How to Conduct a Market Analysis
What is a market analysis?
A market analysis is an assessment of how viable a specific market is for your industry. This includes determining factors such as the amount of potential customers, the potential value of those customers, target market, competition, market need, barrier to entry and regulatory restrictions.
Conducting a market analysis can highlight the advantages and disadvantages of entering a new market. Not only is it useful for new businesses, it can also be beneficial for any existing business to get a better idea of the current landscape.
Amount of potential customers is one of the limiting factors for how large your business can grow in a certain area. Potential customers are the people or businesses that would reasonably buy your product or service. This most likely will not include the entire population of a given area. Instead, only account for the people or businesses that are likely to buy your product.
For example, if you are selling men’s cologne your most likely buyers will be male and within the age group you decide to market to. Given this information, you would then find the population in your market that meet this criteria and that would be your potential customers.
An important part of a market analysis is determining market need. The objective of this portion is to determine whether your product would be welcome in this new market.
This is more of an analysis of your product rather than the market. You need to determine what specific problem you are trying to solve or what unique value you are bringing to the customer.
Target Market Competition
This is where a market analysis can become a bit intimidating, but competition needs to be accounted for. Not only do you need to be aware of how much competition there is and who they are, you need to study them.
It can be beneficial to build your business based upon what the shortcomings of your competition are. If people are upset about the customer service of your competitor, make that a staple of your business. Find their weakness and exploit it.
For this portion it’s important to keep your eyes open. Depending on your specific business, not all competitors are as apparent as the Coffee shop two blocks away. For example if you are a personal trainer you are not only competing with other trainers in your area, you are competing with trainers on YouTube and other platforms.
This can be daunting considering the fact that these services are often free. If you’re thinking “Well good thing I’m not a personal trainer”, this phenomena doesn’t stop there. This is an ongoing occurrence in many industries.
Barrier to entry
A barrier to entry would basically be any reason as to why someone couldn’t start a business similar to yours and take a large portion of your market share. Probably the most common barrier to entry is a large investment. Any physical establishment like a store, restaurant, or bar has this barrier because, well, buildings are expensive to buy or rent.
There are many more barriers that could be relevant to your specific business such as access to distribution channels, complex research, complex development, and even branding.
Branding is an interesting one that may not initially come to mind when thinking of barriers to entry but this is definitely a prevalent one. One of the best examples that I can think of is sportswear and the first thing that probably comes to your mind is Nike, Under Armour, or Adidas. These brands have such strong brand loyalty that it would be difficult for a new business to gain a foothold in this industry without a huge marketing effort.
This step is pretty straight forward, just make sure that you are aware of any regulations that your business will have to comply with and account for those costs.
Are You a Business Owner?
If you are looking for information on your market or how to grow and manage your business the SBA (Small Business Administration) has some great resources.