Market analysis is the process of assessing the size and nature of a market. Market analyses are most often used by enterprises of all sizes to determine the attractiveness of a new market; in these cases, the quality of the market analysis might make or break the success of big business decisions.
With that in mind, we’ve decided to make an entire article to walk you through the topic of market analysis, from A to Z. We’ll discuss what market analysis should include, why they should be conducted, when they should be conducted, and where to source the necessary information.
What Market Analysis Includes
The main objective of most market analyses is to determine the attractiveness of a new market. This new market is often referred to as the target market, since it is the demographic to which you intend to target your product or service.
To determine the attractiveness of a target market, your market analysis needs to take into account quantitative factors, such as the size of the market, and qualitative factors, such as the potential profitability of the market.
Quantitative factors for market analysis are much easier to nail down than the latter. This is because quantitative information can be presented in structured, numerical formats and easily interpreted — even by computers. Quantitative factors for market analysis include:
This refers to the nominal size of your target market, i.e. the number of individuals or groups within your target market. For example, if your target market were the entire world’s English-speaking community, the volume of that market would be approximately 1.5 billion individuals. If your target market were the restaurants in a particular city, the volume of that market might only be a few dozen or hundred restaurants.
Value is the size of your target market expressed in terms of the money it causes to change hands every year. You might have heard expressions like “the entertainment industry is a $700 million industry.” In the case of market analysis, you would find the equivalent value for some slice of an industry, as represented by your target market.
On the other hand, qualitative factors can be a pain to assess; you’ll likely have to use subjective data such as an expert opinion or survey. The qualitative factors for market analysis include:
- Market need
Once you’ve established the size of a market in terms of volume and value, the next step is to evaluate the need for your product or service within that market. Of course, this is significantly tougher to calculate — if at all possible. You might estimate the need for your product or service in terms of the fraction of total market volume or value you would be able to achieve, but it would be exactly that: an estimate.
While you can quantitatively assess the number of competitors in a given target market — just by counting them — it’s difficult to know just how competitive those competitors are! This is the qualitative factor we describe with the word competition, but you might also be able to estimate it.
One qualitative factor which you certainly can’t estimate is the regulation in a target market, especially if it’s in a completely new industry. For an organization to operate in a given market/industry, it’s absolutely essential to be cognizant of regulation — so you can’t skip this step!
If you want to know more about how you can conduct a complete market analysis, we definitely recommend you check out our article on that topic: What to Include for a Well Thought-out Market Analysis.
Why Conduct Market Analysis
After reading that last section, you might be thinking that market analysis is a lot of hard work. And that’s exactly right — so why bother conducting a market analysis? Here are some of the many reasons you should do so:
- To assess viability
The main reason that many enterprises conduct market analysis is to determine the attractiveness of a new market — and there’s a reason for that reason! By knowing the attractiveness of a market, you can better decide whether entering that market would be a viable, profitable use of your organization’s time and resources.
- To thrive
A second reason you could conduct market analysis is to better understand your target market. Whether you’re entering a new market or you’re already established in a given market, understanding the market and its participants can allow you not just to survive, but also to thrive in that market.
When to Conduct Market Analysis
We get it: market analysis can only bring good. So when should you conduct market analysis? There are a couple of different options for this — both of which we hinted at earlier:
- Before entering a new market
The best time to conduct market analysis is before entering a new market. Not only does this allow you to gather valuable information that you can use to better operate in that market, but it also prevents you from investing too much time and money into a market entry which you know will never succeed.
- While operating in a market
If you didn’t conduct a market analysis before entering a new market, you can also conduct one while already operating in a market. In fact, you might have access to better resources, and more of them, if you choose to do market analysis in your existing market(s), such as real estate.
Where to Get Information for Market Analysis
There are a variety of sources you can use to gather information for a market analysis. Great sources include, but are not limited to:
- Government reports
Governments typically publish data they have collected themselves in annual reports on individual industries or markets. These are often free and highly trustworthy.
- Consulting firms
Consulting firms in your target market may also collect data which could prove valuable in market analysis. However, there’s often a cost involved in accessing data collected by private firms.
- Customer surveys
Customers surveys are one of the best ways to establish the qualitative nature of a chosen target market. You might be able to acquire survey results from other organizations (usually for a fee), but you can always conduct them yourself.
Market analysis is a comprehensive assessment of the various quantitative and qualitative factors at play in a target market or entire industry. Market analyses are typically used to evaluate the viability and profitability of a new market, but they can also be used to better perform in an existing market. Read more about market analysis tools you can use here.