In today’s competitive business landscape, having a thorough understanding of your target market is crucial to the success of your business. Conducting a market analysis is a crucial step in this process, as it allows you to gain insight into your customers, competitors, and industry trends.
But where do you start when it comes to conducting a market analysis? This guide will walk you through everything you need to know about performing a market analysis for your business.
We’ll start by defining what a market analysis is and why it’s essential for your business. From there, we’ll explore the different types of market analysis and the tools and techniques you can use to gather data, such as surveys, focus groups, and competitor research.
You’ll also learn how to analyze the data you’ve collected and how to use it to make informed decisions about your business strategy, such as identifying new market opportunities, improving your marketing efforts, and developing new products or services.
Whether you’re a startup trying to break into a new market or an established business looking to stay ahead of the competition, conducting a market analysis is a critical step in your business’s success. So, let’s dive in and learn how to conduct a market analysis for your business.
What is a market analysis?
A comprehensive evaluation of a particular industry’s market is known as a market analysis. It entails examining the market’s dynamics, such as volume and value, potential customer segments, purchasing patterns, competition, and other significant aspects. To conduct a thorough market analysis, it is necessary to answer the following questions:
- Who are my potential customers?
- What are my customers’ purchasing behaviors?
- How big is my target market?
- How much are customers willing to pay for my product?
- Who are my primary competitors?
- What are my competitors’ strengths and weaknesses?
What Sets Apart Market Analysis from Market Research?
Often, individuals mistakenly interchange market analysis with market research. In reality, market research is just a part of market analysis, which concentrates primarily on devising a marketing strategy. However, market analysis delves much further into various aspects, such as competition and industry regulations.
There are two types of market analysis:
- The internal market analysis deals with how you do business
- External market analysis involves how your environment or market affects your business.
These approaches are equally beneficial and depend on your needs as a business. You might even find yourself conducting both at the same time. This is similar to a SWOT analysis, which assesses your business’s Strengths, Weaknesses, Opportunities, and Threats.
What are the benefits of running a marketing analysis?
A marketing analysis can reduce risk, identify emerging trends, and help project revenue. You can use a marketing analysis at several stages of your business, and it can even be beneficial to conduct one every year to keep up to date with any major changes in the market.
A detailed market analysis will usually be part of your business plan since it gives you a greater understanding of your audience and competition. This will help you build a more targeted marketing strategy.
These are some other major benefits of conducting a market analysis:
- Risk reduction: Knowing your market can reduce risks in your business since you’ll have an understanding of major market trends, the main players in your industry, and what it takes to be successful, all of which will inform your business decisions. To help you further protect your business, you can also conduct a SWOT analysis, which identifies the strengths, weaknesses, opportunities, and threats for your business.
- Targeted products or services: You are in a much better position to serve your customers when you have a firm grasp on what they are looking for from you. When you know who your customers are, you can use that information to tailor your business’s offerings to your customers’ needs.
- Emerging trends: Staying ahead in business is often about being the first to spot a new opportunity or trend, and using marketing analysis to stay on top of industry trends is a great way to position yourself to take advantage of this information.
- Revenue projections: A market forecast is a key component of most marketing analyses, as it projects the future numbers, characteristics, and trends in your target market. This gives you an idea of the profits you can expect, allowing you to adjust your business plan and budget accordingly.
- Evaluation benchmarks: It can be difficult to gauge your business’s success outside of pure numbers. A market analysis provides benchmarks or key performance indicators (KPIs) against which you can judge your company and how well you are doing compared to others in your industry.
- The context for past mistakes: Marketing analytics can explain your business’s past mistakes or industry anomalies. For example, in-depth analytics can explain what impacted the sale of a specific product, or why a certain metric performed the way it did. This can help you avoid making those mistakes again or experiencing similar anomalies because you’ll be able to analyze and describe what went wrong and why.
- Marketing optimization: This is where an annual marketing analysis comes in handy – regular analysis can inform your ongoing marketing efforts and show you which aspects of your marketing need work, and which are performing well in comparison to the other companies in your industry.
What are the drawbacks of running a marketing analysis?
The below drawbacks of running a market analysis pertain less to the method itself than the resources it requires.
- Market analysis can be expensive. If you’re not as familiar with marketing concepts such as market volume and customer segmentation, you might want to outsource your market analysis. Doing so can be great for your analysis’s quality, but it can also leave a big dent in your budget. Narrow your market analysis to a certain group – perhaps current customers – to lower your costs.
- Market analysis can be time-consuming. Market analysis can take precious time away from more directly business-related tasks. You can analyze one area at a time – say, buying patterns or competition – to free up your day-to-day schedule.
- Market analysis can require extra staff. Some larger companies retain in-house market analysis staff, and you can follow their lead. Doing so, though, comes with all the usual costs of hiring a new employee. The question then becomes: Do you conduct your market analysis yourself, outsource it, or hire in-house? The more expensive options can often yield more meaningful insights.
- Market analysis can be narrow. The most successful market analyses use actual customer feedback, which analysts often get through customer surveys. These surveys may reach only a portion of your entire customer base, leading to an inaccurate sample size. The result is that market analysis may not fully detail your customers and what you should know about them.
Market analysis vs. conjoint analysis vs. sentiment analysis
Where market analysis is broad and comprehensive, the conjoint analysis focuses on how customers value what you offer. Surveys are often the backbone of conjoint analysis – they’re a great way for customers to share what drives their purchases. Product testing is an especially common application of conjoint analysis. This method can yield insights into pricing and product features and configurations.
Sentiment analysis goes beyond number-driven market and conjoint analysis to identify how customers qualitatively feel about your offerings. It can show you what customers are happy and unhappy about with your offerings or buying process. You can also wade into deeper emotional territory such as anger, urgency, and intention, or you can dig up descriptive feedback. It’s a great tool to use alongside market analysis, whereas conjoint analysis is all but included in market analysis.
How to conduct a market analysis
While conducting a marketing analysis is not a complicated process, it does take a lot of dedicated research, so be prepared to devote significant time to the process.
These are the seven steps of conducting a market analysis:
1. Determine your purpose.
There are many reasons you may be conducting a market analysis, such as to gauge your competition or to understand a new market. Whatever your reason, it’s important to define it right away to keep you on track throughout the process. Start by deciding whether your purpose is internal – like improving your cash flow or business operations – or external, like seeking a business loan. Your purpose will dictate the type and amount of research you will do.
2. Research the state of the industry.
Map a detailed outline of the current state of your industry. Include where the industry seems to be heading, using metrics such as size, trends, and projected growth, with plenty of data to support your findings. You can also conduct a comparative market analysis to help you find your competitive advantage within your specific market.
3. Identify your target customer.
Not everyone in the world will be your customer, and it would be a waste of your time to try to get everyone interested in your product. Instead, use a target market analysis to decide who is most likely to want your product and focus your efforts there. You want to understand your market size, who your customers are, where they come from, and what might influence their buying decisions. To do so, look at demographic factors like these:
- Age
- Gender
- Location
- Occupation
- Education
- Needs
- Interests
During your research, you might consider creating a customer profile or persona that reflects your ideal customer to serve as a model for your marketing efforts.
4. Understand your competition.
To be successful, you need a good understanding of your competitors, including their market saturation, what they do differently than you, and their strengths, weaknesses and advantages in the market. Start by listing all your main competitors, then go through that list and conduct a SWOT analysis of each competitor. What does that business have that you don’t? What would lead a customer to choose that business over yours? Put yourself in the customer’s shoes.
Then, rank your list of competitors from most to least threatening, and decide on a timeline to conduct regular SWOT analyses on your most threatening competitors.
5. Gather additional data.
When conducting marketing analyses, information is your friend – you can never have too much data. It is important that the data you use is credible and factual, so be cautious of where you get your numbers. These are some reputable business data resources:
- U.S. Bureau of Labor Statistics
- U.S. Census Bureau
- State and local commerce sites
- Trade journals
- Your own SWOT analyses
- Market surveys or questionnaires
6. Analyze your data.
After you collect all the information you can and verify that it is accurate, you need to analyze the data to make it useful to you. Organize your research into sections that make sense to you, but try to include ones for your purpose, target market, and competition.
These are the main elements your research should include:
- An overview of your industry’s size and growth rate
- Your business’s projected market share percentage
- An industry outlook
- Customer buying trends
- Your forecasted growth
- How many customers are willing to pay for your product or service
7. Put your analysis to work.
Once you’ve created a market analysis, it’s time to actually make it work for you. Internally, look for where you can use your research and findings to improve your business. Have you seen other businesses doing things that you’d like to implement in your own organization? Are there ways to make your marketing strategies more effective?
If you conducted your analysis for external purposes, organize your research and data into an easily readable and digestible document to make it easier to share with lenders.
Retain all of your information and research for your next analysis, and consider making a calendar reminder each year so that you stay on top of your market.
Making market analysis easy
If you have the time to conduct a market analysis yourself, go for it – this guide will help. If you don’t have the time, hiring an in-house expert or outsourcing your analysis is often worth the cost. Your analysis will help you figure out who to target and how – and that’s a huge part of business success.
