How to Conduct A Market Analysis For Your Business
Understanding your clients is essential for every startup’s success. If you don’t know who your customers are, it will be difficult to produce items that actually meet their needs, and it will be difficult to develop an effective marketing analysis.
This is where market research comes in. It may appear to be a difficult and complicated process, but it is not.
A market analysis is a comprehensive qualitative and quantitative evaluation of the existing market.
It assists you in understanding the market’s volume and value, possible consumer segments and their purchasing behaviors. Then the position of your competition, and the general economic climate, including entry hurdles and industry laws.
conducting a market analysis
A solid market study is expected whether you are producing a Lean Plan or putting out a detailed business plan for a bank or other investor. But don’t just conduct a market analysis because you’re creating a strategy. Do it since it will assist you in developing a more effective strategy for growing your firm.
When you have a thorough understanding of your market, you will be in a better position to provide products and services that your customers will like. While conducting market research may appear to be a complex undertaking, it can be broken down into four simple steps:
- Industry overview: You will outline the current situation of your industry and its future prospects.
- Market segmentation: Who are your actual customers? You’ll describe how many of them there are, what their needs are, and their demographics.
- Explain your competitors’ positions, strengths, and limitations.
- Pricing and forecasting: Your pricing will assist define how your company will position itself in the market, and your forecast will reveal what percentage of the market you aim to capture.
How to conduct a market analysis
Let’s go through each stage again so you know exactly what you need for your market study.
1. Industry overview
In this step, you will outline your industry and discuss its future prospects. You’ll want to incorporate essential industry metrics such as size, trends, and planned growth.
Market research is not the same as industry research and analysis. When you investigate your industry, you look at all of the firms that are similar to yours. This is not the same as market research, where you learn about your customers.
Your industry overview demonstrates to investors that you comprehend the bigger terrain in which you compete. More significantly, it enables you to determine whether there will be increased demand for your items in the future and how competitive the industry is expected to be.
For example, if you sell mobile phones, you’ll want to know whether demand is increasing or decreasing. If you’re planning to operate a restaurant, you should be aware of the larger trends in dining out. Is it true that people are eating out more and more? Is the market potentially diminishing as more people use supermarket delivery services?
If you live in the United States, the U.S. Census Bureau has good industry statistics. Statista has also come in handy for me. Look into your industry association as well—they generally have a wealth of information about business trends.
2. Define your target market
The most significant aspect of your industry study is your target market. This is where you describe your ideal consumer.
You may discover that several categories of clients emerge during the course of your investigation. Market segmentation is used when you have more than one sort of customer. This is where you categorize comparable types of clients and discuss the characteristics of each section.
You should begin generally and then narrow your focus by specifying the following elements.
Unlike industry size, which is typically defined in dollars, market size refers to the number of prospective clients for your product or service. We have a wonderful way for calculating your market size that you can read about here.
Describe your average customer’s age, gender, education, income, and other characteristics. If you could draw a picture of your ideal consumer, this is where you’d describe their appearance.
Where do your customers live? You’ll want to describe a specific country, region, state, city, or county here. You might even discover that your consumer base is segmented based on location, which can assist you decide where to do business.
It is here that you must get into your clients’ heads, understand their demands, and anticipate how they will react. What do your customers enjoy and dislike? Is this their way of life? What is their personality like?
This article can even help you improve your approach to basically analyzing the competition.
This is essentially a continuation of part of your psychographic data. Describe how your customers look for and buy products like yours.
Customer behavior is constantly evolving. If you’ve discovered any trends in your target market, describe them here.
Your market study is incomplete until you include your competition. A solid competitive analysis will show out competitors’ flaws that you can exploit in addition to knowing what other businesses you are competing with. With this knowledge, you may set yourself apart by providing products and services that cover holes that your competitors have not addressed.
When analyzing the competition, you should consider the following factors.
These are businesses that provide very similar products and services. Your potential clients are most likely already purchasing from these businesses.
Competitors who compete indirectly
Think of indirect competition as alternate answers to the problem you are tackling. This is very useful and vital for businesses who are developing new products or services. For example, the initial online task management software competed with paper planners, sticky notes, and other analog to-do lists rather than other online task managers.
What makes you unique
You don’t want to be the same as your rivals. Make it a point to explain how your firm, product, or service differs from the competition’s offerings. When it comes to a popular company type, such as hair salons, your difference could be location, hours, service types, atmosphere, or price.
Entry stumbling blocks
Describe the safeguards in place to prevent new enterprises from competing with you. Perhaps you have a fantastic site, or perhaps you have patents that assist safeguard your company.
The greatest strategy to investigate your competition is to speak with your potential clients and ask them who they are currently purchasing from and what alternative solutions they are utilizing to tackle the problem you are tackling. Of course, spending some time on Google to see what else is available is also a good idea.
4. Pricing and forecast
The final phase in a market analysis is to determine your pricing and generate a sales forecast in order to better grasp what percentage of the market you believe you can capture.
First, consider your pricing. Of course, your pricing should be more than the cost of producing and delivering your product or service. Beyond that, consider the message your price conveys to customers.
Customers frequently associate high costs with great quality. However, if you are pricing at the higher end of the spectrum, you must ensure that the remainder of your marketing communicates that you are providing a high-quality product or service. From the style of your company to its logo and customer service experience, premium costs should be accompanied by a high-quality experience throughout the sales process.
On the other end of the scale, perhaps you’re competing as a low-cost substitute for other products or services. If this is the case, ensure that your marketing and other advertising conveys the same, cohesive message.
Consider how much you expect to sell once you’ve determined your pricing. Your market research will be useful here as you consider how much of the entire market you expect to acquire. For example, if you’re planning to create a new type of grocery shop, you’ll want to know how much people in your area spend on groceries. Your prediction should reflect a reasonable percentage of the total spend. Gaining 50% of the market in your first year is definitely unrealistic.
Don’t, however, make the mistake of presuming that you can easily obtain 1% of a very huge market. 1 percent of a $3 billion market is still $30 million, and while 1 percent may appear to be a little, attainable quantity, you must grasp and explain how you will gain that volume of clients.
When creating your forecast, utilize it as a goal for your company and compare your actual sales to what you expected to sell. It’s simple to do because tools like LivePlan can automatically compare your forecast to your accounting data. Even if you utilize a spreadsheet, tracking your progress will allow you to swiftly change your business strategy so that you may do more of what works and less of what doesn’t.