or founders, it’s a constant challenge to run a successful business. You run into pitfalls in the form of stiff competition, not enough interest from your target market and even run out of cash.
In fact, according to research by CBI insights:
- 42% of startups fail because there was no market need for the product.
- 19% are kicked out of the market by competitors.
- 14% don’t succeed because of putting too much focus on building a product and ignoring what customers really want.
A business’s fate can be decided way before you lay out the marketing strategies to increase your brand awareness.
To ensure you hit the ground on a positive note, a market analysis needs to be conducted. Market analysis is a key part of your business plan. It will give you an overview of your industry and prepare you for any risks that may arise.
In this post, you’ll learn how to write a market analysis whether it’s for introducing a new product, convincing investors to jump on board or just a guide to help you head into the market prepared.
What is market analysis?
Market analysis is a process of determining the size of the market, identifying customer buying behaviours, pinpointing your target market and analyzing your competitors.
There is a thin line between success and failure of businesses in the market.
But by conducting a market analysis, you can set your business up for success by:
- Identifying and putting your audience pain-points and needs first and not your product.
- Establishing a distinctive factor that attracts customers to your business.
- Differentiating your product, making it more appealing to customers and determining how to enter the market.
For your business plan to be successful, you need to run a comprehensive market analysis to gain an understanding of the landscape of your industry, identify barriers and create your market penetration & expansion strategies to obtain more market share.
So how do you conduct a market analysis?
- Industry outlook
In your market analysis, determine the state of your industry and its growth projections. Calculate metrics such as market size, market value and trends.
When assessing the size of the market you need to look at the number of potential customers and the market value separately.
While you can commission your own research, you can also acquire this data from associations in your industry, the Census and labour bureau or even purchase research and studies.
Having a well laid out industry description and overview will let investors and banks trust you in what you are doing and show them you and your industry are worth the time and money.
After providing an estimate of your market size, explain which section of the market you recognize as your target market.
- Target market
Earlier, you highlighted the overview of your market. In this section, you have to be more specific and define who you want your products to appeal to.
Most businesses provide a vague description of their target market. A business selling tracking systems would say everyone with a car is their target market.
Well, as Seth Godin put it, “ everyone is not your customer”.
A good rule of thumb is to always narrow down on your target market. When you narrow down, you will save money and time because your message would resonate with a smaller group who have a better chance of converting into customers with a sustainable life-time-value.
Your target market segment of your business plan should clearly explain who your potential customer is. You can start by defining the general outline of your most immediate audience, but you should aim to have a well defined buyer persona(s) by the end of the process.
If you are B2C, characterize your ideal buyer(s), if you are B2B, characterize each of the personas involved in the decision making process (from the Gatekeepers, through Decision Makers, Influences, & Blockers). This will come in handy to figure out the exact frustrations, challenges and goals they each have, and optimize your messaging and marketing efforts accordingly.
While at it you should be able to explain how and why your product or service will fulfil their needs, ease their frustrations, help them overcome their challenges and how much your potential customers will be willing to spend on the type of product you offer, assuming they understand its full value.
Each service or product might require more than one customer personas. So depending on your business, you should try to define these avatar characters in as much detail as you can. Once you understand what motivates them, and where you can “reach” them - your way forward will be much more targeted and effective.
- Market need and Market fit
As we earlier saw, 42% of startups fail because of no market need for their product or service.
You may have come up with an incredible technology, or a one-of-a-kind product idea, but if nobody needs it, nobody will buy into it…
In the process of defining the market need, highlight the drivers of demand for your kind of product that competitors are not focusing on and highlight your competitive edge.
Moreover, they very well may be a need in the market for a solution to the problem you are attempting to address, but you must investigate whether your solution is fit to be THE solution… This requires you not only clearly investigate the magnitude of the problem, but also check existing solutions (even if they are not as awesome as yours), and if they are, in your audiences’ opinion, good enough.
Take, for example, a robotic dog walker that takes the dog out on its usual walks.
While you are at work those afternoon dog walks wouldn’t have to be cancelled or there won’t be a need to hire a dog walker. Having a robotic dog walker would seem like a heaven-sent invention. They would literally replace a human-dog walker, but will they?
With the cost of manufacturing, you would have to pay through the nose to have one not to mention the dog would still feel lonely because of no human affection and if something happens during the walks the robot can’t really do anything. So hiring a human-dog walker would be a cheaper and convenient approach. You would have peace of mind your dog is well taken care of and focus on your daily tasks at work.
As you can see although there is a market need, the product has no market fit.
- Competitive analysis
The main aim of this section is to know who you are up against but more importantly, is to determine competitors’ strengths and weaknesses, their offering and their target customers.
Competitive analysis should also include your direct competitors who are offering the same kind of solution as you, and that your target customers are currently buying from.
It should also state indirect competitors who are offering solutions not necessarily the same as yours but offer an alternate solution that solves similar customers’ needs.
To protect you against new competitors, or at least be ready for new entries in the market, you need to explain the specific barriers of entry.
This will also cement your key differentiator because you will explain how you’ll successfully enter the market and someone can’t just open shop and take 80% of your customers.
A few examples of entry barriers can include:
- High customer switching costs
- Strong brand identity
In this section, bring up any government regulations or restrictions on your market and highlight how you will comply with these regulations.
In addition, highlight the cost of compliance. This is important because you will assure lenders and investors who are willing to invest in your venture.
An effective market analysis helps in obtaining valuable insight such as competitors, customer behaviour and shifts in the market.
It’s an important component in your business plan to help you raise investment, get a loan, plan marketing strategies and guide you in making business-critical decisions.
So it is important to nail down every aspect of your market analysis as the data collected will contribute to your business growth.