Know Your Market: Develop a Market Analysis Know Your Market: Develop a Market Analysis

Thinking about starting a new business, entering a new market, or introducing new products? Your best first step is conducting a market analysis to ensure a viable market exists. Without customers, even the best ideas have no chance of success.

The process involves asking – and answering – several questions. The more thorough your queries, the better your chances of picking the right market for your products and services.

We’ll start by evaluating the market at a relatively high level.

High-Level Market Analysis

A high-level market analysis dives deep into whether the market suits a new business or product. Here are some considerations about the market you plan to target:

  • Determine your market size and whether it is growing, stable, or declining.
  • Analyze your industry for growth, a stable market, or a decline.
  • Evaluate what segment of the market you want to reach. Consider what demographics, psychographics, and behaviors are part of your target market.
  • Research the existing avenues for reaching your market. Begin to brainstorm what your strategy might entail for marketing. Discover any possible partnerships or affiliate relationships.
  • Establish whether your product or service demand is increasing, stable, or decreasing.
  • Identify other competitors who are serving the market and if they are successful. If they are, examine how they market to and serve their customers. Determining if your competitors are entering or leaving the market is also beneficial. This can help establish how much market share is left to capture.
  • Find ways to differentiate your company from your competitors and if doing so will be cost-effective.
  • Understand the actual value of your product or service and its category. Is it considered a commodity or a specialty item? Pricing is essential for successfully entering a market.

Focused Market Analysis

At this point, dig a little deeper. The goal is to understand potential customers’ characteristics and purchasing capabilities within your market. Quick Internet searches can yield a tremendous amount of data. For the market you hope to serve, determine:

  • Potential customers. This is the number of people in the market segment you plan to target. For example, anyone under 16 and over 60 is less likely to be a customer if you sell motorcycles. In addition, women make up a smaller percentage of total motorcycle buyers. Take these subgroups into consideration when estimating numbers.
  • Total households. This number can be significant, depending on your business. For example, knowing the number of households is more critical than a full population tally if you sell heating and cooling systems.
  • Median income. Spending power is important. Does the target area have sufficient income to purchase enough of your products and services for you to make a profit?
  • Income by demographics. You can also determine income levels by age group, ethnic group, and gender. If you sell services to local businesses, determine how much they spend on similar services.
  • Psychographic characteristics. The “why” of people buying your product or service can be a huge differentiator. For example, young, upwardly mobile professionals have a track record of high-end purchasing because status motivates them.

If you plan to sell products online, the landscape is incredibly competitive. Any business can establish an online store and ship products around the world. Never assume that you can capture a meaningful market share.

For example, the bicycle industry is a mega-billion-dollar sector. If you live in an area with 50,000 people and only one bike shop, you can tap into that market more successfully than an online clientele. It is much easier to serve a market you can define and quantify.

Surveys

Surveys can help you evaluate whether a new product or service will gain acceptance in a particular market. They can yield valuable data if properly constructed. Many companies provide professional survey services, which is well worth considering if you want hard data.

Arguably, the most valuable survey models involve face-to-face or telephone interviews. Taking surveys in person allows you to ask follow-up questions, show examples or samples, and check out the respondents’ body language and nonverbal cues. The key is to survey companies or individuals within your target market. This lets you know whether the "right" customers are interested in your product or service.

When constructing a survey, give careful thought to your queries. Don’t ask leading questions. Be clear and to the point, and allow respondents to answer honestly. Most importantly, avoid personal questions.

Use a well-constructed, carefully administered survey as a final piece of your market analysis puzzle. If you’ve done your homework, you’ll know what questions to ask and what potential customers to target.

Market Potential Analysis

A Market Potential Analysis allows you to forecast sales for your organization. When you acquire this information, you can then develop projections.

Here are the key items in a Market Analysis:

  • Your market territory
  • The number of total buyers
  • The volume of competitors sharing the buyers
  • The percentage of buyers who have already purchased the item or service
  • Buyers’ annual spend
  • The expected number of buyers in the next three years
  • The rate of demand growth for this product

Use essential data to determine your business ideas’ best time and location. Analyzing your market before diving in with new products, services, or businesses can save you time, money, and stress.