A business plan is the blueprint for your business. It takes an idea for a product or service and turns it into a commercially viable reality. The market analysis section of your plan provides evidence that there is a niche in the market that your company can exploit. This analysis also provides the foundation on which your marketing and sales plan will rest.
What is a market analysis?
A market analysis provides insights into potential customers and your competition.
The core components of the market analysis are:
- Industry analysis: Assesses the general industry environment in which you compete
- Target market analysis: Identifies and quantifies the customers that you will be targeting for sales
- Competitive analysis: Identifies your competitors and analyzes their strengths and weaknesses
The exact way in which you choose to organize this information is up to you. As long as you include all the basic facts, there are a number of outline forms that can work well. Just keep the purpose of your plan in mind and highlight or expand the sections that have the greatest application to what you’re trying to accomplish.
It’s also important to realize that, as you go about planning a business startup or expansion, you should be doing a lot of research and learning an enormous amount about the marketing environment of your business.
Your business plan is not intended to include everything you’ve learned. It will just summarize the highlights in a way that shows the reader that you understand your industry, the place in which goods and services are sold, and how you will be a successful business.
The industry analysis is the section of your business plan where you demonstrate your knowledge about the general characteristics of the type of business you’re in.
You should be able to present statistics about the size of the industry, such as total U.S. sales in the last year and industry growth rate over the last few years. Is the industry expanding, contracting, or holding steady? Why? Who are the major industry participants?
While you might not compete directly against these companies (they are likely to be large national or international corporations), it’s important that you can identify them, and have a good understanding of their market share and why they are or aren’t successful.
You should also be able to discuss the important trends that may affect your industry. For example, significant changes in the target market, in technology, or in other related industries may affect the market’s perception of your product or your profitability.
This kind of information is often available for free from the following sources:
- Trade associations and industry publications
- Government databases: e.g., Census Bureau, Bureau of Economic Analysis, Bureau of Labor Statistics, state trade measurements
- Data and analysts’ opinions about the largest players in the industry (e.g., Standard & Poor’s reports, quotes from reputable news sources)
- Industry reports from such publishers or from aggregators such as Marketresearch.com
- Research company filings: Look at your competitors’ filings with the Securities & Exchange Commission and other regulators
Target market analysis
How do you determine if there are enough people in your market who are willing to purchase what you have to offer and at the price you need to charge to make a profit? The best way is to conduct a methodical analysis of the market you plan to reach.
Understand your customers
You need to know precisely who your customers are or will be.
For example, if you sell to consumers, do you have demographic and other information that paints a picture of who they are?
- Age, generation/life stage, gender
- Average income ranges
- Typical education and occupations
- Geographic location
- Family makeup
- Lifestyle information (e.g., hobbies, interests, recreational/entertainment activities, political beliefs, cultural practices, etc.)
Additionally, consider the market size and your target consumers’ motivations and purchasing potential.
You may very well sell to several types of customers. For example, you may sell at both retail and wholesale, and you may have some government or nonprofit customers as well. If so, you’ll want to describe the most important characteristics of each group separately.
It’s likely that your product has appeal outside your target demographic, but a market analysis can help you focus your sales and marketing efforts on the audience segments that matter most so that you earn a higher return.
Use industry data
Directly surveying your current customers can be expensive. For planning purposes, it’s acceptable to substitute published industry-wide information; for example, “the average U.S. electric vehicle owner is between the ages of 40 and 55, has graduated from college, and earns more than $100,000 per year”.
Once obtained, this type of information can help you in two very important ways. It can help you develop or make changes to your product or service to better match what your customers are likely to want. It can also tell you how to reach your customers through advertising, promotions, etc.
Gathering competitive intelligence is the practice of discovering and analyzing useful information about your competitor’s business. Competitive intelligence is important because it helps businesses understand their competitive environment and the opportunities and challenges it presents.
Basic information every company should know about their competitors includes
- Each competitor’s size and market share, as compared to your own
- How target buyers perceive or judge your competitors’ products and services
- Your competitors’ financial strength, which affects their ability to spend money on advertising and promotions, among other things
- Each competitor’s ability and speed of innovation for new products and services
There may be a wealth of other facts that you need to know, depending on the type of business you have. For example, if you’re in ecommerce, you’ll want to know how fast your competitors can fulfill a typical customer’s order, what they charge for shipping and handling, and so on.
Company data from competitors may be available by interviewing competitor company executives, attending industry trade shows, and asking the right questions from industry “experts”. They may be unaffordable as consultants, but willing to direct you to free databases that you would not ordinarily know of or have access to.
And don’t overlook your competitor’s suppliers. They can be excellent sources of information to aid your research.
Be very focused in your competitive research
In the industry overview section of your business plan, you may have identified the largest players in your industry. Not all these businesses will be directly competing with you, however. Some may be in geographically distant locations, and others may have pricing or distribution systems that are very different from those of a small business.
Therefore, in your competition analysis, focus on those businesses that directly compete with you for sales — the specific companies or brands that are solving the same problem as you and targeting the same customer base.
You may also want to include in your analysis some competitors who offer similar products in a different business category or who are more geographically remote. Study their ads, brochures, and promotional materials. Drive past their location. And if it’s a retail business, make some purchases there, incognito if necessary.
Analyze your competitors’ online presence
What type of content do they publish online and on social media?
Also, check out their online reviews — both product reviews on their website and independent reviews on Google, Yelp, Bing, and other online review listings.
Continuously monitor your competitors
Keeping an eye on how your competitors adapt to market conditions, develop their products, and evolve their brand can help you stay competitive.
Putting it all together: Tips for writing your market analysis
- Include a summary.
- Add graphics. Charts and graphs are great ways to show metrics and statistics.
- Be concise. Get to the point early, and avoid repetition and fluff. Plan several rounds of edits or have someone else review it.
- Keep everything in the context of your business. Make sure all the statistics and data you use in your market analysis relate back to your business. Your focus should be on how you are uniquely positioned to meet the needs of the target market.
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