments of your product’s market, especially the market in which you sell. If you are an international company, then describe the size and characteristics of the international market. If, on the other extreme, you only sell to customers within 10 miles of your location, then provide information about this local segment.
On one level, all customers who a buy a particular product make up that product’s market. But, not all buyers of the product buy it for the same reason. For example, buyers of Personal Computers can be segmented into business users and home users. This type of market segmentation is essential because your marketing plan, which you will present later, will describe your strategy for targeting these customers.
Further segmentation might be called for in many cases. To continue with the PC example, if your business is selling servers to corporate clients, it makes sense to identify the portion of the PC market that is businesses that buy network servers. The more detail you can provide about the customer segments that you target, the better.
The level of detail you provide about your market’s customer segments depends on the level of detail in your marketing plan. Any customers you intend to pursue with your marketing strategy should be identified and quantified in the market analysis section.
This section is also an appropriate place to provide a profile of your target customer. This profile should include any demographic or psychographic information relevant to buyers of your product or service. For business customers, provide statistics about the size of the typical client firm, number of employees, location, or industry.
Market Trends and Needs
Once you have described the segments of your product’s market, explain the trends, growth, and needs of the market. Turn your focus especially to the trends in the market segments within which your product fits. In this section you should provide statistics for the growth in the market over the last five to ten years. If you can provide forecasted growth rates from an acknowledged agency or research firm, do it.
If your market segment is growing and is projected to continue to grow, talk about it and back it up with numbers. If the trend is for new products like yours to sell well and replace older models, then say so. Ideally, the trends you identify should support the positioning statement and marketing strategy that you are about to present.
As for market needs, a business plan can make a powerful statement about a company’s chance for success if it can show a need in the market that is unmet or underserved, and then present the company’s product as the perfect solution to that problem.
Venture capitalists and angel investors often refer to products as either painkillers or vitamins. Painkillers tend to get the most funding because they are products that, as soon as they come out, people have to have them. Vitamins are products that are good, useful, and maybe even important, but we can live without them.
The ultimate goal of the Market Analysis is to show where the burning need, the source of the pain, is in the market. In the best business plans, the Marketing Strategy describes how the company will position its product to ease the pain.
The final section of the Market Analysis is the Industry Analysis. Where the earlier sections of the Market Analysis dealt with issues of who buys the product and where they are located, the Industry Analysis addresses the making and selling of the product: industry participants, distribution patterns, and competition. A thorough discussion of these aspects of the industry will provide a good overview of the industry to a reader who is otherwise unfamiliar with it.
Industry participants are those firms and individuals that are involved in at least one aspect of bringing the industry’s product to its customers. Examples include manufacturers, suppliers, service providers, wholesalers, distributors, dealers, and reps.
For example, an analysis of the book publishing industry would identify participants such as authors, agents, publishers, book manufacturers, book wholesalers, bookstores, and book clubs.
If you are dealing with a physical product you will probably want to describe how it is distributed, from the time it is created until it makes its way into a customer’s hands. Explain the various ways that finished products are distributed, whether directly to end users, through wholesalers, from wholesalers to retailers, and so on.
A company can often distinguish itself, even if it does not have a unique product, by providing a new way to sell or distribute the product to its customers. Dell Computer was a great example back in the day. The company was successful not because its PCs were better then any other company’s; it made a fortune because it revolutionized the way computers were manufactured and distributed to consumers. It configured its products to its customers’ specifications and sold them direct rather than prebuilding them and selling them through distributors as its competitors did. In short, it’s success was based on a better business model more than on a better product.
Once you have identified all of the industry’s participants you are in a better position to explain where your company fits in. Unless you have a completely new concept or product with no competition, your industry analysis should include a thorough discussion of your competitors. I have seen many first-time plan writers gloss over this section or ignore it altogether. Don’t make this mistake.
Any smart venture capitalist, angel investor, or lending officer recognizes that every business has competition. By avoiding this topic in your business plan you will show your reader one of two things: either you are naïve about your competition and have not done your homework, or you are less than forthcoming and are hiding something. Furthermore, you miss an opportunity to show exactly how your proposition is unique and different from your competitors’.
The Market Analysis section of your business plan is a great place to show that you know your business inside and out. Stick to the concept of describing the market and the industry as they exist today, a sort of situation analysis. If you do it right, the stage will be set for you to present your plan for conquering the world in your Marketing Plan and Strategy Implementation section immediately following the Market Analysis.
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How to Do Market Analysis for a Business Plan
Mar 29, 2017 by Kiesha Frue
A business plan highlights the future objectives of a company, often relating to how the company will sell their product. It also explains proposed strategies to meet sales goals. And market analysis communicates information regarding business.
But market analysis is a broad term . In a business plan, it means you must understand your market/industry and prove to potential investors it’s worth providing funds to your company.
Specifically, you can include:
- Your industry
- Your target market
- The product you intend to sell
- Information about competitors and
- Your marketing plan
This section can appear after introducing your products and/or services. The market analysis section should be fully fleshed out , backed with statistics and reliable data.
A breakdown of market analysis in business plans
You’ll be including the following information:
Your industry: Through data and analytics, this section highlights the trends and buying behavior within your industry. The point is to prove to investors this is a viable market by providing statistics on growth rate and industry size.
Your target market: These are your prospective customers . You tell who they are, their salary, biggest ailments, where to find them, location, and social factors that affect their purchasing decisions.
The product you intend to sell: You’ve mostly explained this in a previous section, but it can be smart to introduce it again, backed with any data collected that proves your product’s worth in the market.
Information about competitors: You’ll explain the strengths and weaknesses of major competitors in your industry. You’ll want to explain how you’ll utilize the weaknesses to market your product. SWOT analysis is perfect for this .
Your marketing plan: The strategies used to market your product should be based on data, research, and competitors. This section will highlight offline, online, digital, and various technologies required to market your product.
The research necessary to complete these sections may be extensive. But there are several avenues you can use to collect it.
Custom surveys: If you’ve ever provided a survey to existing clients from a road test or testimonial phase, you can include their feedback to prove your product is desirable.
Become your customer: Many businesses create a product because it didn’t exist for their problem. If you’re one of them, you’ve already assessed your product through the eyes of a buyer. But if you didn’t, it’s time you sit down and look at it from their point of view. Why would you want your product ? How would you buy it? Does the competitor do it better and if so, how?
Google. Statistics and facts from official publications, such as the government, are often readily available online. These statistics can be inputted to strengthen your points related to demographics, industry research, and the competition. But the stats you choose must be linked to your business and/or product positively. Otherwise, they’re useless.
Chop it down. Your business plan should be concise. Include the most relevant facts, information, and statistics then cut the fat from the rest. Investors don’t want to sift through endless information to get to the conclusion.
The section about market analysis in your business plan is crucial. It must explain the strengths of your industry, product, and marketing strategies . It requires statistics and data to prove to your investors they will make their money back — meaning your company is a profitable investment.
You can use tools such as SWOT analysis to identify strengths, weaknesses, opportunities, and threats regarding your products, industry, or the competition. And every piece of information, from the analysis to the data, must point back positively to your company.
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How to Conduct a Market Analysis the Right Way
When you start a business, do you just wing it? Or, do you take time to plan and research your strategies before you jump into the market? If you’re like most entrepreneurs, you probably prepare your business before taking the plunge.
Before diving into a market or switching up a strategy, you need to do thorough research. Otherwise, your business could quickly sink.
If you want to stay afloat in the business world, you need to know how to conduct a market analysis.
What is a market analysis?
A market analysis is the process of gathering information about a market within an industry. Your analysis studies the dynamics of a market and what makes potential customers tick.
A market analysis may seem complex, but it’s necessary if you want to lead your business in the direction of success.
When you conduct a market analysis, you learn the following:
- Who are my potential customers?
- What are my customers’ shopping and buying habits?
- How large is my target market?
- How much are potential customers willing to pay?
- Who is my competition?
- What are my competitors’ strengths and weaknesses?
Your market analysis can make or break your startup. Analyzing markets helps you reduce risks because you can better understand your customers and market conditions.
Your analysis also helps you clarify what makes you different from the competition. That way, you know what makes you stand out. Or, you know what you need to do to set yourself apart.
Whether you’re starting a venture, introducing a new product, or growing your small business , market research can help take you to the next level.
How to conduct a market analysis: 7 steps
Conducting and writing a market analysis takes time and lots of research. It’s not something you can whip up overnight. To help guide you through your market assessment journey, follow the seven market analysis steps below.
1. Determine the purpose of your study
There are many reasons why businesses might conduct market research. You may use them to assess business risks (e.g., threats), reduce issues, or create opportunities.
You can look at past problems to decrease future risks. And, analyze past successes to see what you need to continue to do in the future.
Before starting any market research, determine whether the analysis is for internal or external purposes. Internal purposes include things like improving cash flow or business operations. External purposes include trying convince lenders to give you a business loan.
Your analysis is a critical part of your small business plan . It shows lenders that you know your industry like the back of your hand and that your business has growth potential.
The kind of research you conduct varies depending on your analysis’ purpose. For example, say you conduct a study for internal purposes. Because it’s for internal purposes, you likely won’t need to collect as much data as you would with an external purpose.
Make sure you determine whether your study will be internal, external, or both before proceeding with your research.
2. Look at your industry’s outlook
In your analysis, outline the current state of your industry. Include where the industry is heading using metrics such as size, trends, and projected growth. Be sure to have relevant data to back up your claims.
This section will let investors or lenders see that you’ve done your homework on your business’s industry. And, it will show them whether or not your industry is worth their time and money.
3. Pinpoint target customers
The truth is, not every person will be your customer. But that’s OK! When you analyze the market, you must determine who your potential customers are. This part of the process is called a target market analysis.
You need to fully understand who your customers are and where they come from. Your research should paint a clear picture of your potential customers. Look at things like:
- Education level
- Marital or family status
Once you narrow down who your customers are, find out their needs, interests, personalities, and demographics.
Consider also creating customer personas based on your research. Many businesses have multiple customer personas. After you compile different customers’ characteristics, build different personas to represent your typical customers.
Pinpointing your target market can help you better cater to future customers and market more efficiently.
As your business grows, your potential customers may evolve or change. Revisit your target market from time to time to ensure they still fit your business.
4. Compare your competition
To further analyze the market, you need to understand your competition. And, you must know who your competitors are trying to target.
Take the time to research what other businesses are out there. Look at things like your competition’s offerings, location, targeted customers, and disadvantages in the market.
Make a list of all of your main competitors. Go through each one on the list and determine their strengths and weaknesses ( SWOT analysis ). What does their business have that you don’t? Why would a customer pick a competitor’s business over yours? Do they pose any threat to your business?
Once you outline your competitors’ strengths, weaknesses, opportunities, and threats, rank them from most to least threatening. Then, determine your startup’s advantages and marketing position.
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5. Gather additional data
Information is your greatest ally when it comes to conducting a market analysis. The more information you gather and have, the better off your business will be.
The data you have should be unbiased, relevant, and factual. You should be able to back up your research and make decisions based on accurate information.
Use credible sources to gather additional data. You can take advantage of different resources, such as:
- The Bureau of Labor Statistics
- The Census Bureau
- State and local commerce websites
- Trade journal articles
- Competitors’ strengths and weaknesses
- Target market surveys or questionnaires
- Information from interviews or focus groups within your target market
6. Analyze your findings
After you analyze the market, it’s time to take a look at your findings. Lay out all of your research and organize it using different sections. Include sections for your purpose, target market, and competition.
Here are some other things you should include in your findings:
- An overview of your industry’s size and growth rate
- Your projected market share percentage
- Your outlook for the industry
- Discounts you plan on offering
- Buying trends
- Your business’s forecasted growth
- Prices of your offerings
- How much customers are willing to pay
- Your cash flow projection
- Your customer groups
- Results of your other analyses
Based on your research, you will be able to forecast other things for your business, such as your cash flow cycle, gross margin, and customers’ buying habits.
7. Put your analysis into action
Conducting a market analysis might seem like a daunting task, but your business will thank you for it later.
Sure, you’ll spend a good chunk of time working on your marketing analysis. But, it’s well worth it. Don’t put all that extensive research to waste. Put your analysis into action.
For internal purposes, look at how you can use your findings to improve your business. Use your analysis to see if you can make any of your business processes more efficient.
If you conducted an analysis for external purposes, be prepared to speak with lenders about your research and conclusions.
Don’t just box up your analysis and pack it away for “later.” Revisit your market analysis every now and then for necessary tweaking.
A market analysis starts with keeping a close eye on your books. Streamline your accounting process with Patriot’s accounting software . Easily record income and expenses to keep your business on track. What are you waiting for? Get started with your self-guided demo today!
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This article has been updated from its original publication date of August 22, 2012.
This is not intended as legal advice; for more information, please click here.
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A marketing plan is one component of a business plan. Marketing plans contain information about a company's products and/or services and discuss how potential customers will be identified and how the company's products and/or services will be marketed to them.
Putting together a marketing plan is a time-intensive process that involves conducting a great deal of research using a variety of different resources and then synthesizing that research into one cohesive document that provides a detailed discussion of a company's target market, its competitors, industry trends, etc.
Below is a list of some of the elements generally included in a marketing plan, as well as -- for some of the elements -- suggestions on where to find more information regarding that element.
A brief synopsis of the marketing plan that provides highlights about a company's offerings and marketing strategies
Presents pertinent information about a company. Commonly included sections include:
- Mission statement - explains a company's purpose, goals, and/or strategy. See Finding a Company's Mission Statement for more information about how to find existing company mission statements and how to write a mission statement.
- Product or service description - provides a detailed description of a company's products and/or services
- Value proposition - explains the benefits that customers will receive from a company's products and/or services. For more information, see Value Proposition .
- SWOT analysis - explains a company's internal strengths and weaknesses, as well as its external opportunities and threats. For more information, see SWOT Analysis Research .
- Critical issues - outlines the strategy that would best utilize a company's strengths and opportunities while minimizing the effects of its weaknesses and threats
includes information about market trends and dynamics, as well as about the target market and the competitive environment. Commonly included sections are:
- Macro environment - includes information about the political, economic, social, and technological factors affecting a company, as well as information about the industry in which the company operates Suggested resources: For information about establishing a company in another country, see Finding Country Information . For information about establishing a company in a U.S. city or town, use Google, Bing, or another search engine to find the city's or town's chamber of commerce, which will provide information about existing area businesses and may provide information about establishing a new business in a particular locale, etc. For economic information, see Economic Surveys in the Economic Census and/or Economic Indicators and/or Federal Reserve Economic Data . For demographic and psychographic information, see Finding Demographic or Psychographic Information . For technology research, search in some of the Library's Marketing databases , using a search strategy such as [your topic] AND technolog* For industry research, see Finding Industry Overviews and Finding Industry Trends and Projections .
- Market size - discusses current market size as well as expected growth rate. See Finding Market Size Information .
- Market trends - discusses the market factors that may affect purchasing behavior. See Conducting Market Research and/or Finding Industry Trends and Projections.
- Target market analysis - explains which particular population will be the focus of a company's marketing efforts and why the population's characteristics are relevant to the company's marketing plans
- Consumer analysis - discusses demographic, psychographic, and behavior characteristics of the target market identified above. Search in some of the Library's Marketing databases , using a search strategy such as [your target market] AND (demograph* OR psychograph* OR "consumer behavior")
- Need analysis - explains what needs the target market has and how a company's products and/or services could meet those needs. Target market needs may be identified from the consumer analysis conducted above.
- Competitive analysis - lists a company's major competitors and their marketing strategies. See Finding a Company's Competitors to find a company's major competitors. To find those companies' marketing strategies, search in some of the Library's Marketing databases , using a search strategy such as [company name] AND "market* strategy"
Provides measurable information about how a company will meet its objectives and the time frame in which it will do this
- Marketing objectives - describes a company's goals, usually in terms of sales (units or dollars) or market share
- Financial objectives - describes a company's expected profits or revenue
- Positioning strategy - discusses how a company's products or services will be introduced to the marketplace and differentiated from the products or services of its competitors
- Product strategy - provides detailed information about a company's products or services, including potential future offerings
- Price strategy - explains how a company's products or services will be priced, taking into account internal as well as external factors that may affect supply and demand, etc.
- Distribution strategy - describes where and how a company's products or services will be provided to customers
- Integrated marketing communications strategy - discusses how customers will be informed about a company's products or services
- Branding strategy - describes how a company's name, logo, slogan, design, etc. will be marketed so that they will be increasingly recognized by members of the company's target market. For more information, see Brand Management .
- Marketing research - describes the market research activities that will be conducted during the period for which the marketing plan is being written -- for example, consumer research, industry research, forecasting, competitive analysis, etc.
Provides detailed information about a company's projected financial situation
- Break-even analysis - estimates how much of a company's products or services need to be sold in order to cover the company's costs
- Sales forecast - estimates a company's sales for a given period of time. For more information, see Business Forecasting .
- Expense forecast - lists the marketing expenses needed to achieve a company's marketing objectives
Explains how a company's marketing plan will be implemented and what measures the company could in place in order to handle unexpected events
- Implementation - provides a detailed timeline for the execution of the various activities described in the company's marketing plan
- Controls - discusses the benchmarks a company will use to chart its progress against its implementation schedule
- Marketing organization chart - outlines the structure of a company's marketing team, specifying which person is responsible for which marketing activity
- Contingency planning - explains how a company will handle unexpected events
The print books, ebooks, and websites listed below are good sources of additional information about marketing plans and the various elements that make up such plans.
- 30-minute social media marketing: Step-by-step techniques to spread the word about your business fast and free
- Guerrilla marketing in 30 days
- How to make money with social media: An insider's guide on using new and emerging media to grow your business
- Marketing plan handbook: Develop big picture marketing plans for pennies on the dollar
- The procrastinator's guide to marketing, or how to get off your butt and develop your marketing plan!
- 30 minutes to write a marketing plan
- Direct marketing: Strategy, planning, execution
- How to write a successful marketing plan: A disciplined and comprehensive approach
- The marketing plan: How to prepare and implement it
- Understanding consumer decision making: The means-end approach to marketing and advertising strategy
- Entrepreneur: How to create a marketing plan This site, affiliated with the print Entrepreneur magazine, explains what marketing plans are and how to do the research needed to write one.
- Mplans: How to write a marketing plan This site contains links to articles that describe the planning process for creating a marketing plan and that give tips for writing effective plans.
- Mplans: Sample marketing plans This site provides access to hundreds of free sample marketing plans in a variety of categories.
- U.S. Small Business Administration: Developing a marketing plan This site provides numerous links related to creating a marketing plan.
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Market analysis – the definition
A market analysis provides information about industries, customers, competitors, and other market variables. You can also determine the relationship between supply and demand for a specific product or service. Based on these insights, you can make more informed decisions about possible marketing strategies.
Different methods of market analysis
Market analysis vs. market research: what are the main differences, what is a market analysis for, market description: examine your market, market size and market development: how attractive is the market, competitive analysis: what are the market characteristics, analysis of the customer industry, potential analysis of the target market: how will the market develop in the future, what is a market analysis.
How suitable is your offer for a certain market? A market analysis will answer these important questions. Every market participant – whether companies, founders, or private customers – can carry out a market analysis. In any case, it serves as a basis for decision-making. Information is collected and evaluated from suppliers and buyers in order to make purchase or sales decisions. Furthermore, you can evaluate your current market or view new markets.
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Market analysis is a large part of market research and an important component of a business plan . In this plan, business founders document their business idea in writing. During the course of the market analysis, a specific market is taken into account. With the help of the results displayed, companies can identify the opportunities and risks of that particular market. The target group forms the basis of the market analysis.
In order to carry out a market analysis you will require reliable information. Generally speaking, small companies tend to carry out the necessary research for their market analysis themselves. Larger companies, on the other hand, often commission market research institutes to do it for them. A market analysis can be carried out using various methods of data collection. A distinction is made between primary and secondary research .
With primary research , experts from a target market are interviewed in order to collect new data. The advantage of this is that it is still your own research purpose in focus. This way, you can collect the data you need for your market analysis. In contrast to this, secondary research uses existing data records from previous surveys. This can be collected both internally and externally. By opting for secondary research you can save both time and money because you don’t have to conduct costly interviews and evaluation. Sources for representative data are, for example, the Federal Statistical System, professional chambers, annual reports of other companies, or trade journals.
The bigger the company, the broader your market analysis should be.
Market research means the systematic investigation of a specific market, as such research provides information on the basis of which you can select a suitable marketing instrument. In contrast to market research, market analysis focuses on a specific market on a given date . The aim of market analysis is to identify the most important characteristics of a market and to determine the market structure at a certain point in time.
The market structure describes the structure of a certain market. It focuses on the interaction between suppliers and consumers and can be determined on the basis of various criteria. These criteria depend on different characteristics of a market. These include the size and value as well as the number of suppliers, the buying behavior of consumers, or growth forecasts.
If you want your business plan to be successful, you will need to carry out a market analysis. A comprehensive market analysis forms the basis of the development of a marketing strategy and concrete marketing measures.
Further reasons for conducting a market analysis:
- With a market analysis, you can back up your business idea with figures, data, and facts, and therefore provide a convincing business plan.
- You can recognize market potential at an early stage and avoid making the wrong decisions.
- You can identify any existing knowledge gaps and fill them in on time.
- A market analysis shows you which competing products are already on the market.
- With a market analysis, you can identify the market entry barrier and estimate the market attractiveness.
Market analysis: content and structure
An effective market analysis will include an accurate description of the target market and thorough market research. It conveys a holistic picture of a specific market. A market analysis consists of five different areas in which information is collected and analyzed.
At the beginning, define your market and differentiate it from other markets. Depending on the product or service, your market can be defined using various criteria. In order to carry out segment-specific analyses , the target market must be divided into different segments based on certain characteristics. Such characteristics can be socio-demographic (age, sex, income) or regional (states, cities).
The following questions should be covered in the market description:
- What target group is your product or service aimed at?
- What age group is your product aimed at?
- What is the average income of your target market?
- Where does your target market live?
Find out as much specific information as possible about your target market:
- Does your target market drink chocolate mocca or black coffee?
- How fast does your target group drink coffee? 20 or 30 minutes?
When determining the size of your market you should use data that is as accurate and up-to-date as possible. This part of the market analysis is about determining and evaluating the actual turnover or sales volume of a product or service in a specific market. Based on these figures you can make forecasts about the market development and derive the attractiveness of the market from this. The market development includes market growth and growth rates.
What are suitable sources for procuring information?
The following administrative bodies and internet sites provide free input for your market analysis:
- The U.S. Census Bureau provides reliable information that covers all topics from A for advance monthly retail sales, to Z for zip-codes. With resources such as surveys, programs, and news articles, there is no shortage of information.
- The Small Business Administration provides free acess to business and economic statistics collected by the U.S. government.
- Statistics, market data, and studies can be found online at Statista . There you can view data from market research and opinion research institutions, information from the business world, and official statistics.
- GlobalData supposedly produces over 15,000 reports, briefings, forecasts, and data books a year. It features a wide range of sectors, companies, and countries.
The competitive analysis considers individual factors that are important for a market. Here, the essential characteristics of a market are analyzed and described. The “ Five Forces Framework” is an established tool for analyzing competition, especially in the consulting industry. The management theorist, Michael E. Porter, shows which factors are important for the analysis of both the market and the competition:
- Bargaining power of customers : How do customers react to price increases or decreases? How important is your product or service for your target group?
- Bargaining power of suppliers : Suppliers have a particularly high bargaining power if the number of suppliers is limited. How can you react to price increases if necessary?
- Threat of substitute products and markets: Are there alternatives to your product or service? Could emerging innovation jeopardize the distribution of your product or service?
- New competitors and market entry barriers: If a market is particularly attractive, it is sure to attract new competitors. How high are the market entry barriers for potential competition? For example, high investment costs for a product or service can be a barrier to market entry. Access to a market is also made more difficult if high marketing costs are necessary to achieve a certain level of awareness, or if resources are difficult to access due to exclusive suppliers, or if a shop is in an awkward location.
- Competitors in the market: How high is the competition? Who dominates the market? Which competitors are ahead and why?
In the competitive analysis you should get to know not only your customers, but also your competitors and possible competitive advantages :
- How quickly should you enter the market?
- What are the dangers of entering the market?
- Who offers a similar range of products and how many competitors are there?
- What do your competitors do well and what can you do better?
- How similar is your target market to that of your competitor?
The analysis of the customer industry identifies the industries that achieve the highest sales or turnover. In doing so, you should again refer to your defined market. You can then analyze the structure and attractiveness of the industries with regard to the various sales aspects. As a result of your analysis you can identify the target groups and their various industries and you can determine customer requirements and customer behavior . Based on the results, you can, for example, develop suitable marketing strategies for your business.
The following questions should be answered:
- How high are the revenues generated in the particular industry?
- Which company is the market leader?
- What are the current trends in the industry?
- Which innovations have been able to advance the industry?
A market analysis does not only reveal the past and current state of a market, but also the trend of its future development. For this purpose, the potential analysis highlights potential employees, market entry barriers, success factors, as well as current developments and trends. A forecast of the market development is particularly important for your sales planning and for possible investors.
With the help of a market analysis, businesses can gain valuable information about a certain market. If you are setting up a business, want to investigate your current market, or simply look at new markets, a market analysis helps you to identeify and assess the opportunities and risks of a market. On the basis of a market analysis, you can develop concrete marketing strategies and successfully implement your business idea.
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Why do we need market research?
Market research is an important procedure to advance a company or to make decisions as an entrepreneur. Customers and respondents play an important role, as their opinions are an important indicator of sales opportunities. It is crucial for the success of a company to examine the market at regular intervals. So, what does market research mean, and why is it so important for a company?
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How to do a market analysis for a business plan
A key part of any business plan is market analysis. This section needs to demonstrate both your expertise in your particular market and the attractiveness of the market from a financial standpoint.
This article first looks at what we mean exactly by market analysis before looking at how to make a good one for your business plan.
What is a market analysis?
A market analysis is a quantitative and qualitative assessment of a market. It looks into the size of the market both in volume and in value, the various customer segments and buying patterns, the competition, and the economic environment in terms of barriers to entry and regulation.
How to do a market analysis?
The objectives of the market analysis section of a business plan are to show to investors that:
- you know your market
- the market is large enough to build a sustainable business
In order to do that I recommend the following plan:
Demographics and Segmentation
Target market, market need, competition, barriers to entry.
The first step of the analysis consists in assessing the size of the market.
When assessing the size of the market, your approach will depend on the type of business you are selling to investors. If your business plan is for a small shop or a restaurant then you need to take a local approach and try to assess the market around your shop. If you are writing a business plan for a restaurant chain then you need to assess the market a national level.
Depending on your market you might also want to slice it into different segments. This is especially relevant if you or your competitors focus only on certain segments.
Volume & Value
There are two factors you need to look at when assessing the size of a market: the number of potential customers and the value of the market. It is very important to look at both numbers separately, let's take an example to understand why.
Imagine that you have the opportunity to open a shop either in Town A or in Town B:
Although Town B looks more competitive (10 competitors vs. 2 in Town A) and a smaller opportunity (market size of £100m vs. £200 in Town A), with 1,000 potential customers it is actually a more accessible market than Town A where you have only 2 potential customers.
The definition of a potential customer will depend on your type of business. For example, if you are opening a small shop selling office furniture then your market will be all the companies within your delivery range. As in the example above it is likely that most companies would have only one person in charge of purchasing furniture hence you wouldn't take the size of these businesses in consideration when assessing the number of potential customers. You would however factor it when assessing the value of the market.
Estimating the market value is often more difficult than assessing the number of potential customers. The first thing to do is to see if the figure is publicly available as either published by a consultancy firm or by a state body. It is very likely that you will find at least a number on a national level.
If not then you can either buy some market research or try to estimate it yourself.
Methods for building an estimate
There are 2 methods that can be used to build estimates: the bottom-up approach or the top-down approach.
The bottom-up approach consists in building a global number starting with unitary values. In our case the number of potential clients multiplied by an average transaction value.
Let's keep our office furniture example and try to estimate the value of the 'desk' segment. We would first factor in the size of the businesses in our delivery range in order to come up with the size of the desks park. Then we would try to estimate the renewal rate of the park to get the volume of annual transactions. Finally, we would apply an average price to the annual volume of transactions to get to the estimated market value.
Here is a summary of the steps including where to find the information:
- Size of desks park = number of businesses in delivery area x number of employees (you might want to refine this number based on the sector as not all employees have desks)
- Renewal rate = 1 / useful life of a desk
- The volume of transactions = size of desks park x renewal rate
- Value of 1 transaction = average price of a desk
- Market value = volume of transactions x value of 1 transaction
You should be able to find most of the information for free in this example. You can get the number and size of businesses in your delivery area from the national statistics. Your accountant should be able to give you the useful life of a desk (but you should know it since it is your market!). You can compare the desk prices of other furniture stores in your area. As a side note here: it is always a good idea to ask your competitors for market data (just don't say you are going to compete with them).
That was the bottom-up approach, now let's look into the top-down approach.
The top-down approach consists of starting with a global number and reducing it pro-rata. In our case, we would start with the value of the UK office furniture market which AMA Research estimates to be around £650m and then do a pro-rata on this number using the number of businesses in our delivery area x their number of employees / total number of people employed in the UK. Once again the number of employees would only be a rough proxy given all business don't have the same furniture requirements.
When coming up with an estimate yourself it is always a good practice to test both the bottom up and top-down approaches and to compare the results. If the numbers are too far away then you probably missed something or used the wrong proxy.
Once you have estimated the market size you need to explain to your reader which segment(s) of the market you view as your target market.
The target market is the type of customers you target within the market. For example, if you are selling jewellery you can either be a generalist or decide to focus on the high end or the lower end of the market. This section is relevant when your market has clear segments with different drivers of demand. In my example of jewels, value for money would be one of the drivers of the lower end market whereas exclusivity and prestige would drive the high end.
Now it is time to focus on the more qualitative side of the market analysis by looking at what drives the demand.
This section is very important as it is where you show your potential investor that you have an intimate knowledge of your market. You know why they buy!
Here you need to get into the details of the drivers of demand for your product or services. One way to look at what a driver is to look at takeaway coffee. One of the drivers for coffee is consistency. The coffee one buys in a chain is not necessarily better than the one from the independent coffee shop next door. But if you are not from the area then you don't know what the independent coffee shop's coffee is worth it. Whereas you know that the coffee from the chain will taste just like in every other shop of this chain. Hence most people on the move buy coffee from chains rather than independent coffee shops.
From a tactical point of view, this section is also where you need to place your competitive edge without mentioning it explicitly. In the following sections of your business plan, you are going to talk about your competition and their strengths, weaknesses and market positioning before reaching the Strategy section in which you'll explain your own market positioning. What you want to do is prepare the reader to embrace your positioning and invest in your company.
To do so you need to highlight in this section some of the drivers that your competition has not been focussing on. A quick example for an independent coffee shop surrounded by coffee chains would be to say that on top of consistency, which is relevant for people on the move, another driver for coffee shop demand is the place itself as what coffee shops sell before most is a place for people to meet. You would then present your competition. And in the Strategy section explain that you will focus on locals looking for a place to meet rather than takeaway coffee and that your differentiating factor will be the authenticity and atmosphere of your local shop.
The aim of this section is to give a fair view of who you are competing against. You need to explain your competitors' positioning and describe their strengths and weaknesses. You should write this part in parallel with the Competitive Edge part of the Strategy section.
The idea here is to analyse your competitor's angle to the market in order to find a weakness that your company will be able to use in its own market positioning.
One way to carry the analysis is to benchmark your competitor against each of the key drivers of demand for your market (price, quality, add-on services, etc.) and present the results in a table.
Below is an example of a furniture shop in France. As you can see from the table all the actors on the market are currently focused on the low medium range of the market leaving the space free for a high end focused new player.
This section is all about answering two questions from your investors:
- what prevents someone from opening a shop in front of yours and take 50% of your business?
- having answered the previous question what makes you think you will be successful in trying to enter this market? (start-up only)
As you would have guess barriers to entry are great. Investors love them and there is one reason for this: it protects your business from new competition!
Here are a few examples of barriers to entry:
- Investment (a project that requires a substantial investment)
- Technology (sophisticated technology a website is not one, knowing how to process uranium is)
- Brand (the huge marketing costs required to get to a certain level of recognition)
- Regulation (licences and concessions in particular)
- Access to resources (exclusivity with suppliers, proprietary resources)
- Access to distribution channels (exclusivity with distributors, proprietary network)
- Location (a shop on Regent's Street)
The answer to the questions above will be highly dependent on your type of business, your management team and any relations it might have. Therefore it is hard for me to give any general tips about it.
If regulation is a barrier at entry in your sector then I would advise you to merge this section with the previous one. Otherwise, this section should be just a tick the box exercise where you explain the main regulations applicable to your business and which steps you are going to take to remain compliant.
Now you know how to do a market analysis for a business plan! I hope you found this article useful. If so please share it, and if not let us know what we need to improve.
Also on The Business Plan Shop
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Founder & CEO at The Business Plan Shop Ltd
Guillaume Le Brouster is a seasoned entrepreneur and financier.
Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.
Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.
Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.
Published on 01 Sep 2013 , last update on 09 Jun 2023 , as per our editorial standards .
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The Importance of a Market Analysis
A complete market analysis is a cornerstone of a successful marketing and advertising campaign. All too often companies neglect to perform a thorough market analysis and are left to the bleak alternative of guesswork. Market analysis is a strategic management strategy that provides an analytical approach to answering some of your companies most difficult questions:
- Who are our customers?
- How competitive is the current market landscape?
- How risky is entering this market?
- How efficient are our branding efforts?
Most business plans start on a hunch that a product or service could sell or be beneficial to someone. That may have been enough to launch your idea off the ground, but in order to keep your business plans thriving, it’s important you get accurate and concise answers to these questions and to perform a SWOT analysis.
What is market analysis?
A market analysis is a qualitative and quantitative evaluation of the external market and your internal resources. Thorough market analysis adequately assesses opportunity, value, risk, customer purchasing behavior, competition, and economic entry barriers and regulations.
3 Reasons Market Analysis is Important
This strategic management strategy does not tell you exactly how you should run your marketing campaign or position your company’s brand. However, it provides analytical insight that allows you to steer your company and brand around barriers or obstacles that could have impeded or completely halted your company’s progression. So, while there are many, let’s focus on the top 3 reasons market analysis is important.
1. Market Analysis Puts Your Customer First
Not long ago, Harvard Business School professor, Clayton Christensen , shook up the marketing world when he asked, “What job are people hiring your product for?” This simple question opened a door for those selling commodities to differentiate themselves from their competition.
The principle at play in Professor Christensen’s idea can be summed up in just one sentence,
“People don’t want to buy a quarter-inch drill; they want a quarter-inch hole.” – Theodore Levitt
Once we discover that people are hiring our services or products we realize that our competitors are not always what we think. A morning bagel’s competition might be a fruit smoothie, or an ice cream sundae’s competition could be a pastry. These things are often competitors to the problem of morning hunger or late-night dessert, yet they are not always sold by the business you would generally consider your “competition.”
Market analysis allows you to optimize your service or product for the job your consumer is hiring it to do.
TAKE A LOOK AT HOW WE INITIATED A REBRAND THAT RESULTED IN 6.5X WEB CONVERSIONS.
2. market analysis forces companies to look inward.
Critically acclaimed author Simon Sinek prompts business owners to think differently in regards to how they sell. He says, “People don’t buy what you do; people buy why you do it.”
He asks us to compare the following sales pitches:
“We make great computers. They’re beautifully designed, simple to use and user-friendly. Want to buy one?”
“Everything we do, we believe in challenging the status quo. We believe in thinking differently. The way we challenge the status quo is by making our products beautifully designed, simple to use and user-friendly . We just happen to make great computers. Want to buy one?”
This principle is especially important when your product or service is tied to the consumer’s self-actualizing vision of themselves. This benchmarking principle is more apparent in the apparel business than any other. Take the members of the surf culture around the North Shore of Hawaii, for example. Do you think they care how breathable the fabric of their t-shirt is? Or the thread-count of their hoodie? No. Their predominant want is to identify with a brand that helps them feel like their best self.
Market analysis forces companies to consider how their product makes their consumer feel and to what degree that feeling is driving the purchase decision.
TAKE A LOOK AT HOW WE TURNED AN INTERNATIONAL LAW FIRM’S BRAND FROM COMMONPLACE TO CONTEMPORARY
3. market analysis helps determine your unique sales proposition.
Though they are not always semantically agreed upon, there are five ways a company can differentiate their product or service in order to make it appealing to customers. Market analysis enables you to determine which of these methods of differentiation would be the most effective way to enter the market through strategic control.
- Brand- Companies differentiate themselves by brand by standing for something or associating their brand with a cause. Ex: TOMS’ slogan is, “One for One.” Their initiative to give shoes to the impoverished and shoeless is built heavily into their branding strategy. This branding strategy seeks to resonate with empathetic people who can turn a common purchase into one that helps others.
- Product- Companies differentiate themselves by product by positioning themselves as the highest quality product on the market. Ex: BMW’s slogan is, “The Ultimate Driving Machine.” Their branding and marketing goals set out to position themselves as the best car someone can own in the minds of their consumers.
- Service- Companies with organizational structure differentiate themselves by service by offering a one-of-a-kind experience for their customer; this is typically done by showing exceptional customer service. Ex: Nordstrom’s mission statement begins with, “To provide outstanding service every day one customer at a time.” Nordstrom’s has been accredited for having an extremely lenient return policy, swift response time to customer inquiry via email and even social media. Their brand is built around treating their customers with care and they are therefore retained.
- Price- Companies differentiate themselves by price by positioning themselves as the most affordable or even the most expensive. Ex: Wal-Mart’s slogan is, “Save money. Live better.” After Wal-Mart introduced their price matching program, they successfully branded themselves as the most affordable grocer by doing just that, literally being the most affordable.
- Audience- Companies differentiate themselves by audience by branding their product or services to specifically aid or benefit a certain group or type of person. Ex: Whole Foods’ brand is reflected in their motto, “Whole Foods, Whole People, Whole Planet.” Because their branding stands for healthy living, it often resonates with healthy people. Because of this people are often willing to pay more for the shopping experience.
Take a look at these two e-commerce Cheerio’s offers. Can you guess which one is from Wal- Mart and which is from Whole Foods?
Marketing analysis is the first step to making data-driven decisions in your business plan. Get in touch with our marketing team to see how we can assist you with finding your brand voice and your audience.
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Amazon unveils buy now, pay later option from Affirm for small business owners
- Amazon is rolling out its first buy now, pay later checkout option for the millions of small business owners who use its online store, CNBC learned exclusively.
- The tech giant confirmed Thursday that its partnership with Affirm is expanding to include Amazon Business, the e-commerce platform for companies.
- The move is a boost in a crucial relationship for Affirm, which has had to search for revenue growth after demand for expensive Peloton bikes collapsed.
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Amazon is unveiling its first buy now, pay later checkout option for the millions of small business owners who use its online store, CNBC learned exclusively.
The tech giant confirmed Thursday that its partnership with Affirm is expanding to include Amazon Business, the e-commerce platform that caters to companies.
Affirm shares jumped 19% on the news.
The service, with loans ranging from $100 to $20,000, will be available to all eligible customers by Black Friday, or Nov. 24. It is specifically for sole proprietors , or small businesses owned by a single person, the most common form of business ownership in the U.S.
It's the latest sign of the widening adoption of a fintech feature that exploded in popularity early in the pandemic, along with the valuations of leading players Affirm and Klarna . When boom turned to bust in 2021, and valuations in the industry dropped steeply , skeptics pointed to rising interest rates and borrower defaults as hurdles for growth and profitability.
But for users, the option is touted as being more transparent than credit cards because customers know how much interest they will owe up front. That's made its appeal durable for households and businesses coming under increasing strain as excess cash from pandemic stimulus programs has dwindled.
"We constantly hear from small businesses that say they need payment solutions to manage their cash flow," Todd Heimes , director of Amazon Business Worldwide, said in an interview. "We offer the ability to use credit cards and to pay by invoice; this is another option available to small business customers to pay over time."
Amazon Business was launched in 2015 after the company realized businesses were using its popular retail website for office supplies and bulk purchases. The division reached $35 billion in sales this year and has more than 6 million customers globally.
If approved, users can pay for Amazon purchases in equal installments over three to 48 months. They are charged an annualized interest rate between 10% and 36%, based on the perceived risk of the transaction, according to Affirm Chief Revenue Officer Wayne Pommen . There are no late or hidden fees, the companies said.
"The financial industry is not great at providing credit to really small businesses," Pommen said. "They can't walk into a bank branch and get a loan until they reach a certain scale. So us being able to provide this for purchases" helps business grow and manage their cash flows, he said.
The move is a boost in a crucial relationship for Affirm, which has had to search for revenue growth after demand for expensive Peloton bikes collapsed. Affirm first began offering installment loans to Amazon's retail customers in 2021 , launched on Amazon in Canada in 2022 and was then added to Amazon Pay earlier this year.
Affirm, which uses its own models to underwrite loans for each transaction it facilitates, decided to target sole proprietors first because they make up most small businesses in the country, with 28 million registered in the U.S., according to Pommen.
"We'll see how the product performs and if it makes sense to expand it to a wider universe of businesses," he said. "Our assessment is that we can underwrite this very successfully and have the strong performance that we need."
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