To open a business and manage it successfully, you ne to know the market well. An entrepreneur must understand who his competitors are and what customers demand. He must also be able to properly distribute the company’s finances. To close all these issues, marketers and company managers conduct market analysis.
In this article, we will tell you what marketing research is and why it is so important for business. We will show you how to conduct a market analysis and discuss common mistakes entrepreneurs make.
What is market analysis
Let’s say an entrepreneur is planning to open a massage parlor in a small town. But so far he has studi only one potential competitor, so he does not know who his future clients will be. In order for the start to be successful and without unnecessary loss of time and money, the entrepreneur nes to conduct a detail analysis of the services market.
Market analysis is a detail study of the environment in which a business will operate. It includes:
- An assessment of the overall market size and the share of a particular business in it.
- Business development prospects.
- Identification of market characteristics.
- Studying the target audience.
- Competitive analysis.
- Adaptation of competitors’ best practices to the company’s activities.
- Clear definition of the mission and goals of the enterprise.
Why do you ne market analysis?
The main goal of market analysis is to avoid wasting the company’s time and money. In addition, marketing analysis helps achieve several goals.
Find out the demand for the productIt is necessary to determine how many people are willing to buy a product or service. This depends on the price, income in the region and the availability of similar offers. Demand for a product can be estimat through surveys, careful analysis of statistics or using the formula:
Demand = number of customers x average bill.
Identify competitorsIt is necessary to look for the weaknesses and strengths of competitors. Analysis of the competitive environment helps to understand market trends, improve products and make marketing campaigns more effective. All this contributes to increasing sales.
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Define the target audienceIn-depth market analysis is carri out when it is necessary to define the portrait of the target audience. This can be done through surveys or analysis of data on existing customers. Understanding the audience makes advertising campaigns more target and effective.
Assess market potential and growth opportunities
It is necessary to study the general trends and dynamics of changes in the niche. This shows how big and promising the market is.
Minimize risks
Marketing analysis is carri out when a company nes to develop a crisis management plan at the initial stage. Risk awareness allows you to prepare for unforeseen situations and convince partners and investors of the project’s stability.
Main types of market analysis
There is no universal market analysis strategy that would suit absolutely all types of business. Depending on the goals and available resources, different research methods are chosen. Let’s look at the most popular ones.
Primary analysis
This type of research involves collecting new data that has not yet been process. To obtain this information, different methods can be us:
Secondary analysis
This is an analysis that involves researching existing specific database by industry marketing information. This could be internal company documents, such as sales reports or target audience data. You can also use ready-made marketing research, annual reports from other companies, and data from statistical services. This method is usually cheaper than the primary one, since it does not require the costs of collecting and analyzing information.
Quantitative analysis
This strategy emphasizes numbers and facts. It allows you to evaluate the market using available statistical data. Sources of such information:
- State statistical services.
- Information from trade and professional associations.
- Publications in magazines where products are test.
- Current economic situation reports from banks.
- Information from marketing organizations.
This data helps us better understand what volumes of products or services consumers are willing to purchase and what factors influence demand.
Qualitative analysis
Aim at understanding the motivations and preferences of consumers. This is achiev through:
- Communication with colleagues and industry experts.
- Interviews with competitors’ employees.
- Conversations with potential clients.
These conversations provide deep insight into the reasons why people choose a particular product. They can quickly reveal how your product or service will be receiv in the marketplace.
How to organize market analysis
To organize market analysis, you can choose one of three methods:
Hiring a marketing agency : This is not a cheap option, but it greatly ruces risks and saves time.
Use company resources: If your company has a marketing department or a marketer, you can delegate the research to them.
Do-it-yourself research: It will take a lot of time and effort, but this approach will save money. Below we will tell you in more detail how to conduct marketing research on your own.
How to Conduct Market Analysis
There is no universal plan that will work for all types of businesses. However, there are general stages by which the analysis is carri out. These can be adapt to any nes.
Step 1: Set a Goal
The first step is to clearly define what you want to learn from market analysis. Make a list of questions you are looking for answers to. For example:
- Analyze the demand for certain products.
- Explore price categories.
- Determine the nature of consumers and their expectations.
- Identify bottlenecks in the niche.
- Study your competitors.
Step 2: Study the Basic Market Data
The next step is to collect and evaluate the necessary numbers lists data. You ne to collect market data for the last 5 years. This will allow you to get a complete picture of the current state and trends. First of all, pay attention to four indicators.
Market capacity
Market capacity shows the maximum possible number of products that can be sold in a given period. This indicator can be estimat using the following formula:
Market size
This indicator reflects how much product was actually sold during the specifi period.
Let’s say a smartphone manufacturer sold only 200,000 units out of a potential 2 million. The company’s executives analyz sales volumes. The study found that poor advertising and high prices were holding back demand. So the company revis its marketing strategy and lower prices. These changes l to increas sales in subsequent quarters.
Market size research allows you to understand how effective your current marketing strategies are and which products or services are most in demand among consumers.
Methodology PAM, TAM, SAM, SOM
The PAM, TAM, SAM, SOM methodology is often us by startups and growing businesses. It helps to assess the market size and its prospects.
- PAM (Potential Available Market) is the entire potentially available market.
- TAM (Total Addressable Market) is the total market size where a specific product can be sold.
- SAM (Serv Available Market) – available market volume, i.e. the market of direct competitors.
- SOM (Serviceable & Obtainable Market) is the realistically achievable market volume that a company can obtain.
Market dynamicsIt is important to determine how the market has chang over the last 5-10 years. This will show how stable the market is and what trends can be seen. For example, if an e-book manufacturer sees sales growth of 15% annually, this is a good sign for further investment in production.
Trends
Trends can either stimulate or hinder market growth. For example, if market analysis shows that interest in eco-friendly products is growing, packaging manufacturers should consider switching to biodegradable materials.
Step 3: Define your target audience
Once you know the key market metrics, the next step is to identify who your key customers are. This will help you understand who will bring in the most profit and how best to structure your marketing.
