Understanding your customers is the key to a startup’s success. If you don’t fully understand who your customers are, you will find it difficult to develop products that truly meet their needs and develop a successful marketing strategy.
This is where market analysis comes into play. It may seem like a complex and oppressive process, but fortunately it is not.
What is a Market Analysis?
A market analysis is a comprehensive assessment of the current market.
After completing the process, you will have a better understanding of the market volume and value, potential customer segments and their buying models, competition, barriers to entry and industry regulations.
Why should you conduct a market analysis?
Whether you are creating a lean plan or a detailed business plan for a bank or other investor, solid market analysis is expected.
Don’t do market research just because you are developing a plan. Do this because it will help you create a smarter strategy to grow your business.
Once you have a thorough understanding of your market, you will be better able to develop products and services that your customers will love.
While diving into market research can seem like a difficult task, it can be divided into four simple things:
- Sector Overview: The current status of your sector and its changes are described here.
- Target Market: Who are your real customers? It details how many of them are present, what their needs are and what demographic data they have.
- Competition: describe your competitors’ positioning, strengths and weaknesses.
- Price and Forecast: your prices will help you determine how to position your business in the market, and your forecast will indicate how much market share you want to achieve.
How to Conduct a Market Analysis
Now, let’s go through each step in more detail so that you know exactly what you need for your market analysis.
1. Industry Overview
At this point, describe your industry and discuss where you are going. You need to consider key industry metrics such as size, trends and expected growth.
Industry research and analysis is different from market research. When you do research in your industry, look for companies like yours. It is different from market research where you know your customers.
The industry overview shows investors that they understand the situation in which you are competing.
Most importantly, it helps you understand whether there will be greater demand for your products in the future and how competitive the industry will be.
For example, if you sell cell phones, you want to know if the demand for cell phones is increasing or decreasing. When opening a restaurant, you want to understand general restaurant trends.
Do people eat more and more in restaurants over time? Or is the market likely to shrink if consumers use food delivery services?
If you are in the United States, the US Census is excellent for industry data. I also found the Statista useful. You should also contact your industry association, as they can find a lot of information about trends in your industry.
2. Define your Target Market
Your target market is the most important section of your industry analysis. Here you explain who your ideal customer is.
During your analysis, you may find that you identify different types of customers. If you have more than one type of customer, do what is known as market segmentation.
Here, similar customer types are grouped into segments and the attributes of each segment are described.
You need to start globally and refine your search by defining the following.
Unlike the size of the industry, which is usually measured in dollars, the size of your market is the number of potential customers for your product or service. We have a great method for calculating the size of your market, which you can read here.
Describe your client’s age, gender, education, income and more. If you could paint a picture of your perfect client, this is where you would describe your appearance.
Where are your customers? A specific country, region, state, city, or county that you want to describe here. You may even find that your customer base is segmented by location to determine where you are going to do business.
This is where you need to immerse yourself in the mindset of your customers, understand their needs and know how they will meet them. What and what do your customers like and dislike? How do you live? What is your personality?
This piece can also help you better analyze your competition.
It is basically an extension of some of your psychographic information. Explain how your customers buy and buy products like yours.
Customer behavior is constantly changing. If there are any trends that you have noticed in your target market, describe them here.
Your market analysis is not complete without thinking about the competition. A good competitive analysis shows not only the other companies that you compete with, but also the competitive weaknesses that you can take advantage of.
With this knowledge, you can differentiate yourself by offering products and services that fill in the gaps that your competition did not fill.
When analyzing the competition, you should consider the following areas.
These are companies that offer very similar products and services. Your potential customers will likely buy from these companies.
Think of indirect competition as an alternative solution to the problem you are solving. This is especially useful and important for companies who are inventing new products or services.
For example, the first online business management software competed not with other online business leaders, but with paper planners, sticky notes, and other analog to-do lists.
How are you different
You don’t want to be like the competition. Be sure to discuss how your business, product, or service differs from what your competition offers.
For a common type of business like Beauty Salons, your distinction may be based on location, time, type of service, setting or price.
Barriers to entry
Describe the safeguards you have in place to prevent startups from competing with you. Maybe you have a great position or have patents that help protect your business.
The best way to research your competition is to talk to potential customers and ask them who they’re buying from and what solutions they’re using to solve the problem you’re solving.
Of course, spending time with Google to find out what else is also a good idea.
4. Price and Forecast
The last step in any market analysis is to determine the price and make sales forecasts to better understand where you think you might be going in the market.
Think about the price first. Of course, you need to make sure that your price is higher than the cost of producing and delivering your product or service. Also consider the message your price sends to consumers.
Customers often associate high prices with quality. However, when evaluating the high end of the spectrum, you need to make sure that the rest of your marketing also indicates that you are offering a quality product or service.
From the appearance of your business to the logo and customer service, high prices must go hand in hand with a quality experience throughout the sales process.
On the other end of the spectrum, you may be competing as a cheap alternative to other products or companies. If so, make sure your marketing and other messages convey the same consistent message.
Once you have an idea of your price, think about how much you want to sell. Your industrial research will come into play here when you think about what part of the overall market you want to capture.
For example, when you start a new type of grocery store, you want to know how much people are spending on groceries in your area.
Your forecast should reflect a realistic proportion of this total expense. It is probably not realistic to take 50% of the market in the first year.
However, don’t make the mistake of assuming that you can easily buy 1% in a very large market. While 1% of a $ 3 billion market is still $ 30 million and 1% seems small and accessible, you need to understand and explain how you plan to reach that volume of customers.
Use this as a goal for your business when you forecast and compare actual sales with what you plan to sell. Tools like LivePlan make your job easier by helping you automatically compare your forecasts with your accounting data.
However, even if you are using a spreadsheet, tracking your progress will help you quickly adapt your trading strategy so that you can do more of what works and less of what doesn’t.
Prepare your Business with Market Analysis
Creating good market analysis is an invaluable exercise. This will help you find your blind spots and prepare you to compete with other companies.
Most importantly, it will help you understand your customers so that you can provide them with the best possible service.
Are you looking to carry out a market analysis for your business? We are here to help you can contact us here