- A market analysis is a thorough assessment of a market within a specific industry.
- There are many benefits of conducting a market analysis, such as reducing risk for your business and better informing your business decisions.
- There are seven steps in conducting a market analysis.
- This article is for business owners who want to know why they should conduct a market analysis and how to do it.
Understanding your customer base is one of the first key steps to success in business. Without knowing who your customers are, what they want and how they want to get it from you, your business could struggle to come up with an effective marketing strategy. This is where a market analysis comes in. A market analysis can be a time-intensive process, but it is straightforward and easy to do on your own in seven steps.
What is a market analysis?
A market analysis is a thorough assessment of a market within a specific industry. With this analysis, you will study the dynamics of your market, such as volume and value, potential customer segments, buying patterns, competition, and other important factors. A thorough marketing analysis should answer the following questions:
- Who are my potential customers?
- What are my customers' buying habits?
- How large is my target market?
- How much are customers willing to pay for my product?
- Who are my main competitors?
- What are my competitors' strengths and weaknesses?
Key takeaway: A market analysis is a thorough assessment of a market within an industry.
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, helping 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 a 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 a 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 against which you can judge your company and how well you are doing compared to others in your industry.
- 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.
Key takeaway: A market analysis can benefit your business in many ways, especially if you conduct regular analyses to make sure you have current information for your marketing efforts.
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 understand a new market. Whatever your reason, it's important to determine 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.
It's vital to include 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 trying to get everyone interested in your product. Instead, decide who is most likely to want your product using a target market analysis 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, looking at factors like these:
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 from 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.
With 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 much customers are willing to pay for your product or service
7. Put your analysis to work.
Once you've done the work to create 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.
Be sure to 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.
Key takeaway: There are seven steps to conducting a market analysis. Start by identifying your purpose to keep your research focused.