How to Conduct a Market Analysis for Your Business in 4 Steps

Understanding your customers is the key to success—which is where market analysis applies. Here's a process to get to know your customers in 4 simple steps.
Understanding your customers is the keystone to success for any startup. If you don ’ t have a thick understand of who your customers are, you ’ ll have trouble oneself developing products that truly fit their needs, and you ’ ll contend to develop a successful selling strategy .
This is where a marketplace psychoanalysis comes in. It may sound like a daunting and complex process, but fortunately, it ’ s not .

What is a market analysis?

A marketplace analysis is a thorough qualitative and quantitative assessment of the current market.

It helps you understand the bulk and rate of the market, electric potential customer segments and their bribe patterns, the position of your competition, and the overall economic environment, including barriers to entry, and industry regulations .

Why you should conduct a market analysis

Whether you are writing a lean design or putting together a detailed business plan for a bank or other investor, a solid grocery store analysis is expected. But, don ’ thyroxine just do a grocery store analysis because you ’ ra developing a design. Do it because it will help you build a smart strategy for growing your business .
once you have in-depth cognition 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 undertaking it can be broken up into four bare elements :

  1. Industry overview: You ’ ll describe the current state of your industry and where it is headed .
  2. Target market: Who are your actual customers ? You ’ ll detail how many of them are there, what their needs are, and describe their demographics .
  3. Competition: Describe your competitors ’ positioning, strengths, and weaknesses .
  4. Pricing and forecast: Your pricing will help determine how you placement your company in the market, and your bode will show what fortune 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 precisely what you need for your market analysis .

1.  Industry overview

In this step, you ’ ll describe your diligence and discuss the steering that it ’ second headed. You ’ ll want to include winder industry metrics such as size, trends, and projected growth .
industry research and analysis is different than grocery store research. When you ’ rhenium researching your diligence, you ’ re looking at all of the businesses like yours. This is different than grocery store 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 probable to be .
For model, if you are selling fluid 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 store manner of speaking services ?
If you ’ re in the United States, the U.S. Census has excellent diligence data available. I ’ ve besides found Statista to be useful. You should besides look up your industry association—they frequently have a wealth of information on the trends in your industry .

2. Define your target market

Your prey market is the most authoritative section of your industry analysis. This is where you explain who your ideal customer is .
You may find that through the class of your analysis, that you identify different types of customers. When you have more than one type of customer, you do what ’ second called market division. This is where you group like 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 follow elements .
Market size
Unlike industry size, which is normally measured in dollars, your grocery store size is how many potential customers there are for your merchandise or service. We ’ ve got a great method acting for figuring out your commercialize 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 nation, region, express, city, county, you ’ ll want to describe that here. You may tied find that your customer root is segmented based on placement which can help you determine where you ’ ll be doing business .
Psychographics
It ’ second here that you need to get inside the mentality 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 path analyzing the contest .
Behaviors
This is basically an extension of some of your psychographic data. Explain how your customers shop for and purchase products like yours.

Trends
Customer demeanor is always changing. If there are trends that you ’ ve noticed with your target grocery store, detail them here .

3. Competition

Your marketplace analysis international relations and security network ’ t accomplished 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 cognition, 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 expect at the following areas .
Direct competition
These are companies that are offering very similar products and services. Your electric potential customers are credibly presently 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 newly products or services. For case, the first on-line task management software wasn ’ triiodothyronine competing with early on-line tax managers—it was competing with paper planners, muggy notes, and early analogue disturbance lists .
How you’re different
You don ’ metric ton want to be the lapp as the contest. Make surely to discuss how your company, product, or service is unlike than what the contest is offering. For a coarse business type, such as hair salons, your differentiation might be location, hours, types of services, atmosphere, or price .
Barriers to entry
Describe what protections you have in place to prevent new companies from competing with you. possibly you have a great location, or possibly you have patents that help protect your business .
The best way to research your rival is to talk to your prospective customers and ask them who they are presently 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 capital theme american samoa well .

4. Pricing and forecast

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

Pricing your product or service

first, think about your price. Of course, you should ensure that your price is more than what it costs you to make and deliver your intersection or serve. But, beyond that, think about the message that your price sends to consumers .
Customers normally link high prices to quality. But, if you are pricing on the higher end of the spectrum, you need to make certain the rest of your marketing is besides signaling that you are delivering a high-quality merchandise or service. From what your clientele looks like to its logo and customer service experience, high-prices should come with a high-quality experience during the integral sales process .
On the other end of the spectrum, possibly you ’ rhenium competing as a low-cost alternative to other products or businesses. If that ’ s the event, make sure your commercialize and other message are besides delivering that same, unite message .

Forecasting for initial sales volume

once you have an mind of your price, think about how much you expect to sell. Your industry inquiry will come into play here as you think about how much of the overall market you expect to capture. For exemplar, 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 prognosis should reflect a realistic dowry of that total spend. It ’ sulfur credibly not realistic to gain 50 percentage of the market within your first year .
however, don ’ t make the mistake of assuming that you can easily get 1 percentage of a very large market. 1 percentage of a 3 billion dollar market is still $ 30 million and even though 1 percentage seems like a small, attainable count, you need to understand and explain how you will actually acquire that bulk of customers .
When you build your calculate, use it as a finish for your clientele and track your actual sales compared to what you had hoped you would sell. Tools like LivePlan can help you automatically compare your bode to your account data, so it ’ sulfur easy to do. But, even if you use a spreadsheet, tracking your build up will help you adjust your commercial enterprise strategy promptly so that you can do more of what ’ s working and less of what international relations and security network ’ thymine .

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Prepare your business with a market analysis

Creating a well 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 potential service to them .
Looking for some examples of market psychoanalysis ? Take a look at our free sample clientele plans on Bplans. There are more than 500 of them across a wide rate of industries, and each one of them has a market psychoanalysis section .
Editor ’ randomness note : This article was in the first place published in 2018 and updated for 2021 .

Noah Parsons

Noah Parsons

Noah is currently the COO at Palo Alto Software, makers of the

Noah is presently the COO at Palo Alto Software, makers of the on-line business plan app LivePlan. You can follow Noah on Twitter

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