Market Analysis – Tips and tricks to sizing a market
When you begin conducting a market analysis, you would be forgiven for feeling a little lost and not knowing where to start, at its core, market and industry analysis is big business and takes a lot of work, however you can use some simple rules of thumb to garner an idea of the potential size of a market and its makeup.
Do you even need a Market Analysis?
Information that goes into a market analysis often isn’t publicly available and therefore the process of putting together an in depth analysis can be frustrating and time consuming with reports from credible sources costing a fortune. So you may wonder, is it even worth conducting a market analysis?
In short, it is always worth conducting some form of research even if you only intend to be a small business in a particular niche. You don’t need to put together consultant worthy documentation and in depth statistics, but you should at least understand the main competition and a rough estimate of the size of the market and its respective growth rates. Even a very brief analysis will give you insight into the customers in the market, their buying habits and their price sensitivity which is all invaluable information when setting off on your business journey.
More in depth analysis will however be required should you wish to attract external investment and/or if you are looking at a wider market. Investors will want to ensure you understand the market and its growth rates and have done sufficient research to prove that your concept can not only be successful in the short term, but also expand into a growing market and produce above average returns.
What should be included?
Your market analysis needs to consider the key aspects of the landscape within which your business will operate. This can include:
- The size and growth rates of the market – Understanding the size of the market currently and its projected future growth will provide insight into whether your business is sitting in an attractive market with a viable future. If you find your business is tailored toward a large, but stagnant/declining market, it may not be worth significant investment and perhaps a business fitting into a smaller growing market would be a better venture to invest in.
- Your target market – A market tends to be made up of a number of different customers, each with different budgets and different requirements. In this section you need to focus in on exactly who you are targeting, what is their budget? And how does your solution solve their problem? Knowing this information will allow you to tailor your marketing and sales strategy and therefore maximise your return. With a target market analysis you should use characteristics such as age, income and location to fully understand who your customer is along with their psychographics such as buying habits and interests. Knowing who exactly your customer is will enable you to understand why your solution is perfect for them and allow you to get the message out there.
- Competitor analysis – Understanding your competitors is a vital step when setting up a business. It allows you to understand the landscape, their strengths and weaknesses, barriers to entry and your unique selling points. When you first enter a market, the competition is likely to react, especially if you start building a following. You need to understand what separates you from them and how you can keep pushing your concept over theirs should they try to pivot their strategy. Even when you are an established player in a market, knowing your competitors and their innovations is still vital and will ensure you keep up with trends and stay relevant to your customer base.
- Projections – You will have an idea of the size of the market from research and its prospective growth rate, but it is important to put this information into context. For instance how much of this initial market are you likely to be able to take? How are you going to do it (Marketing/sales strategy)? Make sure to be realistic in this projection and note that entering a market will often come with a competitor reaction.
- Regulations – The market analysis should also cover regulations and other legal considerations with the market. You will need to understand what these regulations are and how you are going to comply with them. Following that, you will also need to understand the cost of compliance, both initially and ongoing and ensure you have budgeted appropriately for it.
Where can you find information for your Market Analysis?
- Search engines – Simply using a search engine to identify websites that size a market for you is a reasonable first step, however you should be careful as to the credibility of the source. If you can find 3-4 sources that are all saying similar or the same thing and one or more of these is credible such as a large consultancy/accountancy/industry publisher, then you should have a relative amount of confidence as to it’s accuracy.
- Professional publications – The big 4 accounting firms (PWC, KPMG, Deloitte and Ernst and Young) or large consultancy firms often publish articles and reports on certain markets and these would be a reliable source to begin conducting your own analysis. Such reports provide key insights and analysis based on reliable sources of data.
- Competitor annual reports – Often competitors may cite the total value of the market and its respective growth rates in its annual report which you can verify with further research. If not, you can also garner this through other information in the report for example a competitor may stipulate it has 20% market share on revenues of $500m meaning the total value of the market would be estimated at $2.5bn.
- Extrapolating – Knowing the average spend per customer and the volume of customers is also a way to derive an estimated total market value and you can also derive a total potential market value if you consider census data and population growth trends in addition. Whilst this may not give you a completely accurate picture, it can be a good reference point when conducting further research.
