How to Do Market Analysis for Business Plan

Learn essential steps on how to do market analysis for business plan. Understand your market, identify competitors, and make informed decisions to drive business success. Market analysis is an in-depth assessment of the market within a specific industry. These analytics have many benefits, such as reducing risk to your business and better informing your business decisions. Market analysis can be a time-intensive process, but it’s simple and easy to do yourself in seven steps.

To conduct a market analysis for your business, follow the steps outlined in this guide.

What is Involved in Market Analysis?

In market analysis, you will study the dynamics of your market, such as volume and price, potential customer segments, buying patterns, competition, and other important factors. A complete marketing analysis should answer the following questions:

• Who are my potential customers?
• What are the purchasing habits of my customers?
• How big is my target market?
• What price range do buyers have for my product?
• Who are my main competitors?
• What are my competitor’s advantages and disadvantages?

What are the Benefits of Running Marketing Analytics?

A marketing analysis can help project revenue, lower risk, and spot new trends. You can use a marketing analysis at many stages of your business, and it may even be beneficial to conduct it every year to stay updated about any major changes in the market.

A detailed market analysis will usually be part of your business plan, as it gives you a better understanding of your audience and competition. This will assist you in developing a more focused marketing plan.

These are some other major benefits of doing market analysis:

• Risk Reduction:
  • Knowing your market can reduce risks in your business, as you will have an understanding of key market trends, the main players in your industry, and what it takes to be successful; these things will guide your business choices. To help further protect your business, you can also conduct a SWOT analysis, which identifies your business’s strengths, weaknesses, opportunities, and threats.
• Targeted Products or Services:
  • You are in a better position to serve your customers when you have a firm grasp on what they want from you. When you know who your customers are, you can use that information to tailor your business offerings to your customers’ needs.
• Emerging Trends:
  • To stay ahead of the curve in business, it’s often necessary to be the first to recognize a new opportunity or trend. One excellent way to do this is by keeping up with industry trends through marketing analysis.
• Revenue Forecasting:
  • Market forecasting is a key component of most marketing analyses, as it estimates future numbers, characteristics, and trends in your target market. This gives you an idea of expected profits, so you can adjust your business plan and budget accordingly.
• Evaluation Criteria:
  • The success of your business can be difficult to measure outside of pure statistics. Market analysis provides benchmarks or key performance indicators (KPIs) based on which you can evaluate your company and know how well you are doing compared to others in your industry.
• Reference to Past Mistakes:
  • Marketing analysis can explain past mistakes of your business or inconsistencies in the industry. For example, deeper analysis can explain what impact a specific product had on sales, or why a certain metric performed the way it did. This can help you avoid making those mistakes again or experiencing similar inconsistencies because you will be able to analyze and describe what went wrong and why.
• Marketing Optimization:
  • This is where the annual marketing analysis comes in handy – regular analysis can inform your ongoing marketing efforts and show you which aspects of your marketing need work, and which are working in your industry and performing well compared to other companies.

What are the Drawbacks of Running Marketing Analytics?

The shortcomings of running the market analysis described below have less to do with the method than the resources it requires.

• Market analysis can be Expensive:
  • If you’re unfamiliar with marketing concepts like market volume and customer segmentation, you may want to outsource your market analysis. Doing this can be great for the quality of your analysis, but it can also have a big impact on your budget. To cut costs, focus your market analysis on a specific group of people, such as your current customers.
• Market analysis can take Time:
  • Market analysis can take away valuable time from directly business-related tasks. You can analyze one area at a time to free up your day-to-day schedule – say, purchasing patterns or competition.
• Market analysis may require Additional Staff:
  • Some larger companies keep in-house market analysis staff, and you can follow their lead. However, doing so involves all the normal costs of hiring a new employee. So the question becomes: do you do your market analysis, outsource it, or hire it in-house? More expensive options can often provide more meaningful insights.
• Market analysis can be Narrow:
  • The most successful market analyzes use actual customer feedback, which analysts often obtain through customer surveys. These surveys may only reach a portion of your customer base, making the sample size inaccurate. The result is that market analysis doesn’t fully describe your customers and what you need to know about them.

Comparing Conjoint, Sentiment and Market Analysis

Where market analysis is broad and comprehensive, conjoint analysis focuses on how much customers value what you offer. Surveys are often the backbone of conjoint analysis – they’re a great way for customers to share what motivates their purchases. Product testing is a particularly common application of conjoint analysis. This method can gain insight into pricing product features and configuration.

Sentiment analysis is a more qualitative way to find out how customers feel about your offerings than market and conjoint analysis based on numbers. This can show you what customers are happy and unhappy with about your offering or purchasing process. You can also explore into deeper emotional territory like anger, urgency and intent, or you can elicit a descriptive response. It is a great tool to use along with market analysis while conjoint analysis is involved in market analysis.

How to Do Market Analysis for Business Plan

Although conducting marketing analysis is not a complicated process, it does require a lot of dedicated research, so be prepared to devote a significant amount of time to the process.

These are the seven steps in conducting market analysis:

1. Determine your Purpose.

There are many reasons you might conduct market analysis, such as assessing your competition or understanding a new market. It’s critical to define your motivation immediately in order to stay on course and avoid derailment. Start by deciding whether your objective is internal – such as improving your cash flow or business operations – or external, such as obtaining a business loan. Your objective will determine the type and amount of research you do.

2. Research the state of the Industry.

Prepare a detailed outline of the current state of your industry. Incorporate where the industry is headed using metrics such as size, trends and projected growth with abundant data to support your conclusions. You can also conduct a comparative market analysis to help you find competitive advantages in your specific market.

3. Identify your Target Customer.

Not everyone in the world will be your customer, and trying to get everyone interested in your product will be a waste of your time. Instead, use target market analysis to decide who wants your product and focus your efforts there. You want to understand the size of your market, who your customers are, where they come from and what influences their purchasing decisions. To do this, look at demographic factors like these:

• Age
• Gender
• Place
• Profession
• Education
• Need
• Interests

During your research, you may consider creating a customer profile or persona that reflects your ideal customer to serve as a model for your marketing efforts.

4. Understand your Competition.

To be successful, you must have a good understanding of your competitors, including their market saturation, what they do differently from you, and their strengths, weaknesses, and advantages in the marketplace. Start by listing all of your main competitors, then go over that list and conduct a SWOT analysis of each competitor. What is there in that business that you don’t have? What would motivate a customer to choose that business over yours? Put yourself in the customer’s shoes.

Then, rank your competitors’ list from most to least threatening, and set a timeline to conduct regular SWOT analysis on your most threatening competitors.

5. Gather Additional Data.

When conducting marketing analysis, information is your friend – you can never have too much data. It’s important that the data you use is reliable and factual, so be careful where you get your numbers from. Here are a few reliable sources of business data:

• US Bureau of Labor Statistics
• US Census Bureau
• State and local commerce sites
• Trade journals
• Do your own SWOT analysis
• Market survey or Questionnaire

6. Analyze your Data.

Once you’ve collected all the information and verified that it’s accurate, you’ll need to analyze the data to make it useful to you. Organize your research into sections that make sense to you, but try to include research for your objective, target market, and competition.

Your research should include these key elements:

• An overview of your industry’s size and growth rate
• Estimated market share percentage of your business
• An industry perspective
• Customer purchasing trends
• Your projected growth
• Buyers’ willingness to pay for your product or service

7. Put your Analysis to Work.

Once you’ve created the market analysis, it’s time to make it work for you. Internally, look at where you can use your research and findings to improve your business. Have you seen other businesses doing things that you want to implement in your organization? Are there any ways to make your marketing strategies more effective?

If you conducted your analysis for external purposes, organize your research and data into an easily readable and digestible document to make it easy to share with lenders.

Keep all your information and research handy for your next analysis and consider creating a calendar reminder each year so you stay on top of your market.

Simplifying Market Analysis

If you have time to do a market analysis yourself, do so – this guide will help. If you don’t have the time, it is often worth the cost to hire an in-house expert or outsource your analysis. Your analysis will help you figure out who to target and how – and that’s a big part of business success.

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