How To Conduct A Market Analysis In 4 Simple Steps

Conducting a market analysis is key to launching a successful business. Getting to know your market inside and out will help you pinpoint your target customer, how your product or service solves their problems, and how to stand out from the competition.

But where should you start and what are the most important market analysis components to be aware of? This guide walks through how to assess all sections of your business and how to conduct a market analysis in four simple steps. 

What is a market analysis?

In a nutshell, a market analysis is a comprehensive assessment of the market you want to enter. This includes the potential volume and value of the market, your target customers’ needs and behaviours, your competitors, and your potential market share.

Banks and investors will want to see you’ve put in the research before they back your business, so knowing how to do a market analysis for a business plan is important. It’s also invaluable for differentiating your business from the competition and developing products or services that fulfil your customers’ needs. 

In other words, without market analyses, you leave a lot of decision-making to guesswork.

4 steps to conducting a market analysis

While conducting a market analysis can seem daunting at first, it’s easiest to break it down into four components:

  1. Industry overview: The state of your industry, trends and projected growth.
  2. Target customers: Who your typical customers will be, including their needs, problems and demographics.
  3. Competitors: An overview of your competitors’ offering, strengths and weaknesses.
  4. Forecast: What your predicted share of the market will look like.

1. Research your industry

It doesn’t matter whether you’re a small business or a large organisation, the first step to conducting a market analysis is getting to know your industry and the direction it’s headed in. 

Although you might already be familiar with it, doing in-depth market research is crucial to understanding trends, projected growth, barriers to entry and how your business will fit in. It also shows business investors that you understand the landscape and demonstrates the demand for your products or services. 

While external firms can conduct industry research for you, there’s also plenty of information online. Resources like IBISWorld, Statista and government agency websites are useful for finding free research reports, statistics, analysis, and trends.

It’s useful to analyse market data such as:

  • Market size in different locations
  • Potential customer demographics
  • Major trends within the industry
  • Projected growth rates

For example, if you’re thinking about launching a food delivery app, you’ll want to understand:

  • The types of people who are most likely to use a food delivery app
  • The locations where people are most likely to use your product
  • Whether demand for food delivery apps is growing or declining
  • The factors that will impact food delivery apps in future, such as emerging technologies

Document anything relevant so you can add it to your business plan and refer back it to later.

2. Define your target customer

Here is where you drill down on who your typical customers will be. Depending on your business, this could be customers who fit a very specific profile or different types of customers who might all be attracted to your offering. 

For instance, if you plan to sell baby-changing tables, your target customers might be both new parents (B2C) and nursery centre managers (B2B). In this case, the way you engage with your target market would depend on which customer you’re talking to. Defining your target market early helps you understand your customers’ problems and how to connect with different segments of the market (known as market segmentation).

Using your industry research as a guide, put together personas of your target customer/s, including details such as:

  • Age range
  • Gender
  • Location
  • Job
  • Hobbies/interests
  • Marital status

As you build up a profile for your typical customer, think about their mindset and motivations. This will allow you to build a strategy that engages your audience and offers solutions to their problems. Consider questions like:

  • What problems do my target customers have?
  • What do my customers like and dislike?
  • How do my target customers like to discover new products and services?

This is especially useful for analysing the competition and identifying gaps in the market.

3. Research your competitors

Understanding the competition is critical to analyze market opportunities and identify your business’ unique positioning in the market. Not only can you learn from your competitors’ strengths, but you can also gain competitive advantages by knowing their weaknesses.

Conduct a SWOT analysis and answer some basic questions about your main competitors, including:

  • What are their strengths? Consider price, product or service offering, convenience, and intellectual property (IP).
  • What are their weaknesses? Consider these as opportunities you may be able to take advantage of.
  • What are their main objectives? Assess whether they’re aiming to gain or grow market share, if their business model is the same or similar to yours, and what they are trying to achieve.
  • What marketing strategies do they use? Look at their advertising and marketing activity, PR etc.

Try to be as comprehensive as possible in your competitor research – useful sources of information might include:

  • Their website and social media pages
  • Their physical store locations
  • News and media sources
  • Online research tools like Google Trends and SpyFu

Your competitive analysis should inform your business strategy and help you establish a point of difference when you enter the market. The locations of your competitors is important here too as this will have an impact on which new geographic locations you’ll enter. Will you need to lease a building or could you invest in a virtual office in this new locale?

4. Forecast your market share

Now you have a thorough understanding of your industry, your target customers and the competitive landscape, the final step in conducting a market analysis is to create a forecast of your potential market share. This is where you estimate the percentage of the market you’ll be able to own, which you can use to figure out your pricing structure and projected revenue, as well as whether you’ll likely need to take out a business loan. 

Keep in mind you won’t know for sure what your market share will be until you launch, so aim high but be realistic in your projections. With a solid strategy under your belt, your market share will grow over time with your business.

When the time comes to make those big discussions with potential investors, make a great first impression with a professional virtual office. Get set up instantly in one of over 3,000 workspace locations, with meeting space and business lounges also available.

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Rovva puts everything you need for your business in one place. From an accountancy helpline to a drop-in business lounge - we've got everything covered.