Whether you’re a current business owner or you’re looking to start your own business, you’re naturally looking to gain some perspective about your target market and competitors. Performing proper market research will help you learn more about the players in your chosen industry and help guide your business plan and strategy.
What is market analysis?
Market analysis is a thorough examination of the present market in a particular business. It assists you as a business owner in understanding the market’s volume (quantity of goods/services sold) and value (pricing of goods/services sold), possible consumer categories, and purchasing trends. A good market analysis will also tell you more about your competitors’ positions and the broader economic landscape.
Why businesses conduct a market analysis
Knowing how to do market research for your business plan will help you to better understand your audience and provide powerful insights about your competition. Here are some of the many benefits to running a complete market analysis:
- Reduces risk: Having a strong understanding of your market will help guide you to make sound business decisions as you’ll know what’s working in your industry. When you make a well-researched and guided decision based on this knowledge, the chance of it working out is much greater.
- Stay ahead of business: Analyzing your market can help you spot new and emerging trends. This allows you to stay on top of these trends so that you can incorporate them into your business in a timely manner.
- Create targeted products & services: You can better serve your clients with the help of market analysis because you’ll know what they want from your industry. Learning more about your customers makes it simpler to adjust your services to their needs – there’s always more to learn from your customers!
- Know your benchmarks: Key performance indicators, or KPIs, will give you the ability to compare your company to the competition. This opens up all types of opportunities to improve your business!
- Optimize your marketing: Running a regular marketing analysis will help optimize your marketing efforts. You can use the information you learn to create campaigns that will reach your target audience more effectively – and help you to find that target audience better.
- Better understand any past mistakes: An in-depth market analysis will help you see where things might be off-track, or what’s leading to issues within your business. The more information you have about your market, the more effectively you can run your business and stay on track.
How performing market analysis can support your business plan
The market analysis consists of real-world information that can be used in numerous parts of your business plan. It will help guide the entire process. Here are a few of the key areas that it can help with:
Helps you make informed decisions
So often businesses are built on instinct, gut, feeling, and guesswork. A proper market analysis removes a lot of these from the equation and leads to a business plan that is based on real-world evidence.
Assists with product development
The insights gleaned from the competitive analysis, target market analysis, and industry analysis can help you make informed decisions around product development. Knowing what your customer wants, and what’s working, makes it much easier to develop products that people want to buy. It’s very common for new business owners to think of their product first, but starting with the market first can be a much more logical and organized approach, as it will avoid having to “create” the market.
Guides marketing and sales strategies
A solid market analysis will make your marketing and sales efforts more targeted and effective. By doing the research, you’ll discover how to reach your target market effectively and what type of campaigns are currently working in the marketplace. You can use this information to create a marketing strategy that will help improve your bottom line.
Once you conduct an in-depth market analysis for your company, it will be easier to work with your business plan and use it as a guide. Performing analysis regularly is highly recommended as most businesses go through multiple phases and are likely to change over time.
How to conduct a market analysis
Analyzing a market requires quite a bit of research. Conducting it is easy, but finishing it won’t be easy if you’re not dedicated to the process. Therefore, ensure you’re prepared to spend a significant amount of time to see the whole process through.
Here are 6 steps to conduct market research for a business plan:
1. Know your purpose
Every business will have different reasons as to why they conduct a market analysis. For yours, it may be because you want to know more about your customers and how you can provide them with the best products. Knowing your purpose for market analysis will help keep you on track. It will also dictate what type of research you need to do and how extensive it will need to be.
Here are a few possible purposes:
- Starting a new business
- Opening new locations
- Deciding on new products or services
- Applying for loans or other forms of capital
- Evaluating competition
2. Industry analysis
Once you know your purpose, you’ll need to create a detailed outline of the current state of industry that your business is in. This industry analysis will show the direction your industry is headed, any changes that are happening, if it’s an increasing or decreasing market, how fast companies are growing within the market, and what the average product life cycle is in your industry (if developing products).
3. Target market analysis
Remember that your business can only cater to a specific target audience. Not everyone in the world is your customer, focus specifically on those who are interested in your product. Start with the demographic factors below:
You can create a customer profile that will serve as the ideal customer model that you’ll use for your marketing efforts. This is also sometimes referred to as a customer avatar.
Example for a local small bicycle shop:
- Location: Denver, CO
- Gender: Male
- Age: 35-45
- Occupation: Self-employed
- Education: College degree
- Needs: Top tier mountain bike + regular tunes to hit the trails with friends on weekend
- Interests: exercise, family, time spent outdoors
4. Competitive analysis
If you want to be successful with your market analysis, you have to understand your competition. To do this, you’ll need to learn more about your competitor’s weaknesses, advantages, and strengths. Start by listing your competitors. After that, compile the information into a SWOT (strengths, weaknesses, opportunities, and threats) analysis. From this data, you’ll see what competitors’ unique advantages are in the market, and where you can stand out from the pack.
Example SWOT matrix table analysis for a bike shop:
|Established customer base||Expensive tune ups|
|High-visibility locations||Focused mostly on road bikes|
|Great online presence||No free parking close by|
|Offers several top tier bike brands||Long turnaround time for repairs|
|Build a demo fleet to give customers opportunities to test out bikes||Product pricing changes due to inflation|
|Carry higher end XC-specific bikes||Competitive market – lots of local shops to compete with|
|Create monthly service plans with next day turnaround||Familiarity – bike customers are loyal to their local shops.|
5. Analyze the data you collected
After finishing your research, you can start analyzing all the gathered data. Go through it and try to identify patterns or trends that you can use to support your thoughts about the current state of the market. It also helps to be organized by creating sections that make sense to you. The analysis should include the following elements:
- Market share percentage of your business
- Buying trends of customers
- Overview of the industry’s size and growth rate
- Industry outlook
- Forecasted growth of your business
- How many customers are willing to pay for your products & services
6. Put your market analysis to work
After you’re done with all the steps listed above, it’s time to put it to work. Use this data to guide your businesses’ trajectory going forwards. This is the information that so many businesses skip and often a big part of whether or not they succeed in a specific market!
This data and research is also a necessary component for securing business loans and sharing with partners and potential investors. Additionally, you can run a new analysis annually to re-evaluate how things are working and where new opportunities may lie.
Market analysis fills in the knowledge gaps
Depending on what type of business you’re looking to start, market research can help guide just about every decision. Even decisions related to your business structure, like starting an LLC, can be impacted by studying your competitors. While often a time-intensive task, performing market analysis is a crucial practice for both new and existing businesses to gain perspective and avoid making strategic decisions in a vacuum; it enables businesses to bridge the knowledge gap between a good idea in theory and a good idea in practice.