Market analysis – the definition
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?
- Market analysis: content and structure
What is a market analysis?
How suitable is your offer for a certain market? A market analysis will answer these important questions. Every market participant – whether companies, founders, or private customers – can carry out a market analysis. In any case, it serves as a basis for decision-making. Information is collected and evaluated from suppliers and buyers in order to make purchase or sales decisions. Furthermore, you can evaluate your current market or view new markets.
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Market analysis is a large part of market research and an important component of a business plan. In this plan, business founders document their business idea in writing. During the course of the market analysis, a specific market is taken into account. With the help of the results displayed, companies can identify the opportunities and risks of that particular market. The target group forms the basis of the market analysis.
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.
The bigger the company, the broader your market analysis should be.
Market analysis vs. market research: what are the main differences?
Market research means the systematic investigation of a specific market, as such research provides information on the basis of which you can select a suitable marketing instrument. In contrast to market research, market analysis focuses on a specific market on a given date. The aim of market analysis is to identify the most important characteristics of a market and to determine the market structure at a certain point in time.
The market structure describes the structure of a certain market. It focuses on the interaction between suppliers and consumers and can be determined on the basis of various criteria. These criteria depend on different characteristics of a market. These include the size and value as well as the number of suppliers, the buying behavior of consumers, or growth forecasts.
What is a market analysis for?
If you want your business plan to be successful, you will need to carry out a market analysis. A comprehensive market analysis forms the basis of the development of a marketing strategy and concrete marketing measures.
Further reasons for conducting a market analysis:
- With a market analysis, you can back up your business idea with figures, data, and facts, and therefore provide a convincing business plan.
- You can recognize market potential at an early stage and avoid making the wrong decisions.
- You can identify any existing knowledge gaps and fill them in on time.
- A market analysis shows you which competing products are already on the market.
- With a market analysis, you can identify the market entry barrier and estimate the market attractiveness.
Market analysis: content and structure
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.
Market description: examine 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 covered in the market description:
- What target group is your product or service aimed at?
- What age group is your product aimed at?
- What is the average income of your target market?
- Where does your target market live?
Find out as much specific information as possible about your target market:
- Does your target market drink chocolate mocca or black coffee?
- How fast does your target group drink coffee? 20 or 30 minutes?
Market size and market development: how attractive is the market?
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 that covers all topics from A for advance monthly retail sales, to Z for zip-codes. With resources such as surveys, programs, and news articles, there is no shortage of information.
- The Small Business Administration provides free acess to business and economic statistics collected by the U.S. government.
- Statistics, market data, and studies can be found online at Statista. There you can view data from market research and opinion research institutions, information from the business world, and official statistics.
- GlobalData supposedly produces over 15,000 reports, briefings, forecasts, and data books a year. It features a wide range of sectors, companies, and countries.
Competitive analysis: what are the market characteristics?
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:
- Bargaining power of customers: How do customers react to price increases or decreases? How important is your product or service for your target group?
- 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?
- 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?
- 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.
- 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: 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.
With the help of a market analysis, businesses can gain valuable information about a certain market. If you are setting up a business, want to investigate your current market, or simply look at new markets, a market analysis helps you to identeify and assess the opportunities and risks of a market. On the basis of a market analysis, you can develop concrete marketing strategies and successfully implement your business idea.