Market analysis is a comprehensive study of a specific market within an industry. It involves gathering and analyzing data to understand market size, growth potential, target audience, and competitive landscape.
What is market analysis?
Market analysis is the study of market dynamism. It is basically the attractiveness of a particular market within a specific industry. In other terms, marketing analysis is a business plan that has information related to the market within which a business operates. Market analysis is undertaken so as to draft marketing strategies as to how business operations will be carried out. Upon determining certain factors, businesses will understand how to operate within a particular market.
Importance of Marketing Analysis
Marketing analysis is the basis for determining the attractiveness of the market and assessing both current and future risks that will be faced when serving the market. Through market analysis, in-depth information is attained so as to assure that the marketing dollars of the business are spent in the most effective way. As a result, marketing analysis can be referred to as the cornerstone of a successful business plan.
Dimensions of market analysis
There are several factors to consider that help in performing market analysis. These factors are useful in gaining a good understanding of the market and include:
Size of the Market
Market size is very crucial in market analysis because the larger the market, the more competitors will be present. In order to operate in larger markets, it is important that the product or service have unique features that help it stand out from the crowd. Additionally, bigger markets will also call for reviewing pricing policies. If prices are set to be too high, there is a risk of losing customers to competitors. If you charge low prices, customers will think of inferior-quality products. If the market size is small, then charging a high price can be a very common practice.
Market Growth Rate
The market growth rate is an important component of marketing analysis that determines how long a particular market will last. This is crucial because, prior to making an investment, it is important to assess the market growth rate. If its probability of growing is higher, businesses can invest more, and vice versa.
Marketing trends and dynamics play a crucial role in the process of marketing analysis. Knowing about the trends allows marketers to make appropriate decisions about the best time to launch a new product or start a marketing campaign. Changes in the market are also important because they are the source of new opportunities and threats and have the potential to affect the size of the market. Relevant trends are dependent upon the industry; examples include price sensitivity, emphasis on service, support, and the demand for variety. Additionally, regional trends are also important.
The basic motivation of a business to enter a market is to earn profits, and this is the main reason why the profitability of the market is analyzed. If market profitability is higher, then businesses will be interested in investing in the market. Determining market profitability includes evaluating the power of buyers, the power of suppliers, barriers to entry into the market, and other factors.
Industry Cost Structure
This is another important factor that determines the amount of cost required to get products for sale. Many times, businesses come up with strategies that reduce costs and make profit margins higher without any increase in market prices. Marketing analysis will help identify new ways to reduce costs.
Without distribution channels, businesses would not be able to get their products to customers, which renders it an important factor in marketing analysis. This is because assessing the reliability of the channels is crucial in determining whether the current ones are good enough or if there is a need to develop new ones.
Key success factors
Key success factors are those elements that are used to obtain market success. These elements are also important for gaining a competitive edge. Key success factors include technological progress, efficient utilization of resources, and economies of scale.
How to Conduct Market Analysis
When starting a business, one of the most crucial requirements is a thorough analysis of the market you are planning to target. Market analysis gives you a clear idea of your target audience, their spending patterns, and your competition, which helps you develop a sound business strategy. Starting your business without a well-executed market analysis can be the recipe for disaster.
So how do you conduct a proper market analysis? Here are some steps that you can follow to ensure that your market analysis efforts are geared in the right direction.
What is the purpose of analysis?
The first step that you need to be certain of is the purpose of your market analysis. Are you looking to replicate your past success model, trying to avoid future mistakes, or planning to raise money from the market? Based on your requirements, the mode of analysis and the required data will differ. So, first settle on the purpose of your analysis.
Look at Your Industry Outlook
The present state and future direction of your industry are of utmost importance in your market analysis. Once you have determined the purpose of your analysis, gather actionable and reliable facts and figures to understand where your industry stands as well as where it may be headed in the future. This will give you a clear idea of how to proceed with your business plan.
The next important step is target market analysis. In this step, you need to scrutinize the market to determine which part of the population can form your potential customers. Determine their demographic data as well as personal preferences to create buyer personas that can help you determine the habits of your customers.
One of the keys to successful market analysis is studying your competition. By carefully analyzing the strengths and opportunities of your competition, together with determining their weaknesses and threats, you can paint a clear picture of who you are up against in the quest for market dominance. This can help you take action and devise strategies accordingly.
Analyze your findings.
Once you are done gathering the required data, it’s time to analyze your findings. Begin by organizing your gathered information under the above headings, and then use your findings to determine business-critical information such as market trends, growth forecasts, and even cash flow projections. Careful analysis can reveal key insights that are vital to the success of your business.
Now that you have completed your market analysis, it’s time to put the plan into action. A market analysis is not meant to be a static task that you perform and then tuck away in a safe corner. Instead, take steps to implement the various findings of your analysis and improve your processes to propel your business forward.
A well-conducted market analysis can be the differentiating factor between a successful business and a failed one. So, invest diligent time and effort into conducting a thorough analysis of your target market before taking the entrepreneurial leap.