Market analysis: what is it and how to do it

A market analysis provides in­for­ma­tion about in­dus­tries, customers, com­peti­tors, and other market variables. You can also determine the re­la­tion­ship between supply and demand for a specific product or service. Based on these insights, you can make more informed decisions about possible marketing strate­gies.

What is a market analysis?

The market analysis is a subfield of market research that examines the con­di­tions, trends, and com­peti­tors in a specific market to identify op­por­tu­ni­ties and risks. It provides a foun­da­tion for strategic business decisions and market po­si­tion­ing.

Fur­ther­more, it is an essential part of a business plan, in which en­tre­pre­neurs document their business idea in writing. As part of the market analysis, a specific market is sys­tem­at­i­cal­ly examined.

With the insights gained, busi­ness­es can identify op­por­tu­ni­ties and risks within a market. The de­f­i­n­i­tion of the target group serves as the basis for market analysis.

How suitable is a par­tic­u­lar market for your offering? A market analysis helps answer this crucial question. Any market par­tic­i­pant—whether a company, en­tre­pre­neur, or private consumer—can conduct a market analysis. In all cases, it serves as a decision-making tool. In­for­ma­tion is gathered and evaluated from both suppliers and consumers to make buying or selling decisions. Ad­di­tion­al­ly, busi­ness­es can assess their current market or explore new markets.

Different methods of market analysis

In order to carry out a market analysis you will require reliable in­for­ma­tion. Generally speaking, small companies tend to carry out the necessary research for their market analysis them­selves. Larger companies, on the other hand, often com­mis­sion market research in­sti­tutes to do it for them. A market analysis can be carried out using various methods of data col­lec­tion. A dis­tinc­tion is made between primary and secondary research.

With primary research, experts from a target market are in­ter­viewed in order to collect new data. The advantage of this is that it is still your own research purpose in focus. This way, you can collect the data you need for your market analysis. In contrast to this, secondary research uses existing data records from previous surveys. This can be collected both in­ter­nal­ly and ex­ter­nal­ly. By opting for secondary research you can save both time and money because you don’t have to conduct costly in­ter­views and eval­u­a­tion. Sources for rep­re­sen­ta­tive data are, for example, the Federal Sta­tis­ti­cal System, pro­fes­sion­al chambers, annual reports of other companies, or trade journals.

Beyond the tra­di­tion­al division into primary and secondary research—where either new data is collected or existing data is used—modern ap­proach­es are becoming in­creas­ing­ly important. Methods such as Big Data, AI-powered an­a­lyt­i­cal tools, and social listening enable real-time analysis of market de­vel­op­ments and customer behavior.

What is the purpose of a market analysis?

If you want to succeed with your business idea, con­duct­ing a market analysis is essential. A well-founded market analysis forms the basis for de­vel­op­ing a marketing strategy and concrete marketing measures.

Ad­di­tion­al reasons why a market analysis is worth­while for you:

• A market analysis allows you to support your business idea with numbers, data, and facts, making it more con­vinc­ing in your business plan.
• You can identify market potential early and avoid poor decisions.
• You may uncover existing knowledge gaps and address them in time.
• A market analysis helps you un­der­stand which competing products already exist in the market.
• It enables you to identify market entry barriers and assess market at­trac­tive­ness.

How to do a market analysis step by step

An effective market analysis will include an accurate de­scrip­tion of the target market and thorough market research. It conveys a holistic picture of a specific market. A market analysis consists of five different areas in which in­for­ma­tion is collected and analyzed.

Define your market

At the beginning, define your market and dif­fer­en­ti­ate it from other markets. Depending on the product or service, your market can be defined using various criteria. In order to carry out segment-specific analyses, the target market must be divided into different segments based on certain char­ac­ter­is­tics. Such char­ac­ter­is­tics can be socio-de­mo­graph­ic (age, sex, income) or regional (states, cities).

The following questions should be answered in the market de­scrip­tion:

• Which target group is your product or service aimed at?
• What age group is your product intended for?
• What is the average income of your target audience?
• Where do the key players in your market live?

Gather as much specific in­for­ma­tion as possible about your target audience:

• Does your target group prefer chocolate mocha or black coffee?
• How fast-paced is your target group? Do they take 20 or 30 minutes to enjoy their coffee?

How at­trac­tive is the market? Market size and market de­vel­op­ment

When de­ter­min­ing the size of your market you should use data that is as accurate and up-to-date as possible. This part of the market analysis is about de­ter­min­ing and eval­u­at­ing the actual turnover or sales volume of a product or service in a specific market. Based on these figures you can make forecasts about the market de­vel­op­ment and derive the at­trac­tive­ness of the market from this. The market de­vel­op­ment includes market growth and growth rates.

What are suitable sources for procuring in­for­ma­tion?

The following ad­min­is­tra­tive bodies and internet sites provide free input for your market analysis:

• The U.S. Census Bureau provides reliable in­for­ma­tion covering a wide range of topics, from advance monthly retail sales to ge­o­graph­ic and de­mo­graph­ic data.
• The Small Business Ad­min­is­tra­tion (SBA) offers guidance and resources for business owners, including access to market research tools and reports. However, for official U.S. business and economic sta­tis­tics, it is rec­om­mend­ed to check Data.gov or the Bureau of Economic Analysis (BEA).
• The Bureau of Labor Sta­tis­tics (BLS) provides crucial labor market data, em­ploy­ment trends, wage sta­tis­tics, and industry growth pro­jec­tions.
• The Federal Reserve Economic Data (FRED) offers economic in­di­ca­tors, interest rates, and financial data, helping busi­ness­es assess market con­di­tions.
• SEC’s EDGAR Database allows you to access financial reports and filings of publicly traded companies, useful for com­peti­tor analysis and industry bench­mark­ing.
• Sta­tis­tics, market data, and studies can be found online at Statista. This platform provides data from market research in­sti­tu­tions, opinion research or­ga­ni­za­tions, business reports, and official sta­tis­tics.

What are the market char­ac­ter­is­tics? Com­pet­i­tive analysis

The com­pet­i­tive analysis considers in­di­vid­ual factors that are important for a market. Here, the essential char­ac­ter­is­tics of a market are analyzed and described. The Five Forces Framework is an es­tab­lished tool for analyzing com­pe­ti­tion, es­pe­cial­ly in the con­sult­ing industry. The man­age­ment theorist, Michael E. Porter, shows which factors are important for the analysis of both the market and the com­pe­ti­tion:

1. Bar­gain­ing power of customers: How do customers react to price increases or decreases? How important is your product or service for your target group?
2. Bar­gain­ing power of suppliers: Suppliers have a par­tic­u­lar­ly high bar­gain­ing power if the number of suppliers is limited. How can you react to price increases if necessary?
3. Threat of sub­sti­tute products and markets: Are there al­ter­na­tives to your product or service? Could emerging in­no­va­tion jeop­ar­dize the dis­tri­b­u­tion of your product or service?
4. New com­peti­tors and market entry barriers: If a market is par­tic­u­lar­ly at­trac­tive, it is sure to attract new com­peti­tors. How high are the market entry barriers for potential com­pe­ti­tion? For example, high in­vest­ment costs for a product or service can be a barrier to market entry. Access to a market is also made more difficult if high marketing costs are necessary to achieve a certain level of awareness, or if resources are difficult to access due to exclusive suppliers, or if a shop is in an awkward location.
5. Com­peti­tors in the market: How high is the com­pe­ti­tion? Who dominates the market? Which com­peti­tors are ahead and why?

In the com­pet­i­tive analysis you should get to know not only your customers, but also your com­peti­tors and possible com­pet­i­tive ad­van­tages:

• How quickly should you enter the market?
• What are the dangers of entering the market?
• Who offers a similar range of products and how many com­peti­tors are there?
• What do your com­peti­tors do well and what can you do better?
• How similar is your target market to that of your com­peti­tor?

Analysis of the customer industry

The analysis of the customer industry iden­ti­fies the in­dus­tries that achieve the highest sales or turnover. In doing so, you should again refer to your defined market. You can then analyze the structure and at­trac­tive­ness of the in­dus­tries with regard to the various sales aspects. As a result of your analysis you can identify the target groups and their various in­dus­tries and you can determine customer re­quire­ments and customer behavior. Based on the results, you can, for example, develop suitable marketing strate­gies for your business.

The following questions should be answered:

• How high are the revenues generated in the par­tic­u­lar industry?
• Which company is the market leader?
• What are the current trends in the industry?
• Which in­no­va­tions have been able to advance the industry?

Potential analysis of the target market i.e. how will the market develop in the future?

A market analysis does not only reveal the past and current state of a market, but also the trend of its future de­vel­op­ment. For this purpose, the potential analysis high­lights potential employees, market entry barriers, success factors, as well as current de­vel­op­ments and trends. A forecast of the market de­vel­op­ment is par­tic­u­lar­ly important for your sales planning and for possible investors.

What is the dif­fer­ence? Market analysis vs. market research

Market research refers to the sys­tem­at­ic in­ves­ti­ga­tion of a specific market. It provides in­for­ma­tion that helps you select the ap­pro­pri­ate marketing tools. In contrast, market analysis focuses on a point-in-time ex­am­i­na­tion of a par­tic­u­lar market. The goal of market analysis is to identify the key char­ac­ter­is­tics of a market and determine its structure at a given moment.

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