A business plan is the blueprint for your business. It takes a product or service idea 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 business can tap into. This analysis also provides the basis on which your marketing and sales plan will be based.
What is a market analysis?
A market analysis provides insight into potential customers and your competitors.
The main elements of market analysis are:
- Industry analysis: assesses the general environment of the industry in which you compete
- Target Market Analysis: Identifies and quantifies the customers you will target for sales
- Competitive Analysis: Identifies your competitors and analyzes their strengths and weaknesses
Exactly how 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 best apply to what you’re trying to accomplish.
It is also important to realize that when planning to start or expand a business, you should do a lot of research and learn a lot about the marketing environment of your business.
Your business plan is not meant to include everything you have learned. It will simply summarize the highlights in a way that shows the reader that you understand your industry, where 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 of the general characteristics of the type of business you are in.
You should be able to present statistics on the size of the industry, such as total sales in the United States over the past year and the growth rate of the industry over the past few years. Is the industry expanding, contracting or stable? Why? Who are the major industry participants?
Although you may not be able to directly compete with these companies (they are likely to be large national or international companies), it is important that you can identify them and have a good understanding of their market share and why they are successful or nope.
You should also be able to discuss important trends that may affect your industry. For example, significant changes in the target market, technology, or other related industries may affect the market’s perception of your product or your profitability.
This type of information is often freely available from the following sources:
- Trade associations and industry publications
- Government databases: for example, Census Bureau, Bureau of Economic Analysis, Bureau of Labor Statistics, state trade measures
- Analyst data and opinions on the biggest players in the industry (e.g. Standard & Poor’s reports, quotes from reputable news sources)
- Industry reports from these publishers or aggregators such as Marketresearch.com
- Look for corporate filings: Review 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 buy 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 brackets
- Education and typical occupations
- Geographical position
- family makeup
- Lifestyle information (e.g. hobbies, interests, recreational/entertainment activities, political beliefs, cultural practices, etc.)
Also, consider the size of the market as well as the motivations and buying potential of your target consumers.
You can very well sell to several types of customers. For example, you can sell retail and wholesale, and you can also have government or nonprofit customers. If so, you will need to separately describe the most important characteristics of each group.
Your product is likely to have appeal outside of your target demographic, but market analysis can help you focus your sales and marketing efforts on the most important audience segments for greater return. raised.
Use industry data
Surveying your current customers directly can be expensive. For planning purposes, it is acceptable to supersede published industry-wide information; for example, “the average American owner of an electric vehicle is between 40 and 55 years old, has graduated from college and earns more than $100,000 a 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 advertisements, promotions, etc.
Competitive intelligence gathering involves discovering and analyzing useful information about your competitor’s activities. Competitive intelligence is important because it helps businesses understand their competitive environment and the opportunities and challenges it presents.
Basic information every business should know about its competitors includes
- The size and market share of each competitor, compared to yours
- How target buyers view or judge your competitors’ products and services
- The financial strength of your competitors, 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 host of other facts you need to know, depending on the type of business you have. For example, if you’re in e-commerce, you’ll want to know how quickly your competitors can fulfill a typical customer’s order, what they charge for shipping and handling, and so on.
Competitor company data may be available by interviewing competitor company executives, attending industry trade shows and asking the right questions of industry “experts”. They may be unaffordable as consultants, but eager to direct you to free databases you may not know about or have access to.
And don’t neglect your competitors’ suppliers. They can be excellent sources of information to help you in your research.
Be very focused in your competitive research
In the industry overview section of your business plan, you may have identified the biggest players in your industry. However, not all of these companies will directly compete with you. Some may be located in geographically remote locations, and others may have very different pricing or distribution systems than a small business.
Therefore, in your competitive analysis, focus on companies that directly compete with you for sales – specific companies or brands that solve the same problem as you and target the same customer base.
You can also include in your analysis some competitors who offer similar products in a different business category or who are more geographically distant. Study their advertisements, brochures and promotional materials. Walk past their location. And if it’s a retail business, do some shopping there, incognito if necessary.
Analyze the online presence of your competitors
What kind of content do they post 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 lists.
Constantly monitor your competitors
Keeping tabs on how your competitors are adapting to market conditions, developing their products and evolving 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 display metrics and statistics.
- Be concise. Get straight to the point early and avoid repetition and fluff. Plan multiple rounds of edits or have someone else review it.
- Keep everything in the context of your business. Make sure that all statistics and data you use in your market analysis are related to your business. You need to focus on your unique position to meet the needs of the target market.
Learn more about BizFilings
BizFilings is dedicated to making starting a business easier so you can focus on what you love. Discover our business plan software. This interactive tool includes step-by-step guidance for creating a comprehensive business plan for your own use, to secure investments, or to share with others.
Writing your business plan
Marketing plan component of your business plan
Creation of action plans for your business plan