Market Analysis : Meaning, Inclusions, Importance & Drawbacks

What is Market Analysis?

Market analysis comprises a systematic examination, interpretation, and comprehension of the intricacies that govern a particular market segment within an industry. This comprehensive analysis involves assessing a wide range of variables that influence the success of a business, thus providing invaluable insights to guide strategic decisions. Conducting a market analysis is an essential measure for both established and new businesses to maintain competitiveness and remain informed. Market analysis is similar to solving a large puzzle to learn everything about the area where you wish to offer your goods or services. It’s about determining who would want to purchase what you’re selling, what other firms are doing, and what consumers like or dislike.

Geeky Takeaways:

• Market Analysis is defined as an approach to studying the variables that have a combined effect on the performance of the company.
• The company’s customers, policies, products and services, competitors, etc. are strategically analysed to know the answer to many operational questions.

What Market Analysis Include?

1. Industry Overview: Understanding the broader industry landscape is fundamental. This includes the size of the industry, its growth rate, and any significant historical or current developments. Analysing trends provides insights into the direction the industry is heading, allowing businesses to align strategies with market dynamics.

2. Target Customer Analysis: Define the characteristics of the target customer through demographics (age, gender, location, occupation, education), psychographics (lifestyle, values, personality), and behavioural traits (buying patterns, preferences). Developing customer profiles or personas aids in tailoring products and marketing messages.

3. Competitive Analysis: A competitive analysis evaluates competitors’ strengths, weaknesses, opportunities, and threats (SWOT analysis). This process provides a comprehensive understanding of the competitive landscape, enabling businesses to identify opportunities for differentiation and strategic positioning. It also helps in anticipating competitive threats and formulating effective responses.

4. Market Forecast: Provide a forecast of market trends and future developments. This includes predicting changes in customer behavior, technological advancements, and overall market dynamics. A forward-looking perspective helps in strategic planning.

5. Regulatory Environment: Assess the regulatory landscape that governs the industry. Understanding regulatory requirements and compliance issues is essential, as non-compliance can impact operations and market entry strategies.

6. SWOT Analysis for Your Business: Conduct a SWOT analysis for your own business to evaluate its internal strengths and weaknesses, as well as external opportunities and threats. This self-assessment provides a realistic view of your business’s positioning in the market.

Importance of Market Analysis

Market analysis is an important process that helps businesses understand their external environment and internal resources by evaluating them both qualitatively and quantitatively. It is critical in guiding a business through any hurdles or obstacles that could hinder success. The top three reasons why market analysis is crucial are summarised below:

1. Puts the Customer First: Market research is all about figuring out what your customers want and need. You can make your services or goods better to meet people’s wants by finding out what they’re paying them for. By focusing on the customer, you can make your products stand out from others on the market and make them fit the needs of specific customers.

2. Makes Companies Look Inward: Starting or running a business often requires a certain amount of egoism. Market research forces companies to think about themselves and why customers would choose them. “People don’t buy what you do; they buy why you do it,” is a quote by Simon Sinek that shows how important it is to know and share the reason behind your business. This kind of self-reflection is important for branding and connecting with customers.

3. Helps you Figure Out your Unique Selling Proposition: Market analysis can help you figure out how to make your product or service stand out from others. Understanding your unique selling proposition is important for entering the market strategically and being successful in the long run. This can be done through branding, product quality, great service, competitive price, or addressing a specific audience. Market analysis helps businesses pick the strategy for difference that fits their goals and speaks to their target audience.

Benefits of Running a Market Analysis

1. Risk Reduction: A market analysis helps businesses figure out what problems and risks might be in the market, so they can take preventative steps and come up with ways to lower their risks. This information lowers the risk of uncertainty and makes the business more resilient overall.

2. Targeted Products or Services: When businesses know their market, they can make sure that their products and services meet the needs and wants of the target audience. This focused strategy makes customers satisfied and increases the chances of success in the market.

3. Finding New Trends: Market analysis keeps businesses up to date on industry trends, which helps them find new business opportunities before their competitors do. This proactive method puts the company in a good situation to take advantage of new trends, which leads to new ideas and a competitive edge.

4. Revenue Projections: A good market analysis tells you about market demand, how customers act, and how the competition works. Businesses can use this information to make correct income forecasts, which helps them plan their finances and use their resources more efficiently.

5. Standards for Evaluation: Market analysis sets standards and key performance indicators (KPIs) that businesses can use to measure how well they are doing. This review system makes it easy to see how well the business is doing compared to the industry standards.

6. Background on Past Mistakes: Market analysis provides thorough data that helps businesses figure out what may have caused past mistakes or poor performance. This retrospective insights allow to make better decisions and avoid making the same mistakes again.

7. Marketing Optimisation: Regular market analyses inform ongoing marketing efforts by highlighting areas of improvement and identifying successful strategies. This optimisation makes sure that marketing resources are utilised effectively, which leads to a more effective outreach.

Drawbacks of Running a Market Analysis

The following are disadvantages of conducting a market analysis that are more related to the resources needed rather than the method itself.

1. Expense: Market analysis can be expensive, especially if outsourced or conducted extensively. Hiring professionals or using advanced analytical tools may be too expensive for some businesses, especially small ones with limited budgets.

2. Time-Consuming: Market analysis can be time-consuming, diverting attention from other important business tasks. Businesses may find it challenging to balance the need for comprehensive analysis with the demands of day-to-day operations.

3. Extra Staff Requirement: An in-depth market analysis may require specialised skills, prompting businesses to hire additional staff or outsource the task. This incurs additional costs, and the decision to hire depends on the available budget and the complexity of the analysis needed.

4. Narrow Focus: The most successful market analyses often involve customer feedback obtained through surveys. However, these surveys may reach only a portion of the entire customer base, leading to a potentially narrow focus and incomplete understanding of customer needs.

Difference Between Market Analysis, Conjoint Analysis and Sentiment Analysis

Market Analysis, Conjoint Analysis, and Sentiment Analysis vary in scope, methodology, goal, main outputs, application, data type, tools/techniques, constraints, and strategic emphasis. Table below compares them.

Basis	Market Analysis	Conjoint Analysis	Sentiment Analysis
Scope	Broad and comprehensive, covering the industry, market trends, and competition	Focused on understanding how customers value specific product features	Qualitative assessment of customer feelings and opinions towards offerings
Methodology	Examines various factors through industry reports, surveys, and data analysis	Utilises surveys and product testing to understand customer preferences and trade-offs	Analyses textual data, often from social media or customer reviews, to gauge sentiments
Purpose	Provides a holistic view of the market to inform business strategies	Aims to optimise product features and pricing based on customer preferences	Evaluates customer emotions and perceptions for brand management and improvement
Key Output	Comprehensive industry insights, market trends, and competitive landscape	Prioritised features and attributes that influence customer decision-making	Emotional insights, positive/negative sentiments, and areas for improvement
Application	Used for strategic decision-making, business planning, and risk reduction	Primarily employed in product development, pricing strategy, and market positioning	Applied hand in brand management, customer experience enhancement, and reputation monitoring
Data Type	Quantitative and qualitative data from various sources in the market	Quantitative data on customer preferences obtained through surveys	Qualitative data, often text-based, expressing opinions and emotions
Examples of Tools and Techniques	SWOT analysis, industry reports, competitor analysis	Choice-based conjoint analysis, surveys with trade-off senarios	Natural Language Processing (NLP) algorithms, sentiment analysis tools
Limitations	May overlook specific nuances due to its broad nature	Limited to specific product features and may not capture broader market trends	Relies on the accuracy of language interpretation and may not quantify sentiments precisely
Strategic Focus	Strategic overview for business planning and market positioning	Product and pricing strategy optimisation	Brand perception management and customer experience improvement

How to do a Market Analysis?

Conducting a market analysis is a detailed process with several important steps. Each one helps you learn more about the business, market trends, and the competition. The stages involved in conducting a market analysis are as follows,

1. Identify Your Objective: Commence by precisely outlining the intention that drives your market analysis, whether it’s to gauge competition , find new markets, or make changes within the business. Well-defined objective will guide your research efforts.

2. Industry Research: Conduct an in-depth analysis of relevant publications, industry reports, and market studies to determine the current status of the industry. Comprehend the scale and growth trends of the industry, as well as any significant developments or disruptions.

3. Determine the Target Customer: Define the ideal customer by taking into account psychographics (lifestyle, values and beliefs, personality traits, opinions and preferences), demographics (age, gender, location, occupation, education), and behavioural characteristics (Needs and interest, buying pattern, brand loyalty). Make customer profiles, also called characters, that represent your ideal customers and help you fully grasp their wants and needs.

4. Gain Insight into Your Competition: Perform an exhaustive competitive analysis through the identification and evaluation of competitors. Conduct a SWOT analysis in order to gain insight into the strengths, weaknesses, opportunities, and threats of each competitor. This is an essential phase in determining your market-specific value proposition.

5. Collect More Information: To add to your study, collect more information from reliable sources. You can use market surveys or questionnaires, trade journals, government reports, and your own SWOT studies. To make your market research more reliable, make sure that the info you use is reliable and correct.

6. Analyse your data: After accumulating an extensive amount of data, proceed with the organisation and analysis of the data. Produce segments that are in accordance with your objective, including an overview of the industry overview size and growth rate, projected market share percentage, industry outlook (considering factors such as technological advancement, regulatory changes, and emerging trends), customer buying trends, forecasted growth, customer willingness to pay and analysis of competitors. Construct an organised and coherent analysis that presents the provided information.

7. Implement your Analysis: Convert your results into practical and implementable insights. Identify areas for improvement in your business operations, marketing strategies, or product offerings if the analysis is conducted for internal use. Consolidate your research into a comprehensible document tailored for external audiences, including investors, lenders, and stakeholders.

8. Keep Information for Future Use: Keep all of your research findings and information for later use. To stay on top of changes in your industry and stay proactive about how the market works, you might want to set an alarm on your calendar to remember you to do regular market studies.

By carrying out these steps, businesses can do an in-depth market analysis that goes beyond surface-level data and gives them a deep understanding of how the market works. This knowledge then turns into a strong tool for making smart choices, keeping ahead of the competition, and achieving long-term success.

How to Write a Market Analysis?

Writing a market analysis for a business plan involves thoroughly researching and presenting key information about the industry, target customers, competitors, and market trends. Here’s a step-by-step guide on how to write an effective market analysis for your business plan,

1. Executive Summary: Provide a concise overview of the market analysis. Summarize key findings and insights, including the size of the market, significant trends, and competitive landscape. This section acts as a snapshot for readers who want a quick understanding of the market dynamics.

2. Industry Overview: Providing an industry overview in the business plan is an important step, and the following components together can be classified as Industry Overview,

• Current State: Describe the present condition of the industry, emphasizing its size, growth rate, and key players.
• Trends: Identify and elaborate on current trends influencing the industry.
• Projected Growth: Discuss forecasts and projections for the industry’s future growth.

3. Target Customer Identification: Identification of target customers is a necessary step while doing any business activity. Customers can be targetted through various means,

• Demographics: Define your target customers by age, gender, location, occupation, and other demographic factors.
• Psychographics: Explore their lifestyle, values, interests, and preferences.
• Behavioural Characteristics: Analyse buying patterns, needs, and decision-making processes.

4. Competitive Analysis: List and briefly describe your main competitors. Conduct a thorough SWOT analysis for each competitor, outlining their strengths, weaknesses, opportunities, and threats. Clearly define your business’s positioning relative to competitors.

5. Market Trends: Identify and describe the prevailing trends in the industry. Discuss any trends that are expected to gain prominence in the future. Explain how these trends may impact your business.

6. Regulatory Environment: Summarise key regulations affecting your industry. Describe how your business plans to comply with these regulations.

7. Customer Needs and Preferences: Detail the primary needs your product or service fulfils. Explain how your offerings align with customer preferences.

8. Market Entry Strategy: Discuss any barriers to entry in the market, such as high start-up costs or strong brand loyalty among customers. Outline your plan for entering the market and overcoming potential barriers.

9. Sales and Distribution Channels: Describe the channels through which your product or service will be sold. Explain the distribution strategy, including retail partnerships or online platforms.

10. Pricing Strategy: Analyse the pricing strategies of competitors. Outline your pricing strategy and how it aligns with customer expectations.

11. Market Forecast: Provide realistic revenue projections based on your market analysis. Explain how your business plans to capitalize on market opportunities for growth.

12. Risks and Mitigation Strategies: Highlight potential risks associated with the market, competition, or industry trends. Provide strategies for mitigating or managing these risks.

Remember to use clear and concise language, supported by relevant data and research. The market analysis should demonstrate a deep understanding of the industry and market dynamics while showcasing your business’s unique value proposition.

Frequently Asked Questions (FAQs)

What is market analysis, and why do I need it for my business?

Market analysis is like investigating the area where you want to sell your products or services. It helps you understand who might be interested, what others are doing, and what people like or don’t like. It’s crucial for making smart decisions in your business, like figuring out what your customers want and how to stand out from the competition.

Why is market analysis important?

Market analysis is crucial for helping brands understand how to effectively promote their products to specific target audiences. Additionally, it serves the purpose of showcasing the feasibility of a business idea, particularly when seeking investments.

What are the essential steps in conducting a market analysis?

Research the industry: Consider market size, value, demands, and needs.

Understand your audience: Research age, location, and how they interact with brands.

Know how you stack up against competitors: Examine your strengths and weaknesses, and identify opportunities and threats.

Is market analysis only for big businesses?

No, market analysis is useful for businesses of all sizes. Whether you’re a small local business or a big company, understanding your market is key to making informed decisions and growing successfully.

How often should I do market analysis for my business?

It’s a good idea to do market analysis regularly, especially when there are changes in your industry or business environment. Doing it annually or when you’re planning significant changes can keep you informed and help you adapt to new situations.

Can market analysis help me find new opportunities for my business?

Yes, it can! Market analysis helps you identify new opportunities for growth and expansion. By staying informed about your market, you can discover untapped areas where your business can thrive and attract more customers.