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Understanding your competition and your industry enables you to run a better business. A market analysis can provide the information you need to make more informed decisions for your business, customers, and future plans. And the good news is you don't need any special skills to conduct a market analysis; it only requires some research and hard work. Below, we will describe the five key steps for conducting a market analysis for your business.
What is a Market Analysis?
Before you can conduct a market analysis, you first need to understand exactly what it is and what it can do for you. A market analysis provides a detailed overview of your industry, target customers, and competition, as well as your competitive advantage in the space. It analyzes a specific product or service within the market.
A complete market analysis will answer critical business questions, such as:
- Who is the potential target market?
- What is the size of the target audience? Is there a secondary audience?
- What are the target audience's buying patterns?
- What is the preferred pricing for the product or service?
- Who are the main competitors?
- How much market share do competitors hold?
- What are the competition’s strengths and weaknesses?
- What makes my product or service stand out against the competition?
- What are the emerging trends in the industry?
5 Key Steps to Conduct a Market Analysis
Here are the five steps you'll need to follow to conduct a comprehensive market analysis for your business.
1. Define What This Market Analysis will Achieve
Ultimately, a market analysis is a great tool that will benefit your business. A market analysis can get quite detailed and lengthy, however, so you want to have a focal point that repeatedly brings you back to your initial objective. To determine this focal point, identify what you are hoping to achieve with the market analysis. Some common reasons to conduct a market analysis are:
- You want to evaluate your pricing structure.
- You want to apply for a business loan.
- You want to attract investors or business partners.
- You want to expand to a new product or service.
- You want to understand your position in the competitive landscape.
Your objective will dictate which areas of the market analysis your research should focus on. Then, as you work on each part of your market analysis, you can always bring it back to your objective.
2. Research the Industry
Researching your industry is key to conducting a successful market analysis. You need to understand your industry’s trends and outlook, as this will indicate whether it will see continual growth, if any disruptors (such as new technology) are entering and changing the market, and the industry's current size.
This research should include accurate metrics and data. Then, as years pass, you can add real-time data and analyze whether your industry predictions are holding true.
3. Define Your Target Customer
Your product or service is most likely not going to appeal to everyone, which means you have to really understand your target customer. This is the person who will love your product or service and become a loyal, repeating customer.
Identifying your target customer allows you to:
- Target them with marketing efforts.
- Use messaging that appeals to them.
- Contact them for feedback.
- Anticipate upcoming changes in their behavior and adjust your product or service accordingly.
Your target customer definition should include their age range, gender, location, occupation, education, needs, and interests. It's recommended that you create a generic customer profile (a "Joe" or a "Jane") that represents your average target customer. Then, every time you work on marketing efforts or messaging, you can ensure it works well for Jane or Joe before making it public.
4. Competitive Analysis
A competitive analysis identifies all your competitors in the industry and calculates how much market share they hold. If you're in a particularly competitive landscape, you can narrow your competitive analysis to include just the major industry leaders or the competition close to your physical location. Next, conduct a SWOT analysis for each competitor on your list.
Further, you will be able to identify where your competition excels and where they miss the mark. This gives you the opportunity to emulate and improve anything they're doing well. However, the key here is to fill in the gap for where your competition is missing the mark. The areas in which they struggle are a void for potential customers that you can fill.
Lastly, you will also be able to identify the competitive advantage you have within the market, understand how competitive the industry is, and estimate how much of a customer base you can realistically win.
5. Put the Data to Work
After collecting all the relevant information, the next step is to analyze it and put it to work for your company. If you're collecting it for external purposes, such as to get a business loan or a new business partner, the market analysis will provide an overview of the market and your place in it that’s easy for external players to digest. They can then make a decision based on the information you've provided.
If you're using this information for internal purposes, such as identifying whether your pricing should be adjusted, then the next step is to make a decision based on your data and act on it. The market analysis will provide clear insight about your industry as a whole and help guide you to make the best decisions for your organization.
What Comes Next?
After conducting a market analysis, you might be wondering what comes next. With the market continuously changing, it's recommended that you update your market analysis at least once a year. This will ensure that you stay on top of your industry and make strategic decisions based on concrete data.
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BBB of Southern Piedmont and Western N.C. contributed this article.