When launching a business, having a clear business plan is critical for success. One aspect of the business plan, how to do market analysis, often eludes new business owners. Below you’ll learn how to identify your market, analyze competitors, read market trends, and more, to create a realistic market analysis for a business plan.
What Is Market Analysis for a Business Plan?
A market analysis is a comprehensive exploration of the target market a business wishes to enter. It aims to determine a company’s position in the market, develop marketing strategies, and identify areas where competitors lack or fail to effectively reach their target audience.
A market analysis works for all types of businesses, be it a courier business or an organization business or a laundry business. Market analysis looks at a company’s strengths, weaknesses, opportunities, and threats to effectively capture market share and capitalize on growth opportunities. Whether you’re starting a business with $1,000, launching a stay-at-home-mom business, or considering low-maintenance businesses with big returns, market analysis for business plans can build the foundation for long-term growth.
7 Steps to Conduct Market Analysis for a Business Plan
Conducting market analysis for a business plan is perhaps the most foundational aspect of a business. Choose the wrong niche, and your business could be a flop; choose an oversaturated market, and you’ll struggle to break in. Here are seven simple steps for effective market analysis:
Identify Your Target Market
Identifying your target market includes describing your potential customers and defining the characteristics of your target market. This is also the stage to clearly define your objective and consider different industries to understand current trends, size, and scope.
Target market and industry outlook analysis will demonstrate to lenders and potential investors that your business has a reasonable chance of success. It can also help you gauge potential sales and how to effectively reach the target market.
Determine Market Size and Potential
To understand growth potential, it’s important to define your market size and potential. Market size is measured by segmentation, the process of aggregating prospective buyers into groups (or segments) with common needs. Assuming they will respond similarly to a marketing action, you can use this information to effectively build a marketing plan.
To understand market potential, consider the total market of your target industry, and calculate the market share of major players. Then, consider growth opportunities, new pain points, and potential revenue to gauge business potential. Discuss both market potential and market segmentation as part of your market analysis for a business plan.
Conduct Competitor Analysis
Once you have an industry and target market, it’s time to identify key competitors. Analyze their products, pricing, marketing, and distribution strategies. Consider their market share, presence, and offerings in terms of the pain points of potential consumers. Based on this, explore how to differentiate your business from the competition and enumerate key value propositions that stand out from competitors.
Determine Market Entry Barriers
Identify any barriers to entry into the target market, such as high capital requirements, legal and regulatory restrictions, or strong competitor presence. Evaluate the challenges and potential risks associated with entering the market. This is the perfect moment to do a SWOT analysis – looking at the strengths, weaknesses, opportunities, and threats for your business positioning and those of your competitors.
Analyze Market Trends
Market trends can change the landscape of a market over time. While some markets don’t respond to trends, many are highly vulnerable to changes, such as technological advancements. Understand industry trends that can impact your business launch and potential growth. Determine potential opportunities and threats in the market and its current trends to identify opportunities for growth and future demand for your product or service.
Outline a Marketing Strategy
Once you understand market trends, barriers to entry, market potential, and the target market’s pain points, you can develop an effective marketing strategy. A marketing strategy should utilize the right channels and messaging to reach your target audience. As part of the marketing strategy, consider brand voice, positioning, shared beliefs of your audience, and an emotional connection to build brand loyalty and stand out from competitors.
Summarize Findings and Projections
The final step of market analysis for a business plan is to put it all together in an actionable report. Consolidate your market research findings and projections into a concise summary. Highlight key insights, market opportunities, competitive analysis, and potential risks. Use charts, graphs, and data to support your analysis. Effective market analysis for a business plan should show and tell key market opportunities while addressing potential hurdles or threats.
Clear market analysis will demonstrate value not only to investors or lenders but may provide additional insights into how to effectively market to the target audience and new opportunities to leverage for faster business growth.
Key Takeaways and Best Practices for Effective Market Analysis
When conducting market analysis for a business plan, make sure to consider each of the following:
Conduct Focus Groups/Surveys
To truly understand your market and target audience, use focus groups or surveys to gather valuable insights. There are several free or paid sites to do this including HubSpot Free Online Form Builder, SurveyMonkey, SurveySparrow, Lucky Orange, and ProProfs Survey Maker. If you already have a mailing list of clients, you can send surveys out and offer entry into a giveaway or any other incentive. If you’re launching the business from scratch, consider paid surveys with a niched-down target audience for relevant findings.
Gather Secondary Data
Use secondary sources like industry research reports, government statistics, and articles to supplement your primary research. Government and industry reports, in particular, can offer valuable insights and in-depth industry trends that can shape your market analysis with actionable data.
Track Market Changes and Modify Strategies Accordingly
Market analysis for business plans isn’t a stagnant document. It must be updated regularly as the market shifts and the business grows. Update your SWOT analysis every three months, or more frequently, if needed, to address and build on marketing strategies and increase market share.
Why Do You Need Market Analysis?
Market analysis for a business plan is the engine that drives business growth. It provides key data and insights. A great product in a vacuum won’t sell. By conducting market analysis, you’ll understand the industry, competitors, potential customers, and opportunities to fill unique targeted needs, capture a greater market share, and build long-term business success.
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What are the benefits of conducting market analysis for a business plan?
Market analysis for a business plan means you can understand the current shape of the market and identify opportunities for growth or weaknesses in competitors’ offerings. It allows you to realistically predict business opportunities and analyze clients’ needs to build effective solutions.
How can I conduct market analysis for my business plan?
Conducting market analysis for your business plan involves conducting direct market research and relying on secondary sources like industry and government reports. Together, these can give you a picture of your business plan’s strengths, weaknesses, opportunities, and threats and help identify the best course of action to build your business.
What are some common methods used for conducting market analysis?
Market analysis includes surveys, focus groups, and analysis of industry-wide trends, government reports, and competitors’ positioning within the market. Market analysis involves deeply examining your industry, objective, potential clients, and brand offerings.