How to Do Market Analysis in 4 Easy Steps

Understanding customers doing market analysis is the key to success for any business start-up. If you don't have a deep understanding of who your customers are, you will have a hard time developing a product that truly fits their needs, and you will have problems developing a successful marketing strategy.

This is for market analysis. It may sound like a daunting and complicated process, but it's not quite what you imagined.

Perform Market Analysis in 4 Steps

Industry overview: You will describe the current state of your industry and where it is going.
Target market: Who are your real 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.
Price estimate: Your price will help determine how you position your company in the market, and your estimate will indicate your expected market share.

Do you write plans or draw up detailed business plans for your bank or investors? Solid market analysis can be the thing that will help the entire plan. But, don't just do market analysis because you are developing a plan. Perform market analysis to help you build smarter strategies to grow your business.

Once you have in-depth knowledge of your market and consumers, you will be in a better position to develop products and services that your customers will love.

Now, let's go into each step in more detail so you know exactly what you need to analyze your market.

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Step 1: Industry overview

In this step, you will describe your industry and discuss the direction it may be headed. You'll want to cover key industry metrics such as size, trends, and projected growth.

Industry research and analysis is different from market research. When you research an industry, you see all businesses like yours. This is different from market research, where you learn about your customers. For a more detailed explanation of the differences, you can see in the following article.

An overview of your industry will show investors that you understand the larger landscape in which you are competing. More importantly, it helps you understand if there will be more demand for your product in the future and how competitive the industry is likely to be.

For example, if you sell cell phones, you want to know whether the demand for cell phones is increasing or decreasing. If you're opening a restaurant, you want to understand the larger trend of eating out. Are people eating out at restaurants more and more over time? Or is the market potentially shrinking as consumers take advantage of grocery delivery services?

Step 2: Target market

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

Pay attention to every detail such as:

1. 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.

2. Demographics: Break down the age, gender, education, income, and more typical of your customers. If you could paint a picture of your perfect customer, this is where you'd describe what they would look like.

3. Location: If you find a customer in a specific location or region, describe it here.

4. Psychographics: You have to know what customers like and what they don't like. A better way to think about psychographics is to think about the lifestyles and personalities of your customers.

5. Behavior: This is basically an extension of some of your psychographic information. Describe how your customers shop and buy products like yours.

6. Trends: Customer behavior is always changing. If there's a trend you've noticed with your target market, detail it here.

It doesn't matter. if you have 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.

Step 3: Competition

Your market analysis is incomplete without thinking about your competitors. As well as knowing what business you're competing against, a good competitive analysis will pinpoint 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 haven't addressed.

When you analyze the competition, you should look at the following areas:

1. Direct competition: These are companies that offer very similar products and services. Your current potential customers are probably buying from these companies.

2. Indirect competitors: Think of indirect competitors as alternative solutions to the problem you are solving. This is very useful and important for companies creating new products or services. For example, online task management software initially did not compete with other online task managers — they competed with paper notes, sticky notes, and other manual to-do lists.

3. How you are different: You don't want to be the same as your competitors. Be sure to discuss how your company, product or service differs from what competitors offer. For a common type of business, such as a hair salon, your differentiation might be location, hours, type of service, ambiance or price.

4. Barriers to entry: Describe what safeguards you have in place to prevent new companies from competing with you. Maybe you have a great location, or maybe you have a patent that helps protect your business.

The best way to research your competition is to talk to your prospect and ask them who they are currently buying from and what alternative solutions they are using to solve the problem you are solving. Of course, spending some time on Google to find out what else is out there is a great idea too.

Step 4: Price estimate

The final step in market analysis is to find out your prices and make a sales forecast to better understand what part of the market you think you can win.

First, think about your price. Of course, you have to make sure that your price is more than what you spend to make and deliver your product or service. But, more than that, think about the message your prices send to consumers.

Customers usually associate high prices with quality. But, if you're pricing on the higher end of the spectrum, you need to make sure your marketing message also signals that your business delivers a high-quality product or service.

From what your business looks like to the logo and customer service experience, a high price has to come with a high quality experience throughout the entire selling process.

On the other end of the spectrum, maybe you take a low-cost alternative to another product or business. If that's the case, make sure the message in your marketing reaches the customer.

Once you have set your price, think about how much you will sell for. Your industry research results will come into play here, as you figure out how much of the overall market you want to dominate.

For example, if you are opening a new type of grocery store, you want to know how many people are shopping for groceries in your area. Your forecast should reflect a realistic share of that total expenditure. It may not be realistic to get 50 percent of the market in your first year.

However, don't make the mistake of assuming that you can easily earn 1 percent on a very large market. 1 percent of a 3 billion market is still worth 300 million and while 1 percent seems small the achievable number is a huge amount, you need to understand and explain how you are actually going to acquire that volume of customers.

When you build your forecast, use it as a goal for your business and track actual sales at the business, then compare it to what you expected.

Conclusion

Making a good market analysis is a very useful exercise. This will help you find your blind spot and prepare you to compete with other businesses. More importantly, it will help you understand your customers so you can provide the best service to them.