Market Analysis– a thorough assessment of current market dynamics- helps to understand your customers. Many start-ups fail because they don’t have a deep understanding of what they are offering. So, they find it challenging to develop products or services according to the need of the target market.
Target Market analysis helps you understand the volume and value of the market, its segments, consumption patterns, competitive rivalry, and legal regulations concerning impacting the industry.
A compact market analysis is required whether you are composing a business plan, or penning just a Lean Plan. The key to conducting a sound analysis is doing it to devise a smart business strategy. Some entrepreneurs do it as a requirement for developing a plan. It results in a compilation of ordinary data that does not make any difference to their business plan.
Conducting market analysis may look like a compound exercise. But it is not. It can be broken into four parts:
We will now describe each of the categories mentioned above in market analysis in detail.
You should include key industry metrics, such as size, trends, and projected growth, in this part. When you are conducting industry research, you should be focusing on businesses that have a similar model to yours. On the other hand, market research demands an entrepreneur to be customer-oriented. In market research, you focus on what the customer wants. This difference plays a significant role in the direction of the overview.
You should include the expected demand for your goods in the future. It is advisable to discuss what sort of competition prevails in the industry. For instance, if you’re opening a hotel, you’ll want to understand the local and international tourism trends in the region.
In this part, you have to be customer-oriented. You will have to define explain who your ideal customer is. If you have more than 1 type of customer, divide your overall market into sub-groups called segments. In this process- called Market Segmentation- you group similar types of customers. You define each segment with the common attributes of customers in it.
Your analysis should answer the following elements of the target market.
It is not measured in the currency amount. But it is measured by is how many potential customers there are for your output.
It describes the age, gender, income, education, culture, and related attributes of a market segment. It helps to create an image of the customer in mind.
It apprises you about the country, region, state, and city in which your customers are located. The demands of customers greatly vary due to geography. For example, people living in hill stations would prefer warm clothing.
It helps to understand the mindset of a typical consumer. You must how he/she would react to your product or service.
Behavior follows psychographics. It helps you identify the actions that customers take in the form of purchase after the thought process (psychographics).
It helps you identify the latest fashion of the industry and market.
A market analysis can never be complete without describing the competitive environment of the market. Competition could be either direct or indirect. In direct competition, you fight for market share with a venture that offers similar products and services. It means your potential customer can buy from these companies.
On the contrary, indirect competition takes into account the businesses that provide alternative solutions to the customer. The competitive analysis helps you develop a Unique Selling Proposition (USP) that makes you different from the others.
Lastly, you need to figure out the optimum price for your product or service. Along with it, you are advised to come up with a sales forecast. It will show what portion of the market you think you can get in a given time frame.
The price should be higher than the variable cost. But pricing is beyond this basic principle. It is understood that customers usually link high rates to premium quality. However, if you are competing with low-priced alternatives to other products, you may not have the leverage to charge premium prices.
Even if you have the space for charging high prices, you may lose a significant portion of revenue if your product’s price is too high. This is why pricing is such a critical part of market analysis.
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