What Is a Market Analysis? 3 Steps Every Business Should Follow

Wouldn’t it be great if you could launch a business knowing, without a doubt, that you’d succeed? While literally seeing into the future isn’t plausible, savvy ecommerce entrepreneurs know there are a few steps you can take tovalidate your business ideasand make sure there’s a customer base and target market ready to spend their money on your offer.

One of those business planning steps is conducting a market analysis, and it's critical for winning over the hearts and minds of potential customers in your target market.

In this guide, we'll cover the market analysis process, and how to utilize your findings into your own marketing efforts using market data.

What is a market analysis?

A market analysis in business is an assessment of a specific industry, niche, or vertical. Market analysis is a subset of market research that helps you understand your target market and the competitive landscape, as well as where your brand and product fit in.

Starting a business确保你有一个与目标市场分析ob欧宝娱乐app下载地址easier path to success, because it validates your idea and that there's demand in the market and people willing to pay for what you have to offer.

你的市场研ob欧宝娱乐app下载地址究和分析也有助于better understand how to promote your products and services to your target customers effectively, because it gives you a comprehensive understanding of your audience.

If you need to secure funding from external investors or lenders, it shows that you’ve done your research and can demonstrate the viability of your business idea and their investment. Your market analysis is primarily focused on external factors rather than internal analyses. It essentially serves as a gut check for whether or not your business idea can make it.

At minimum, your market analysis should identify the following:

• Who your target customer is
• Where, why, and how they shop
• The size of your target market
• The price people are willing to pay for what you sell
• Your competitors and their strengths and weaknesses

Keep in mind that the market changes, so conducting a market analysis isn’t just for new businesses—established businesses can also use market analysis to validate new product ideas or address challenges.

Here’s a quick market analysis example to demonstrate exactly that:iHeartRavesanalyzed the market when the COVID-19 pandemic first hit. The clothing brand sells apparel people wear at music festivals and gatherings—events that slowed down or even halted during the pandemic.

As such,the brand needed to pivot。So, it changed promotional tactics and added face masks to its product lineup after conducting a quick analysis to see what opportunities it could pursue.

How to do a market analysis

There are three main steps to completing a market analysis for your ecommerce business:

1. Research the industry
2. Understand your audience
3. Know how you stack up against competitors

1. Research the industry

Now it’s time to understand the industry as a whole. Researching your chosen industry helps you get a bird’s-eye view of the market landscape.

When researching your particular industry for your market analysis, consider the following:

• Market size.Estimate how many businesses and customers are in your potential industry. A big market could be saturated and require you to niche down more specifically, whereas a smaller market could mean there’s lots of opportunity for new businesses.
• Market value.Get insight into how much money the industry generates each year. Lots of consumer spending means there’s plenty of opportunity for you to claim your slice of the pie.
• Market demand。As many as42% of new business startupsfail because of insufficient demand, so it’s essential to validate that people want what you offer before you pursue your idea.
• Market need.Identify gaps in the market and how the existing landscape falls short in those areas.

Here are some reputable places to check for this data:

• US Bureau of Labor Statistics
• North American Industry Classification System
• USAGov data and statistics about the US
• US Census Bureau Census Business Builder
• US Bureau of Labor Statistics consumer price index
• US Department of Commerce Bureau of Economic Analysis
• US Federal Reserve daily interest rates
• Federal Reserve financial data
• Bureau of Economic Analysis gross domestic product
• US Census Bureau Statistics of US Businesses

You may also find industry-specific resources. For example, if you’re looking tostart a pet business, check out theAmerican Pet Products Associationand theAmerican Veterinary Medical Association。

2. Understand your audience

Now it’s time to drill deeper into your research and understand yourtarget market—the people behind the demand in your industry. This step involves customer research andsegmenting your audiencebased on shared characteristics.

When researching your potential audience, you want to know the following:

• How old they are
• Where they live
• Where they work, what they do, and how much they make
• Where and how they shop
• What they buy, and how much money they spend
• What technology they use
• How they interact with brands
• Their current market perceptions
• Their pain points and challenges

Audience research involves both internal and external sources. If you have an existing audience, you can tap them for valuable insights. Run surveys and questionnaires to get their thoughts, and pursue more thorough and in-depth interviews with individuals who exemplify your target customer. If you don’t already have an audience you can leverage, you might invest in focus groups for your own research purposes.

External data is equally valuable. You’ll want to understand things like where your audience lives, works, and hangs out, as well as how much they make and spend. You’ll also want to gain an understanding of their current perceptions about your industry or product(s). Here are some places to get external data about your customer:

• Bureau of Economic Analysis consumer spending
• US Federal Reserve consumer credit data
• US Consumer Product Safety Commission research and reports
• US Census Bureau
• US Bureau of Labor Statistics demographic data
• US Bureau of Labor Statistics employment (and unemployment) data
• US Bureau of Labor Statistics earnings data
• US Bureau of Labour Statistics employment data

You can also dosocial listeningto see what people are saying online,conduct SEO researchto see what people are searching for, and checkcustomer reviewsto find out how people like or don’t like products that are already in the market.

3. Know how you stack up against competitors

Much like you want to know about your audience when you’re conducting a market analysis, you also want to understand the competitive landscape. Knowing who your competitors are helps you pin how your brand is different and how you can differentiate yourself from other players in the market.

It’s important to differentiate yourself from competitors because this will increase perceived value and push customers to purchase your options instead of the same or similar options from other brands or businesses. When Albert Matheny launched his natural protein brandPromixhe has relied on market research and analysis to remain competitive as the market evolves.

“Identify some unique propositions that you have for customers or unique values that your brand has and then make those really, really clear and simple. Don’t try to highlight too many different things,”he said in an episode ofShopify Masters。“Constantly evolve and say, ‘How can I make this product better?’”

The first part of understanding how to differentiate involves understanding your brand and your business and what you bring to the table. You can conduct aSWOT analysis—which identifies your unique strengths, weaknesses, opportunities, and threats—to understand your position in the market.

Here’s a hypothetical SWOT analysis for an online t-shirt business:

你会一个lso want to go ahead and conduct acompetitive analysis。一般来说,你想选7到10competitors to include in your competitive analysis. Include a variety of competitors, such as those who sell a similar product to the same customer as you, as well as those who sell a slightly different product to a slightly different customer in the same industry. This means going for a variety of direct, indirect, and tertiary competitors.

When analyzing your competitors, you want to understand what they offer, how they position themselves, and how people perceive them. To help with your competitive analysis, we’ve created a free template you can use. It has rows for each competitor’s pricing, offering, marketing, shipping, and more, so you can cover all the bases.

How to write a market analysis for a business plan

While you might have a comprehensive market analysis documented for internal purposes—this is especially helpful for marketing and business development teams—you may create a shortened version for yourbusiness plan。

Your business plan is another comprehensive document that outlines all areas of your business, including your market analysis and other elements such asbusiness structure, operations and logistics, and financials. So when you prepare the market analysis section for your business plan, you’ll want to summarize the findings from your full in-depth analysis.

Narrow your analysis down to the most important information that most convincingly validates your idea and likelihood of success. Remember what type of business plan you’re writing and who you’re writing it for. Feel free to use bullet points, tables, and charts to make the information presentable.

If you’re drafting a business plan for your business, you can start with our freebusiness plan templateto guide you through each section.

Moving forward with your business plan

Though an important component, your market analysis is just one piece to your overarching business strategy and plan. Careful business planning across all areas of your entrepreneurial endeavor will set you up for success and ultimately help improve the chances of your marketing strategies paying off down the road.

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