MODULE 2

MARKET ANALYSIS

How to Conduct a Market Analysis in 4 Steps

Understanding your customers is the key to success for any startup. If you
don’t have a deep understanding of who your customers are, you’ll have trouble
developing products that truly fit their needs, and you’ll struggle to develop a
successful marketing strategy.

This is where a market analysis comes in. It may sound like a daunting and
complex process, but fortunately, it’s not.

WHAT IS A MARKET ANALYSIS?

A market analysis is a thorough assessment of the current market.

Once completed you’ll have a better understanding of the volume and value of
the market, potential customer segments, and their buying patterns, the
competition, barriers to entry, and industry regulations.

WHY YOU SHOULD CONDUCT A MARKET ANALYSIS

Whether you are writing a Lean Plan or putting together a detailed business
plan for a bank or other investor, a solid market analysis is expected. But, don’t just
do a market analysis because you’re developing a plan. Do it because it will help you
build a smarter strategy for growing your business.

Once you have in-depth knowledge of your market, you’ll be better positioned
to develop products and services that your customers are going to love. And while
diving into market research may seem like a daunting task it can be broken up into
four simple elements:

 Industry overview: You’ll describe the current state of your industry and where it is
headed.
 Target market: Who are your actual customers? You’ll detail how many of them are
there, what their needs are, and describe their demographics.

 Competition: Describe your competitors’ positioning, strengths, and weaknesses.

 Pricing and forecast: Your pricing will help determine how you position your
company in the market, and your forecast will show what portion of the market you
hope to get.

HOW TO CONDUCT A MARKET ANALYSIS

Now, let’s go into each step in more detail so you know exactly what you need for
your market analysis.

1. Industry overview

In this step, you’ll describe your industry and discuss the direction that it’s
headed. You’ll want to include key industry metrics such as size, trends, and
projected growth.

Industry research and analysis is different than market research. When

you’re researching your industry, you’re looking at all of the businesses like yours.
This is different than market research, where you are learning about your
customers.

Your industry overview shows investors that you understand the larger
landscape that you are competing in. More importantly, it helps you understand if
there’s going to be more demand for your products in the future and how
competitive the industry is likely to be.

For example, if you are selling mobile phones, you’ll want to know if the
demand for mobile phones is growing or shrinking. If you’re opening a restaurant,
you’ll want to understand the larger trends of dining out. Are people eating at
restaurants more and more over time? Or is the market potentially shrinking as
consumers take advantage of grocery delivery services?

If you’re in the United States, the U.S. Census has excellent industry data
available. I’ve also found Statista to be useful. You should also look up your
industry association—they often have a wealth of information on the trends in your
industry.
2. Define your target market

Your target market is the most important section of your industry analysis. This is
where you explain who your ideal customer is.

You may find that through the course of your analysis, that you identify different
types of customers. When you have more than one type of customer, you do what’s
called market segmentation. This is where you group similar types of customers
into segments and describe the attributes of each segment.

You’ll need to start broadly and refine your research by defining the following
elements.

MARKET SIZE

Unlike industry size, which is usually measured in dollars, your market size
is how many potential customers there are for your product or service. We’ve got a
great method for figuring out your market size that you can read about here.

DEMOGRAPHICS

Describe your customer’s typical age, gender, education, income, and more. If
you could paint a picture of your perfect customer, this is where you’ll describe what
they look like.

LOCATION

Where are your customers located? A specific country, region, state, city,
county, you’ll want to describe that here. You may even find that your customer
base is segmented based on location which can help you determine where you’ll be
doing business.

PSYCHOGRAPHICS

It’s here that you need to get inside the mindset of your customers, know
their needs, and how they’ll react. What are your customers’ likes and dislikes? How
do they live? What’s their personality?

This piece can even help you better approach analyzing the competition.

BEHAVIORS

This is essentially an extension of some of your psychographic information.

Explain how your customers shop for and purchase products like yours.
TRENDS

Customer behavior is always changing. If there are trends that you’ve noticed
with your target market, detail them here.

COMPETITION

Your market analysis isn’t complete without thinking about your

competition. Beyond knowing what other businesses you are competing with, a good
competitive analysis will point out competitors’ weaknesses that you can take
advantage of. With this knowledge, you can differentiate yourself by offering
products and services that fill gaps that competitors have not addressed.

When you are analyzing the competition, you should take a look at the following
areas.

DIRECT COMPETITION

These are companies that are offering very similar products and services.
Your potential customers are probably currently buying from these companies.

INDIRECT COMPETITORS

Think of indirect competition as alternative solutions to the problem you are

solving. This is particularly useful and important for companies that are inventing
brand new products or services. For example, the first online task management
software wasn’t competing with other online task managers—it was competing with
paper planners, sticky notes, and other analog to-do lists.

HOW YOU’RE DIFFERENT

You don’t want to be the same as the competition. Make sure to discuss how
your company, product, or service is different than what the competition is offering.
For a common business type, such as hair salons, your differentiation might be
location, hours, types of services, ambiance, or price.

BARRIERS TO ENTRY

Describe what protections you have in place to prevent new companies from
competing with you. Maybe you have a great location, or perhaps you have patents
that help protect your business.

The best way to research your competition is to talk to your prospective

customers and ask them who they are currently buying from and what alternate
solutions they are using to solve the problem you are solving. Of course, spending
some time on Google to figure out what else is out there is a great idea as well.

STEP 4: PRICING AND FORECAST

The final step in a market analysis is to figure out your pricing and create
a sales forecast to better understand what portion of the market you think you can
get.

First, think about your pricing. Of course, you should ensure that your price
is more than what it costs you to make and deliver your product or service. But,
beyond that, think about the message that your price sends to consumers.

Customers usually link high prices to quality. But, if you are pricing on the
higher end of the spectrum, you need to make sure the rest of your marketing is
also signaling that you are delivering a high-quality product or service. From what
your business looks like to its logo and customer service experience, high-prices
should come with a high-quality experience during the entire sales process.

On the other end of the spectrum, maybe you’re competing as a low-priced

alternative to other products or businesses. If that’s the case, make sure your
marketing and other messaging are also delivering that same, unified message.

Once you have an idea of your pricing, think about how much you expect to
sell. Your industry research will come into play here as you think about how much
of the overall market you expect to capture. For example, if you’re opening a new
type of grocery store, you’ll want to know how much people spend on groceries in
your area. Your forecast should reflect a realistic portion of that total spend. It’s
probably not realistic to gain 50 percent of the market within your first year.

However, don’t make the mistake of assuming that you can easily get 1
percent of a very large market. 1 percent of a 3 billion dollar market is still $30
million and even though 1 percent seems like a small, attainable number, you need
to understand and explain how you will actually acquire that volume of customers.

When you build your forecast, use it as a goal for your business and track
your actual sales compared to what you had hoped you would sell. Tools
like LivePlan can help you automatically compare your forecast to your accounting
data, so it’s easy to do. But, even if you use a spreadsheet, tracking your progress
will help you adjust your business strategy quickly so that you can do more of
what’s working and less of what isn’t.
PREPARE YOUR BUSINESS WITH A MARKET ANALYSIS
Creating a good market analysis is a very worthwhile exercise. It will help
you uncover your blind spots and prepare you to compete with other businesses.
More importantly, it will help you understand your customers so you can deliver the
best possible service to them.

Looking for some examples of market analysis? Take a look at our free
sample business plans on Bplans. There are more than 500 of them across a wide
range of industries, and each one of them has a market analysis section.
references

https://www.liveplan.com/blog/market-analysis-in-4-steps/