Why conducting market analysis is essential before your business makes its next move
Whether you’re launching a new business or introducing a new product or service, market analysis should inform your strategy from the beginning.
Imagine setting out on a long road trip. Typically, you plan your route using GPS, then incorporate real-time data about traffic, construction and tolls. You check gas prices and the weather, places to see enroute and where to stop and eat. It’s all part of ensuring you reach your destination in the best way possible.
Just as a road tripper will have a more successful journey with some strategic planning done before hitting the road, business owners launching new products or services can benefit from the knowledge gleaned from conducting market analysis.
“Market analysis is the research you conduct around the size and dynamics of the market you’re looking to serve, the competitors who already operate in it and the customers who are likely interested in the product,” says Robin Riddle, chief strategy officer at Foundry 360, a content marketing agency.
What are the benefits of market analysis?
The benefit of conducting a market analysis before launching a new business or product is clear: You can determine how to best enter the market—or whether you should enter it at all. “Without understanding the dynamics of the market you’re entering, you run the risk of complete failure, or launching a product that isn’t needed or is uncompetitive in terms of features or price,” Riddle says.
There’s also a reason for established businesses to continually update their market analysis—at a roughly annual cadence—or to conduct market analysis whenever things change. “That change could be you’re looking to launch a new product, modify an existing one to extend its life cycle or that a competitor launches against you,” he says. And since any business owner knows something is always changing in the markets they operate in, it may be best to think of market analysis as part of the regular maintenance of your business.
Whether you’re a big or small organization, market analysis is important, Riddle says. But the added challenge for small businesses is that owners often play a hybrid role of CEO, CTO and CMO rolled into one. If conducting market analysis is outside your wheelhouse and employing a full-time marketing expert is outside your budget, consider bringing in a freelance expert with expertise in your sector (a simple search on LinkedIn can help). That way, you can avoid a common pitfall: basing marketing decisions off a sample size of one.
The key elements for small businesses
What data and information do you need to consider? “There are many, many things you could include in a market analysis. It really is case by case,” says Riddle. That said, he recommends and defines these top four areas to include as part of your research.
- Market research. Examine the market’s size and growth potential. What are its growth trends? Determine market segmentation, which you can base on demographics, behavior or other relevant criteria. Identify current and emerging trends in your industry. Find out the needs of your target customers in relation to the product or service you are envisaging, as well as their pain points. Therein lies market opportunity: How can your product or service meet those unmet needs or disrupt an existing product or service?
- Internal and external analysis (i.e. competitor analysis). This boils down to who is already in the market and how you stack up against them. Analyze what you are good at and any weaknesses, along with where you see opportunities to win and potential threats. Determine how your business can differentiate from your competitors’ market position. Dig into your competitors’ strategies in terms of prices, promotion and distribution. A classic strengths, weaknesses, opportunities and threats (SWOT) assessment tool can be of use here.
- Customer analysis. Understand your ideal customer by creating detailed buyer personas. What are their needs and desires? For example, identify their age groups, family circumstances and income levels. Study customer purchasing habits and decision-making and gather feedback about customer satisfaction levels.
- Marketing environment analysis. Consider economic data that could affect your consumer’s spending, technological advancements that could affect your industry, legal and regulatory factors, as well as sociocultural influences on customer behavior. This approach, also called a PEST— political, economic, social and technological—should include contingency plans to mitigate or exploit the risks, Riddle says.
When it comes to data, a market analysis includes primary data, which is your own dataset, specific to your business. You may need an outside research company to help gather this information where gaps exist in this data. You’ll also include secondary data, which is more general but also usually available at lower cost. That might include articles in business journals, white papers from reputable sources or other existing research on your industry.
From market analysis to marketing
Gathering all this information shouldn’t be a mere exercise without purpose, nor should what you learn stay confined to just words on a page. Your market analysis should inform your marketing plan. When you finally gather and compile the results of your analysis, ideally you will have a better idea of which markets make the most sense for your business to target.
At that point, the “pure” marketing will begin. A competitive analysis, for example, will help you determine how to make decisions about your product and how to distinguish it, as well as how to set the price point, Riddle says.
“Allow your market analysis to percolate throughout your business strategizing as well,” Riddle says. “The point of conducting this research is that it will help inform multiple areas of your thinking and approach and help you avoid costly mistakes.”
Three things to do:
- Read more about why marketing your products is essential.
- Learn how to optimize paid search for your products or services.
- Improve the searchability of your business.
