Market Analysis

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What is Market Analysis? – Definition & Examples

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  • 0:04 Market Analysis
  • 1:10 Conducting Market Analysis
  • 2:03 Target Market
  • 3:43 Cultural and Legal Regulations
  • 4:52 Lesson Summary

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Allison has a Masters of Arts in Political Science

Market Analysis

What if you have branded one of the best coffee shops in your home city, and in just two years you have opened five locations and become extremely profitable? Chances are you will want to continue expanding. In order to make the best business decision, you will want to conduct a market analysis.

A market analysis is an assessment, which allows you to determine how suitable a particular market is for your industry. You can use market analysis to evaluate your current market, or look at new markets.

Whether you are a startup, looking to expand, or reevaluating your current market, a market analysis helps you to identify the attractiveness of a market. It also detects current and future risks of operating in that location.

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Market analysis provides you with a holistic, or well-rounded picture of the markets you are interested in operating in. The components of the analysis include several evaluation tools, including a discussion of your industry and its outlook in the market. It also analyzes the target market, conducts a competitive analysis, and identifies cultural and legal regulations.

Conducting Market Analysis

When you conduct a market analysis, you are going to look at several characteristics of the market you are interested in entering. You are also going to determine how suitable your industry is for the market.

Industry Description and Outlook

Think back to the coffee shop. When preparing to expand, you will want to conduct an in-depth analysis of your industry and consider what the future of your industry looks like. For example, what does the coffee shop industry look like and how large is the coffee industry. You may also want to look at the growth rate of the industry, and the anticipated rate of growth over the next few years.

In short, the industry description and outlook takes into consideration:

  • Definition of your industry (what do you offer)
  • Size of your industry
  • Rate of growth
  • Potential for growth
  • Trends in the industry
  • Sustainability of your industry

These measures provide a broad overview of your industry and its potential for growth and profitability.

Target Market

Once you have a broad picture of what your industry looks like and what its capabilities are, you want to identify your target market. The target market is the specific population you want to market your products to.

  • Who do you want to sell to?
  • What age group do you want to sell to?
  • What is the general level of income of your target market?
  • Where does your target market live?

You want to dig in to specifics of who the population you are targeting is, and what they desire out of the products you are offering.

  • Do your customers like chocolatey mochas, or do they prefer black coffee?
  • Do they live fast-paced lives, or do they have 20 or 30 minutes each morning to enjoy their coffee?
  • Where does your target market live?
  • How large is their population?

When conducting a target market analysis, you will want to find out as many specific details as you can about your target market.

Competitive Analysis

In addition to knowing your customers, you also want to know your competitive advantage and who your competitors are.

  • How quickly do you need to enter the market?
  • What are potential consequences of entering this market?
  • Who offers similar products?
  • How many competitors are there?
  • What does your competitor do well?
  • What could your competitor do better?
  • How similar are your target markets?

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You want to know the probability of success in the market by determining how quickly you need to enter, and who your primary competitors will be.

For example, let’s say you specialize in coffee made by the cup. Although major coffee shops like Starbucks would be competitors, your target markets would be different. Starbucks is interested in the quick in-and-out customer, while you would be more interested in the customer who has 20 to 30 minutes each morning.

While you may be able to identify the market, customer, and competitors, you need to know any relevant cultural or legal regulations as well.

  • Does the local culture desire your products?
  • Is it legal to sell your products?
  • Are there regulations on purchasing necessary inventory?

For example, if you want to move your coffee shop to uptown New York, it is likely that you will be able to find a good location for your market interest. However, if you want to move your coffee shop to Salt Lake City, Utah, you will need to take into consideration that many people in that region choose not to drink caffeinated beverages due to their religious beliefs. Determining these important cultural differences will be important to entering the right market. It will also help you identify the potential for growth in this market.

You also want to consider the legal regulations. There may be laws or tariffs, (trade regulations on specific products), which prevent you from ordering certain kinds of coffee beans. You may pay higher taxes on coffee you order from Kenya than coffee you order from Ecuador. It is important to check on all relevant legal regulations relevant to your daily operations.

Lesson Summary

Conducting a market analysis can help you to evaluate your current market or identify potential markets for expansion. A detailed market analysis should consider your industry and its potential for growth. As you evaluate your target market, you will want to identify your target market, or the population you are trying to sell your products and services to. It should also identify your competitive advantage by acknowledging your potential and evaluating your competitors in the market.

In addition to understanding your clients and competitors, you need to determine any cultural or legal regulations that are relevant to the products and services you offer. After conducting a thorough market analysis, you will have a clear picture of the risks and benefits of entering a particular region.

What is Marketing Analysis?

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A marketing analysis is a study of the dynamism of the market. It is the attractiveness of a special market in a specific industry. Marketing analysis is basically a business plan that presents information regarding the market in which you are operating in. It deals with various factors and should not be confused with market analysis.

What is the use?

A marketing analysis is done so that you can formulate a strategy on how to run your business. By taking into consideration certain factors, you will know how to operate your business.

What are the factors?

The most common factors are the SWOT which is an acronym for; Strengths, Weaknesses, Opportunities, and Threats. By assessing the company’s strengths and weaknesses, you can make a strategy on which factors to focus upon. If you have a good labor force, ample investment and good advertising experts then you are going to make your marketing strategy focusing on those things. Similarly if your technology is comparatively poorer and you lack online presence then you are going to avoid those things. You also look at external factors like situations which may provide you with an opportunity or threat. Economic factors, political instabilities or even social changes can give you opportunities which you can seize and do better. They can also create threats which are going to hamper your business dealings. Considering all these factors will give you a marketing analysis from which you can implement your decisions.

Dimensions of Marketing Analysis

There are certain dimensions which help us to perform a marketing analysis. These things help us understand the market we operate in better. These dimensions include;

  • Market Size
  • Growth rate of the market
  • Market trends
  • Market profitability
  • Key success factors
  • Distribution channels
  • Industry cost structure

Market Size – The size of the market is a key factor in a marketing analysis. The bigger the market the more competitors you are likely to have. For a big market, you need to make sure your products and services stand out. Otherwise, the customers can easily switch to a rival product. Not only that, a bigger market makes you rethink your pricing policy. Set your price too high then you are going to lose your customer base to other competitors. Set it too low and people will think that you are just providing cheaper poor quality goods. If the market size is small then you can get away with charging a high price. All these facts are kept in the marketing analysis. Based on that you go ahead with your marketing plan.

Growth rate of the market – The market growth rate is a huge factor in any sort of marketing analysis. This is because you get the idea of how long the said market will last. Before you make an investment you need to analyze the market’s growth rate. If it is likely to grow over time then you can invest more in it. If it has no growth then you are likely to be discouraged from investing anything at all. How much time and importance you give to the market depends on its growth rate.

Market Trends – Market trends are a significant part of the marketing analysis. Having knowledge about the trends help you to decide what kind of product you are going to sell. When you are starting off a business you need to know what the current trend is. What is the thing that the customers like? How much they are willing to spend? What other trends may capture their attention? These are the sort of things which will go on your analysis. On the other hand, market trends can change any day. This can turn out to be an opportunity for your business. If that’s the case then you can seize it and make the most of it. Changes in trend can also be a threat for you. If you are comfortable producing one kind of good then a market trend change will affect you the most.

Market Profitability – Most companies’ motive to get into the business is to make a profit. In other words, they are profit-motive businesses. So before getting into a business you need to analyze the profitability of the market. If the market has a good profitability then only you are going to invest heavily. Otherwise, it would be a waste of your time and capital. In order to calculate the profitability of the market, there are a few things one has to consider. These things include; buyer power, supplier power, barriers to entry and so on.

Key Success Factors – The key success factors are those elements which help the business to achieve great success in the market. Such elements are required to stand out among the rest of the competition. These are things which you did well that have enabled you to produce great results. Key success factors include;

  1. Technology progress
  2. Economies of scale
  3. Efficient utilization of resources

Distribution Channels – Distribution channels are very important for a business. Without those, you won’t be able to get your products to your customers. So it becomes a big factor in a marketing analysis. This is because you need to assess how well the channels are. If the existing ones are good enough or you need to develop newer ones. Sometimes you come up with brand new channels like online marketing.

Industry Cost Structure – The industry cost structure is a significant factor while running a business. It basically sees how much cost is required to get your products for sale. Sometimes firms can come up with ways to decrease that cost and thereby make a bigger profit without increasing the market price. Doing a marketing analysis will help you to come up with newer ways to reduce cost. At the same time, it helps to create strategies for developing a competitive advantage of your rivals.

How to Write the Market Analysis Section of a Business Plan

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: 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.

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