What is Market Analysis?
Market analysis is an in-depth evaluation of your business’s target audience and the competitive environment within a particular industry. It helps you predict how successful your brand and products will be in the market. This process includes both quantitative data, such as market size, consumer pricing expectations, and revenue projections, as well as qualitative insights like customer values, preferences, and purchasing motivations.
Conducting a market analysis offers several benefits, such as:
- Identifying industry trends and emerging opportunities
- Differentiating your business from competitors
- Minimizing risks and costs when starting or pivoting a business
- Customizing products and services to better meet customer needs
- Evaluating the effectiveness of your strategies
- Enhancing marketing efforts for greater impact
- Expanding into new market segments
- Tracking business performance and progress
- Adapting and pivoting your business strategy when needed
While researching this topic, you might encounter related terms like market research and marketing analytics. Here’s how they differ:
- Market research involves gathering data about a target market, including customer needs and behaviors, to effectively promote products or services.
- Marketing analytics focuses on analyzing metrics from specific marketing efforts, such as landing page sign-ups or social media engagement, to optimize return on investment (ROI).
In this article, we concentrate on market analysis as a crucial part of a comprehensive business plan. Keep reading to learn how to conduct a market analysis and build a strong foundation for your business.
Looking to enhance your marketing expertise? Explore resources and course recommendations to kick-start your marketing analyst career.
How to Conduct a Market Analysis in 6 Steps
This section outlines six key steps for performing a market analysis, along with the purpose of each step and guiding questions to help with your research.
1. Research Your Industry
The goal of this step is to understand the broader industry landscape, helping you identify entry points, spot trends, and effectively compete.
Start by asking these questions:
- What statistical data is available about your industry from sources like the U.S. Bureau of Labor Statistics, BMI Research, or professional associations?
- How many businesses are currently operating in this industry?
- What is the size of the market in terms of potential customers?
- How much revenue does the industry generate annually?
- What are the key standards and practices governing businesses and consumers in this industry?
- What external factors (laws, regulations, new technologies, global events, social or economic changes) influence how businesses operate in this industry?
- Where do you see opportunities for innovation or differentiation in the industry?
2. Analyze the Competitive Landscape
After gathering industry insights, the next step is to focus on your direct competitors. This will help you understand who you’re up against as you try to attract customers in your target market. Consider the following questions:
- Which brands are the most prominent in your industry? Who leads in setting trends and capturing customer attention?
- What are these brands’ offerings, pricing strategies, and unique value propositions?
- What sales techniques, technologies, and platforms do these brands use to guide customers through the purchasing journey?
- How do they utilize content to educate and engage their audience?
- What can you learn from customer reviews of these brands about their strengths and weaknesses?
3. Identify Market Gaps
Once you understand the competitive landscape, it’s time to uncover unmet needs or gaps in the market. This can help you differentiate your business and offer something unique. Market gaps are unaddressed needs that current brands fail to meet.
For example, in the online education space, there may be specific topics that aren’t covered by existing courses. You could capitalize on this by creating a course to fill the gap.
Here are some guiding questions:
- Based on your industry research, how might external factors such as social shifts or new laws affect the development of products and services?
- What do consumers directly say they want or need that isn’t currently available?
- How are competitors’ offerings falling short in meeting customer needs?
- How can you leverage your strengths and expertise to deliver superior products or services?
4. Define Your Target Market
After analyzing your industry, competitors, and market gaps, the next step is to pinpoint the specific customers you want to serve. Identifying your target market involves focusing on the characteristics that make certain consumers more likely to purchase your products or services:
- Which market segment within your industry can you target most effectively?
- How can you define this segment in terms of demographics (e.g., age, ethnicity, income, location) and psychographics (e.g., beliefs, values, aspirations, lifestyle)?
- What are the daily routines and habits of this group?
- What challenges or problems do they face regularly?
- What language and terms do these consumers use when discussing their problems on social media or with your competitors?
- How do your product features and benefits directly address their needs?
- What messaging will resonate with this group and demonstrate that you understand their challenges?
5. Identify Barriers to Entry
While defining your target market and shaping your offerings, it’s essential to recognize any potential obstacles to entering the market. Understanding these barriers allows you to develop strategies to overcome them:
- What are the initial costs for launching your business, including product development, technology, suppliers, patents, and certifications?
- What legal requirements must you meet before launching?
- How might political, economic, or social factors influence customer behavior or their willingness to buy your product?
- How much do leading competitors invest in advertising to maintain customer loyalty?
- How can you position your offerings as superior alternatives in terms of value, pricing, and convenience?
6. Develop a Sales Forecast
Sales forecasting involves predicting future sales to help guide your business decisions and secure funding from investors or lenders. It’s helpful to create forecasts for specific time periods, such as the next three, six, or twelve months.
To build an accurate sales forecast, consider the following questions:
- What products or services will you offer?
- How many units do you expect to sell in each time period, based on your market size and target market behavior?
- What pricing strategy will you use for each product or service?
- What are the production and marketing costs for each offering?
You can calculate your sales forecast with this formula:
(Number of units sold × Price per unit) – (Cost per unit × Number of units) = Sales forecast.