How to Carry Out Market Analysis
A market analysis helps you understand a market and decide if the market is worth venturing into or investing in. Market analysis is the process of understanding the dynamics of a target market within a specific industry. The dynamics include market size, customers, competitors, market revenue, price structures, behaviours, etc. This article highlights steps for carrying out a market analysis, but firstly, let’s look at the benefits of a market analysis.
Benefits of Market Analysis
- Ensures the risks taken are calculated
- Helps to identify target market needs
- Back up your business idea with facts and figures, therefore, it provides a convincing business plan.
- Spot market gaps that you can fill to make your offerings stand out from other competitors.
How To Carry Out a Market Analysis
The first question you need to answer is, “what is my goal for this market analysis?” Knowing what you want to achieve from the analysis helps to define the necessary metrics, emphasis and data to look out for. If you’re looking to introduce a new product, you’ll want to understand the behavior of the market and the direction of growth among other things. Some other goals may include:
- Identifying target customers and tailoring products or services to meet their needs.
- Identifying current and emerging market trends and adjusting its strategy accordingly.
- Identifying potential risks and developing strategies to mitigate them.
- Developing a tailored marketing strategy.
- Identifying areas for improvement in products, services or operations.
Here, the aim is to understand the industry’s condition; where it is heading, the rate of growth and how the industry generally operates. It’s necessary to understand what factors influence the industry and how they affect the industry, e.g. How do seasonal changes or the economy affect the industry?
This step is especially important as you do not want to enter into an industry fading out in the next few years. An example of skipping this step is entering into floppy disk distribution at the advent of flash drives and cloud technology. Here are some other questions to be answered in this step:
- What regulations exist in the industry and their regulatory bodies?
- How large is the potential market ?
- How much revenue does the industry generate?
- Are there existing opportunities/gaps in the industry?
- What are the market leaders in this industry?
Deciding The Profitability
Market profitability involves analyzing the financial performance of the market you wish to enter and assessing the potential revenue and profit that your business can generate. It requires understanding of the market size, competition, pricing and cost structures, as well as identifying any potential growth opportunities.
It’s important to have a clear understanding of the market profitability to know if your business opportunity is viable and sustainable, or if an existing business can grow its revenue and profitability. The method used to determine the profitability of a market can vary depending on the industry and the type of product or service offered, but can include analyzing financial data, conducting market research, and consulting industry experts.
Define and Analyze Your Target Market
Advertising your product to the wrong market will lead to no sales even if you have a great product. This is why it’s crucial to define who your target market is; these are people who require and benefit from your product.
To know your target market, you can employ the use of surveys on an already predefined sample market. This will help you understand your market and know what their experiences with your product is. You should be able to identify the typical age/age range, location, career, behavior and interests of your target market. When choosing your target market, you can’t just pick any Jane and John. There are specific things to look out for such as:
- Relevance: The sample target market should be relevant to the business and its products or services. It should be a group of customers that is likely to be interested in the business’s offerings.
- Accessibility: The sample target market should be accessible to the business, meaning that the business should be able to easily reach and gather data from this group of customers.
- Size: The sample target market should be large enough to provide a representative sample of the overall market, but small enough to be manageable and easy to study.
- Representativeness: The sample target market should be representative of the overall market, meaning that it should be similar in terms of demographics, psychographics, and buying habits to the overall market.
- Budget and time constraints: The sample target market should be chosen based on the budget and time constraints of the business. The market research should not be too costly or time-consuming for the business.
- Specificity: The sample target market should be specific enough to be able to draw conclusions from the research. For example, if a business wants to research the market for organic food, a sample target market of all adults would be too broad; instead, a sample target market of adults who regularly purchase organic food would be more specific and useful.
Determine Your Market Size
Determining market size is an important step in assessing a business opportunity. It can be determined through various methods such as the top-down approach, which estimates the total market size and segments based on specific market segments, or the bottom-up approach, which estimates the market size by adding up the sales of all the players in the market.
Other methods you can employ include survey, research and gathering publicly available data. Determining the accurate market size can help in understanding the potential of a business opportunity, as well as identifying potential growth opportunities for existing businesses.
Know Your Competitors
This step requires that you identify your competitors and know what size of the market they control, what they offer. The way to know key information about your competitors is to conduct a SWOT analysis. The acronym SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Insights gotten from the SWOT analysis can help to devise a strategy.
Your competitors can either be direct or indirect competitors. A direct competitor is a business that offers very similar services and products to what you offer while an indirect competitor is a business that offers an alternative to what you offer.
Identify Market Gaps and Barriers To Entry
Market gaps are the propositions that make your product or service different from what is already available. They are pain points of your target market which are yet to be addressed by your competitors.
Barriers to entry are factors that prevent you from being able to set or start up your business in the industry. This could be due to the cost of setting up your business, regulatory laws, e.t.c.
Identifying the market gap and barriers to entry helps you decide if you can begin setting up your business or you’ll have to work around some challenges. An important question to ask is “Is there a unique value I bring to the market and what would prevent me from launching it?”. It’s important to crosscheck through legal requirements and regulations to ensure that you’re at the right side of the law and avoid dire consequences.
The final step is to implement the insights you’ve gotten from your analysis into product development, investing or expansion. The ultimate goal of your market analysis should be to prevent you from making avoidable risks such as creating a product that doesn’t meet the need of your target market or investing resources into a product without a proper market strategy.