Market Analysis: What It Is and How to Conduct One

What is market analysis? 

Market analysis is a detailed assessment of your business’s target market and competitive landscape within a specific industry. This analysis lets you project the expected success when you introduce your brand and its products to consumers within the market. Market analysis includes quantitative data such as the actual size of the market you want to serve, prices consumers are willing to pay, revenue projections, and qualitative data such as consumers’ values, desires, and buying motives. 

Conducting a market analysis can benefit you in several ways by helping you: 

• Spot trends and opportunities in your industry 

• Differentiate your business from competitors 

• Reduce the risks and costs of launching a new business (or pivoting an existing one) 

• Tailor products and services to your target customers’ needs 

• Analyze successes and failures 

• Optimize your marketing efforts 

• Reach new market segments

• Monitor your business’s performance

• Pivot your business in new directions

In researching this topic, you may come across terms with similar meanings, including market research and marketing analytics. Here are some distinctions: 

• Market research is the process of gathering information about a target market, including its customers’ needs and behaviors, in order to market products to it effectively.

• Marketing analytics is the process of studying the metrics of specific marketing efforts, such as landing page sign-ups and social media engagement, in order to increase return on investment.

Here, we focus on market analysis as a thorough business plan component. Continue reading to begin conducting your market analysis and lay a strong foundation for your business. 

How to do a market analysis in 6 steps

This section covers six main steps of market analysis, including the purpose of each step and questions to guide your research and reflections.   

1. Research your industry. 

This step aims to understand your industry at large, so that you know how to enter it, spot trends, and compete with other brands. 

Here are questions to get you started:

• What statistical information can you gather about your industry from sources like the Government of Canada Job Bank, Canadian Industry Statistics, and other professional associations? How many businesses are in this industry?

• What’s the market size in terms of the number of potential customers?

• How much revenue does the industry generate?

• What are the industry standards by which companies and consumers operate?

• What external factors affect how businesses in this industry operate, including laws and regulations, new technologies, world events, and economic and social change?  

• Where do you spot opportunities to innovate within the industry?

2. Investigate the competitive landscape.

This next step takes you from broad industry insights to looking specifically at brands you’ll be competing against as you seek to attract potential customers in your target market. Here are questions to guide your process:

• What brands are the most well-known in your industry? Who sets the trends and captures the attention of customers? 

• What are these brands’ offers, price points, and value propositions? 

• What sales tactics, technologies, and platforms do these brands use to create a customer journey?

• How do these brands use content to educate and engage an audience? 

• What can you learn from customer reviews of these brands?

3. Identify market gaps. 

With insights into how competing brands fare, you can find market gaps, differentiate your products and services, and stand out within your industry. 

Market gaps are needs that are currently not being filled by existing brands. For example, in the online education industry, you might find that learners are interested in topics that existing courses do not cover, in which case you could develop a course to fill this need. 

Here are some questions to help you identify market gaps:

• Looking back at your industry research findings, what will external factors like social change and new laws mean for developing products and services? 

• Ask consumers directly: “What do you want or need that you currently can’t find?”

• How specifically do competitors’ products and services fall short? 

• In what ways would you be able to create better products and services, given your strengths and expertise?

4. Define your target market.

Now that you know your industry, the competitive landscape, and the market gaps you can fill, the next thing to do is get specific about the kinds of customers you want to serve. Define your target market according to the characteristics that make individual consumers more likely to purchase products and services from you:

• Of the potential customers in your industry, which specific market segment can you target effectively? 

• How can you describe this segment according to their demographics (age, ethnicity, income, location, etc.) and psychographics (beliefs, values, aspirations, lifestyle, etc.)? 

• What are their daily lives like? 

• What problems and challenges do they experience? 

• What words, phrases, ideas, and concepts do consumers in your target market use to describe these problems when posting on social media or engaging with your competitors?  

• What are the features and benefits of your offers, and how will these provide solutions to your target market’s needs? 

• What kind of marketing messaging can you use to appeal to this target market in order to exhibit empathy and understanding? 

5. Identify barriers to entry. 

As you’re getting to know your target market and tailoring your offers and messaging to consumers, it’s important to have a clear sense of factors that might prevent you from entering your market successfully. That way, you can devise a strategy to address challenges. 

Here are some questions to make barriers to entry more visible: 

• What are the start-up costs of building your business, including product development, technology, suppliers, patents, and certifications? 

• What legal requirements will you need to fulfill before launching? 

• What political, economic, and social factors might affect customers’ behaviors and their likelihood of purchasing your offerings?

• How much do your top competitors spend on their advertising to earn the loyalty of customers? 

• What will you need to do to present your offerings as better alternatives in terms of value, price, and ease of purchase?

6. Create a sales forecast. 

Sales forecasting is the process of estimating future sales so that you can make confident business decisions or secure funding from investors and lenders. You may find it useful to create forecasts for specific increments of time, such as the next three months, six months, or a year. 

To generate a sales forecast, answer these questions:

• What products and services do you intend to sell?

• How many units do you expect to sell during each increment of time, based on your market size and the behaviours of your target market?

• What prices will you assign to each product or service?

• What is the cost of producing and advertising each offering? 

Use this formula to quantify your forecast:

(No. of units to sell X price for each unit) – (cost per unit X No. of units) = sales forecast

Your market analysis checklist 

Use this checklist, along with the steps above, to guide your market analysis process. 

1. Research your industry.

Gain a holistic understanding of everything happening in your industry and prepare to navigate it. 

2. Investigate competitors.

Know who the big players are and how you can differentiate your brand. 

3. Identify market gaps.

Find unsolved problems and unmet desires in your market. 

4. Define your target market.

Know your customers’ unique characteristics and tailor your offers and marketing accordingly. 

5. Identify barriers to entry.

Know what stands in your way and address challenges head-on. 

6. Create a sales forecast.

Estimate future sales and make confident business decisions. 

Want to build a thorough business plan? Watch this lecture from Entrepreneurship: Launching an Innovative Business Specialization to get started: 

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