Market analysis sounds very technical, doesn’t it? The term may be fancy, but you’ve probably applied a simpler variation of it before, for example, when you picked a field to study in college. Besides considering your strengths and interests, you probably looked at which industries were booming and where there was a need for workers and professionals.
At its core, that’s what market analysis is. It’s a way for you to gauge if there’s a need for your business idea in the current state of your industry. As a small business owner —who’ll be investing a significant amount of money, time, and energy into business operations — a market analysis will help you understand the particular market you are entering.
This step is critical to the success of your business, one that you must do before jumping in. The No. 1 reason startups fail is the lack of market need for the new product or service offered. Conducting a market analysis will save you from starting a business without potential customers while helping you create an effective business plan and overcome potential barriers to entry.
Below, we’ll walk you through the importance of market analysis and give you an overview of each step of the process.
What is a market analysis?
Market analysis refers to the process of gathering information about your potential customers, competitors, and the industry you’ll be entering. Your goal is to determine if there’s a large enough market share for your business. You need this information because no matter how passionate you are about your product or service, your business will only succeed if you can find the right target audience who will pay for it.
For instance, if you plan to open a cleaning business, a market analysis will show you if there are enough people in your town or city who need the service and if they can afford your rates. Market research will also tell you the size of your competition, which is a big factor in your decision-making. Even if the market is small, you could still have a lucrative business.
Why do you need a market analysis?
Conducting a market analysis will provide you with valuable information on the following:
- Your potential customers: A market analysis will help you identify your ideal customers. You’ll learn about their demographics and buying habits, which you can use to create a plan to advertise and price your products or services.
- Your competitors: A market analysis is a way to study your competitors’ strengths and weaknesses. You’ll gain insight into what’s working for them, who their customers are, and how you can differentiate your business from theirs.
- Market needs and opportunities: A market analysis will help you pinpoint the needs and opportunities of the industry you’re planning to join. For instance, you might discover an untapped market that your competitors are not serving, which could be a way to acquire your customer base.
As you’ve probably gleaned, there is more to starting a business than wanting to share your passion and talent with the world. At ZenBusiness, we understand that and want to make the process as easy and affordable for you. We offer a variety of helpful tools to get you started and maintain your business. Let us take care of some of the details so that you can focus on growing your business.
5 Steps for Conducting a Market Analysis
Even though spending hours on market analysis may be one of the least desirable tasks on your small business to-do list, it might just prove to be one of the most important steps. As a small business owner, you want to make sure you get clients right away and have sales within the first few months. Otherwise, you run the risk of not having enough cash flow to keep your business going.
Finding out this kind of valuable information is the reason you’d want to do a market analysis. In the following sections, we’ll discuss the steps of conducting a market analysis:
Market Analysis Steps:
- Determine why you’re doing an analysis
- Know your industry outlook
- Understand your target market
- Know your competition
- Look at pricing and forecasting
1. Determine why you’re doing an analysis
If you’re borrowing capital from a banking institution or other investors, one thing that might help you secure a loan is to provide a market analysis of your business idea. But aside from that, you also want to establish why you’re going through this process. Here are some questions to help you narrow down your focus:
- What issues or concerns do you have about the industry or market you’re planning to enter?
- Are you clear on the regulations surrounding how to start and maintain a business in that particular industry?
- Do you know where your first customers will come from?
- Do you know what sets apart your product or service from the competition?
- Do you know if customers are willing to pay for your product or service? If yes, how much? Is it enough to keep you in business?
2. Know your industry outlook
Looking at the current state of your industry is important. You want to look at the size of the industry, trends surrounding it, and its growth rate. A good starting point is to check the United States Census Bureau for resources, such as:
- Census Business Builder: You can use this site to conduct market research on a specific location for all types of businesses.
- Explore Census Data: You can use this to learn about your potential customers by demographic.
- Data Gems: Watch these videos if you want to learn more about accessing census data for your business.
Remember that there’s also value in limiting your market size to your local area. Take a look at regional competitors and see how they’re doing. If you’re thinking about opening a pizza place, for instance, how many pizza places exist within a 15-mile radius? How many of these restaurants offer delivery? This can help you determine the state of your local market and reveal how you can take your services to the next level.
3. Understand your target market
What’s the best way to gather information about your potential clients? Talking to them, of course. Start in your own circle and community. You can also use social media. Ask about their experiences with the service you want to offer. Even short conversations with people who are part of your target market can give you valuable information on their needs and how you can meet them.
If you have a website for your business, you can also add a survey form or a questionnaire. SurveyMonkey is a well-known tool to poll your target customers for information, which offers a free simple version as well as professional plan options starting at $32 per month. You can also use HubSpot’s free Buyer Persona Generator to identify your ideal customer and learn about their demographics, challenges, and goals. Knowing all of this will help you adapt your marketing efforts to address a specific market as a new business in your industry.
4. Know your competition
For this section of your market analysis, make a list of your direct and indirect competitors. Your direct competitors offer very similar products or services and have customers in the same demographics as your target market. Any business that offers an alternative product is your indirect competitor. Start by answering these questions:
- Does their store location give them an advantage over you?
- Why do people like them? Is it a specific product or service, or do they have an effective marketing strategy?
- What are their prices?
- Can you improve on the product or service they offer?
You can find this information by surveying their current customers or talking to your competitors directly.
5. Look at pricing and forecasting
The whole point of conducting a market analysis is to learn if you can be competitive in the industry, market, and location where you want to start your business. Take the data from your market research and competitive analysis and consider how you’d price your product. Your price should cover all expenses but be competitive enough to gain you a share of the market and ensure your business’s longevity.
But what if you find yourself needing to price more to stay in business? As a small business owner, you’ll probably need to sell yourself as much as your product or service. Dig through the competitor analysis data and establish your unique selling point.
If you can’t compete with a lower price, what can you add to the product or value that will make your clients choose you and pay you more for it? Could you offer free gift-wrapping or shipping for purchases over a certain amount? Or offer a free gift with a purchase? Is there a market segment that’s underserved that you can reach out to? If you can address these issues before you launch your business, it’s a step in the right direction, and you’ve already gained a competitive advantage.
More Resources for Conducting a Market Analysis
A market analysis helps you learn about the industry and market you’re planning to enter. It also helps you understand your potential clients to provide the best possible product or service to address their concerns.
You may find more information on market analysis from these resources:
- U.S. Chamber of Commerce
- Consumer Price Index from the U.S Bureau of Labor Statistics
- U.S. Bureau of Economic Analysis
At ZenBusiness, we’re dedicated to helping entrepreneurs like you realize your dream of starting a business. We’re here to help you every step of the way as you start, run, and grow your small business. Let us take care of the services you need so that you can focus on what you’re passionate about.
FAQs About Doing a Market Analysis
Are there any market analysis tools?
A market analysis encompasses gathering and interpreting data on a specific industry and location and identifying the target market and competition. Even though no tool can do all of these at once, visit this link for some resources to get started.
How much does it cost to conduct a market analysis?
The cost of conducting a market analysis will depend on your purpose, how the market data will be collected, how long it will take, and who’ll be doing it. You’d probably incur a minimal cost if you do it yourself. Alternatively, you might want to reach out to a professional who may be able to help you.
How long does it take to do a market analysis?
Several factors can affect the length of time needed to do a market analysis, such as how the information will be gathered and the purpose of the market analysis. It will also depend on if you will take on the challenge yourself or delegate it. This helpful article explains the methodologies of collecting data for market research and how long they take.