Market Analysis for a Business Plan: What it is and How to do One.

Market analysis for a business plan is the process of assessing the target market and competitive landscape of your business. Market analysis includes data such as the size of your target market, prices at which consumers are willing to buy your products,projections for revenue, consumers’ values as well as their buying motives. In business plan writing, market analysis comes next after describing the business’ products and services.The process of conducting market analysis starts with setting your objectives whereby you determine if it’s for internal or external purposes.

The purpose of a market analysis is to provide evidence that there is a niche in the market that your business can exploit. The benefits of market analysis include understanding your customers as well as knowing how to analyze your target market needs. Market analysis is important in all types of business plans including a marketing business plan. You may need a business plan writer to conduct a market analysis for your business.

What is a market analysis in a business plan?

Market analysis in a business plan is a thorough assessment of the target market and competitive landscape of a business. It allows you to project the success to expect when introducing your products and services in the market. In business planning, market analysis comes next after you have described your products and services.The main components are industry analysis, target market analysis, and competitive analysis.

Industry analysis assesses the industry within which your business competes, target market analysis identifies the customers that your business intends to serve while competitive analysis analyzes your competitors together with their strengths and weaknesses. Market analysis helps you understand the size and value of the market and the economic environment such as industry regulations or barriers to entry of the market. The process of market analysis answers questions concerning the demographics of your consumers such as their buying habits and how much they are willing to pay for your product.

What is the difference between market analysis and market research?

Market research is part of market analysis and involves examining the market by gathering first hand data about a particular target market as opposed to market analysis which involves study of the whole market. Market research starts with a particular research question and is conducted to get an answer that is quantifiable. On the other hand, the objective of market analysis is to get knowledge about market potential, customers, competitors and other stakeholders. Market analysis is a forecasting tool to forecast potential outcomes of the market while market research is a data collection tool to understand a specific market.

Market research focuses only on customers including customer buying behavior, preferences and sentiments while market analysis examines all variables in the market. The aim of market research is to gather information while market analysis uses the insights gathered to get a clear look of the business environment. The reasons for conducting market analysis include to discover opportunities in the market, understand product demand and develop your business model. Market research is conducted to acquire new customers, determine new product viability and improve customer satisfaction. The process of market research entails segmenting customers into groups and placing them in specific groups while market analysis entails observing how market volume, economic conditions, competition and industry regulations relate in the market.

How to do a market analysis for a business plan

Market analysis is a step by step process which requires a lot of research and time devotion. You will need to also be very focused in your research and apply research techniques such as observation, interviewing, use of questionnaires as well as surveying. Leverage online market analysis tools such as social media, search engines as well as website analytics. Use clear and concise language to ensure that your market analysis is understood such as simple terms to explain complex concepts. The content of a market analysis must be tailored to the needs of the audience.

Before you conduct a market analysis, take into account ethical considerations such as consent to use data from consumers. Methods of market analysis include qualitative methods which focus on engaging with real people and  quantitative methods which employ existing numerical data to gain insights. Market analysis for a business plan comprises unique components.

What does a market analysis include?

Market analysis is made of specific elements that make it outstanding. A market analysis that considers these elements enables your business to develop effective strategies that lead to success in its target market. The core elements of a market analysis include industry analysis, target market analysis, competitive analysis, market share analysis as well as market structure analysis.

Industry analysis evaluates your business’ general industry environment, target market analysis identifies your target customers and competitive analysis identifies your competitors. Market share analysis determines how well your business will do as compared to its competitors while market structure analysis classifies your business based on the degree of competition that it has in the market.

Industry Analysis

Industry analysis entails gaining knowledge about the general characteristics of the type of business that you are in. It involves outlining the current state of your industry in terms of its size, trends and projected growth. Discuss the important trends that may affect your industry such as significant changes in technology. Have a good understanding of the market share of other companies in your industry coupled with their success factors. Industry analysis is part of good management for good business survival.

Target Market analysis

Target market analysis is the process by which you determine if there are enough people in your market who are willing to buy your products at the price you have set to make a profit. Your target market are customers that are within the industry that your business operates in. You need to understand who your customers are by having their demographic information such as their geographic location, age, gender and average income. Divide the target market into segments to help you focus your marketing efforts on the audience that matters the most.

Market share analysis

Market share analysis is the determination of how a business is doing compared to its competitors. Market share refers to a percentage of a market that a business has earned.Market share analysis takes into account key players in the market, total market size and market growth rate over a period of three to five years.  Market share analysis involves the examination of an entity’s sales in relation to total market sales and enables businesses to understand their position in the market. Market share analysis utilizes tools such as surveys, market research as well as data analytics. It allows a business to benchmark its performance against its competitors enabling it to develop strategies to gain a larger market share.

Competitive Analysis

Competitive analysis is the practice of discovering information about your competitors both direct and indirect. Direct competitors are those that offer similar products and services to what your business offers while indirect competitors are those which offer alternative solutions to the problems that you are solving. A good competitive analysis will outline competitors’ weaknesses that you can leverage. It allows your business to differentiate itself by offering products and services that fill the gaps that have not been addressed by your competitors. When conducting a competitive analysis, describe how you are going to protect your business from unfair competition. For example, you should patent your business’ intellectual property. 

Market structure analysis

Market structure analysis refers to understanding the organizational framework of a market with an aim to identify trends and patterns that shape the overall market behavior. It provides insights into the anatomy of a market and is a foundation for creating ideas of trade. Market structure is the way in which businesses are categorized based on the products they sell and what influences their operations. Market structure analysis provides insights that help businesses navigate market complexities.

How to conduct a market analysis

Market analysis is conducted using specific steps. Conducting a market analysis entails a systematic evaluation of factors that influence the success of a product or service. When conducting a market analysis you first must have the objective in mind. Defining the purpose explains what you want to achieve with the market analysis. The following are the steps for conducting a market analysis for a business plan.

1: Set your objective

Setting your objective is stating the reasons why you are conducting a market analysis. There are many reasons for conducting a market analysis such as to gauge your competitors or to understand your market. The exhaustiveness of your market analysis will depend on your objective. Defining your objective keeps you on track throughout the whole process. Start by deciding if the purpose is internal like improving cash flow or external like seeking a business loan.

2: Give an industry outlook

This step entails gathering information on the current state of the industry within which you operate. An industry outlook is a  direction of  where your industry is heading. Giving an industry outlook gives a preliminary view of what to expect in your market analysis. Include details about the market size in terms of are there enough customers to support your business as well as projected growth explaining how you see your business performing over time in diverse market conditions. Your industry outlook shows investors that you understand the larger market landscape that your business operates in. 

3: Define your target market 

Defining your target market entails describing who your ideal customer is. Define broadly your customers’ demographics such as age and gender, location, needs, behaviors and trends. Create a customer profile that reflects your ideal customer to be a model for your marketing efforts. Your target market should be specific hence do a lot of research to add credibility to your market analysis. Explain how the features of your products meet the needs of your target market.

4: Calculate market value

Calculating your business’ market value  is determining the price which your business assets can fetch in the market. It is calculated using either a top down analysis or a  bottom up analysis. A top down analysis requires you to calculate the entire market then estimate how much of a share you expect your business to get. A bottom up analysis calculating the individual business factors then estimate how high you can scale them up to get a projected market share. A bottom up analysis is data driven and requires a lot of research. 

5: Know your competition

Knowing your competition is done by researching the level of competition within your market. This step entails knowing the competitors’ strengths, weaknesses, location, products and services and target market. Determine how much of a threat your competitors are and come up with ideas you will better serve your customers as compared to your competitors. Knowing your competition starts by listing all of them and classifying them as direct or indirect competition. Direct competitors sell the same products as your business while indirect competitors offer alternative solutions to the problems that your business solves.

6: Identify your barriers 

Identifying your barriers is having a clear understanding of factors that might prevent you from successfully entering your market. Such barriers include high cost of entry such as rent, obsolete products because of advanced technology and fierce competition. Other barriers are tough legal requirements before product launch and difficulty in brand building to stand out in a saturated market. Identifying your barriers helps you put measures for protection to avoid being driven out of the market.

7: Understand the regulations

Understanding the regulations entails having knowledge of regulations within your market. It is your responsibility to research and know government regulations before starting your business. Seek a legal practitioner to help you identify and interpret regulations specific to your business.Examples of regulations include tax laws, employment and labor laws, privacy and environmental regulations.

What is the purpose of a marketing analysis?

There are many reasons as to why a market analysis is written. The main purpose of a marketing analysis is to help a business identify key market stakeholders. Other reasons for conducting marketing analysis include to understand your customers, know your competition, to analyze the needs of your customers and understand who your customers are. Additionally, a market analysis is written for purposes of getting your business loan approved as well as to write a business plan.

Know how to analyze the market need

Through conducting market analysis, you gain insights on the needs of the target market. Your business will then use this information to develop products and services that meet the needs of the market. A business is better positioned to serve its customers when it can fully grasp what the customer needs. Analyzing the market needs enables a business to create marketing strategies that resonate with the target market. 

understand your customers

Understanding your customers entails learning about their demographics such as age, income level, occupation and lifestyle. A market analysis examines buying habits, preferences and desires.A business is able to serve customers well when they understand them. Information about your customers will help you as an entrepreneur to develop a business that addresses your customers’ pain points.  

Get business loan approval

Starting a business normally requires funding hence as an entrepreneur you may need to apply for a loan.A thorough market analysis convinces lenders that you are worth the funding. Having spent time gathering information that you are willing to put in the work and find success. The lender is then confident that you will build the business and ultimately repay the loan. 

Write a business plan

Writing a business plan is a step by step process and one of the steps is to perform a market analysis. Market analysis in a business plan provides an overview of the position of your business in the market. It results in choosing the right market for your products giving your business a head start to success. The market analysis section of your business plan includes an estimation of how big the market is for your products.

Know your competition

Knowing your competition starts by listing all your customers and then evaluating their strengths and weaknesses. You should leverage on your competition’s weaknesses to ensure that your business stands out. Market analysis offers insights on advantages that your competition does not have. You will get a good understanding of your competitors including what they do differently from you.

Is marketing analysis important in all types of business plans?

Yes, all types of business plans have a market analysis section. All types of business plans borrow the common structure of  a business plan which entails a market analysis section. Regardless of the type of business, conducting a market analysis gives information on whether your business plan is viable or not.

A market analysis provides evidence that there is a niche in the market that your business can exploit. In a non profit business plan, a market analysis determines that there is a need for your services and that there exists people to support your mission. 

Does marketing business plan include market analysis?

Yes, a marketing business plan has a marketing analysis section because it borrows the common structure of a business plan. A marketing business plan is a document that your business will  use to execute its marketing strategy so as to reach your target market and generate sales. A marketing business plan must specifically lay out how your business plans to make your target market aware of the existence of your products. On the other hand, a market analysis focuses on describing customers,target market and competitors.

Do you need a business plan writer to conduct market analysis?

Yes, you may need to hire a business plan writer as they have experience in conducting market analysis. They often have access to resources and databases that provide valuable information about your industry, competitors as well as your target market. A business plan writer has excellent research skills to enable him to identify trends and opportunities in the market. Additionally, the organizational skills of a business plan writer to organize data and review information in a systematic manner.

When do you do market analysis during the business plan writing process?

The process of business plan writing is a step by step process. Market  analysis is a step that comes after describing the company and the products or services that it offers. Market analysis helps to analyze the company against the competitors based on the products or services available in the market. The analysis is based on the company’s strengths, weaknesses, opportunities, and threats. The focus is to ensure the business plan is written in full reflection of the situation in the market. Market analysis is one of the major sections that have to be written first in the business plan creation process.