Whoever tries the most stuff usually wins. Does your business put a priority on its business market analysis process? Does it monitor your competitive analysis, marketplace trends and its understanding of market change? And most importantly, does it put a priority on making changes as a result of insights from this analysis? This is a four-part series on critical elements of business intelligence. This second part discusses the benefits of a market analysis and how to conduct it most effectively.
How Is Your Business Intelligence Process Part 1 Overview
The Business Intelligence Process Part 3 Competitive Analysis
The Business Intelligence Process Part 4 SWOT Analysis
The market analysis is a key element of any business intelligence strategy. Do it right, and you will have a clear idea of the path down which you are headed. A good market analysis will enable you to lure investors, sidestep pitfalls, and most importantly, attract customers.
Bear in mind that all business markets are different, and they may be creating business plans and strategies for different reasons or audiences. If your business is quite small and you know your customers inside and out, this may not be the best use of your time. But that is usually not the case.
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If you are seeking funding, market analysis is going to be key data to convince your audience that your business idea has the facts and hard numbers to back it up. Or if you are seeing new trends in your market, it may be time to conduct an update to your market analysis to determine the best course of business action needed. With that said, let’s explore the details of writing a market analysis.
What is a market analysis?
A market analysis is exactly what it sounds like: determining the characteristics unique to your particular market and analyzing this information, which will help you make decisions for your business.
By conducting a market analysis, you will be able to gather valuable data that will help you get to know your customers, determine appropriate pricing and ways to market to customers and figure out your competitors’ vulnerabilities.
Market analysis and your business plan
It’s smart to write a business plan, especially if you are beginning a new business venture. Even if you’re a sole proprietor or don’t intend to borrow any money to get your business off the ground, it’s important to have a clear plan in place. The market analysis isn’t just one part of a successful business plan—it’s one of the best reasons to write one.
A solid business plan complete with market analysis will be invaluable. You’ll need to identify your potential customers and attract investors, and it will help you to be clear about what you want to do with your business, both now and in the future.
The time you spend doing the research and putting it all together will come back to you many times over in business success and problems avoided.
In addition, a market analysis is a great measuring stick you use over time to see how far you’ve come, and it allows you to make projections based on data rather than guesswork. Because you’ll know the size of the mountain you’re about to climb, you’ll be able to pace yourself and prevent problems in the future.
Importance of a market analysis
Although the terms “marketing” and “marketing analysis” can both be described as games of information, they are not to be confused. Marketing encompasses all of the activities that go into promoting a product or service. A market analysis is the actual assessment of the target population, competition, and needs for marketing that product or service.
The marketing analysis process can be broken down into six steps:
Defining the problem
Analysis of the situation
Obtaining data that is specific to the problem
Analysis and interpreting the data
Fostering ideas and problem-solving
Designing a plan
So, why should you embark on the market analysis process? The primary reasons are:
To determine if there is a market for your products or services
To establish the need for developing a marketing plan
To ascertain market information that will assist in the sale of your product or service
Market Analysis Process
To begin the market analysis process, answer the following questions. These questions will enhance your understanding and knowledge of your target market and industry, and ultimately determine:
Is there a need for my product or service?
What defined market am I trying to reach?
What specific companies are servicing this market?
Are they successful?
Are there other companies servicing this market with a similar product?
Are they successful?
What is their market share?
Is the market saturated or wide open? If so, why?
What is the size of the market?
Is it a growing market?
Is the industry stable, volatile, growing or trendy?
How can I penetrate this market?
How do my competitors reach the market?
What are the business models of my competitors?
What do customers expect from this type of product or service?
What core competencies must the product or service have?
What are customers willing to pay for this type of product or service?
What is my competitive advantage?
Some direct ways to collect data useful for you answering these questions include:
Mail questionnaire
Is useful when extensive questioning is desired. This type of format allows the respondents to complete the questions at their convenience. They may be more willing to fill out personal or family sensitive issues since the mail questionnaire can be returned anonymously.
The questions must be simple and the directions easy to follow, since no interviewer will be present to assist.
The response rate to consumer survey questionnaires is roughly 25 percent. Response rates less than 25 percent may not be representative of the market. Only the individual interested might respond, skewing the data. Mail surveys are economical if a large number of people respond.
On the other hand, if the response rate is low, this can be a very expensive proposition. This format is slow and requires extensive time to design, disseminate, collect and analyze responses.
Telephone surveys
These are growing in number, and they can be fast and effective. In this format market, researchers can ascertain answers to simple questions quickly. Telephone interviews allow the interviewer to probe and learn what the respondent is thinking.
If the market researcher is attempting to gather personal or family sensitive information, this is a poor tool.
Numerous firms exist for telemarketing surveys. One thousand respondents may be reached in a single evening when 50 interviewers are placing telephone survey calls. With immediate data entry into computers, results can be attained instantaneously. This format has gained popularity due to the speed and high response rates.
Personal interview surveys
These surveys can be effective for maintaining a respondent’s attention. In this format, the interviewer is present in order to explain difficult directions hopefully leading to better responses.
This type of interview is common in the retail and industrial setting. To reduce the cost of locating consumers, interviews are sometimes performed on-site. A random selection of consumers is questioned. Having a well-trained interviewer helps to decrease the chance of biasing the response.
There are a number of negatives to the personal interview survey. It is more expensive than a mailing or phone call, and at times the respondents won’t objectively answer all questions, especially ones dealing with sensitive family issues.
Lots of observation.
Observation
With observation, researchers try to learn what the subject does naturally. Observations should not influence the consumer’s behavior. Observation methods are common in advertising research.
Market analysis requirements
Your market analysis should include an overview of your industry, a look at your target market, your own projections for your business, and any regulations you’ll need to comply with.
Industry description and outlook
This is where you’ll discuss the current state of your industry overall and where it’s headed. Relevant industry metrics like size, trends, life cycle, and projected growth should all be included here.
This will let banks or investors see that you know what you’re doing, and have done your homework and come prepared with the data to back up your business idea.
In the previous section of your market analysis, you were able to look at the general scope. In this section, you’ve got to be specific. It’s important to establish a clear idea of your target market early on.
A lot of new entrepreneurs make the rookie mistake of thinking that everyone is their potential market. To put it simply, they’re not.
This is a good thing—by focusing on your real customers, you’ll be able to direct your marketing efforts efficiently while attracting loyal customers who will spread the word about your business. The target market section of your business plan should include the following:
User Persona and Characteristics: You’ll want to include demographics such as age, income, and location here. You’ll also need to dial into your customers’ psychographics as well. You should know what their interests and buying habits are, as well as be able to explain why you’re in the best position to meet their needs.
Market size: This is where you want to get real, both with the potential readers of your business plan and with yourself. Do your research and find out who and where your competitors are, and how much your customers spend annually on your product or service. How big is the potential market for your business?
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Projections
Market share: When you know how much money your future customers spend, you’ll know how much of the market you have a chance to grab. Be practical, but don’t sell yourself short. Make sure you are able to explain how you came up with your numbers.
Pricing and gross margin: This is where you’ll lay out your pricing structure and discuss any discounts you plan to offer. Your gross margin is the difference between your cost and the sales price. Again, be realistic yet optimistic. Optimistic projections not only serve as a guide, they can be a motivator.
Regulations
Are there any specific governmental regulations or restrictions on your market? If so, you’ll need to bring them up here and discuss how you’re going to comply with them. You will also need to address the cost of compliance. Addressing these issues is essential if you are seeking investment or money from a lender, and everything has to be legally squared away and above board.
How to do the research
Market analyses vary from industry to industry and company to company. The hard truth is that some of the information you wish to include may not be publicly available. A little estimation is okay, but the bulk of your numbers need to be based on facts. Here are some good places to start your market research:
Your current customers: If your business is already up and running, your current customers are an invaluable resource. They are your existing market. You can use online surveys or social media to gather feedback about buying habits, needs, and other psychographic information.
U.S. Census Bureau: Here’s where you’ll find demographics you can use to figure out your market share. There is plenty of other information you can use in your market analysis here as well.
Business.gov: The go-to place for national industry information, as well as links for state and local resources.
U.S. Small Business Administration:The SBA offers industry guides, development programs, and local resources, as well as loan guarantees when the time comes.
Bureau of Labor Statistics: The BLS is the place to find out where your industry has been and where it is headed.
Commerce.gov:The U.S. Department of Commerce has a lot of good general information that you may be able to use, depending on your industry.
The bottom line
Continually rework elements of your market analysis, particularly your discrimination and value proposition.
The key to success here is realizing that this is a marathon and not a sprint. If you examine the competition in the top areas mentioned above and create a plan to overcome, you will win long term.
Monitoring your competition is a small, but important component of a successful digital marketing plan. No business exists in a vacuum, so you must be aware of your environment.
Will you be the one to stand out?
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Mike Schoultz is the founder of Digital Spark Marketing, a digital marketing and customer service agency. With 40 years of business experience, he blogs on topics that relate to improving the performance of your business. Find them on G+, Twitter, and LinkedIn.
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