How To Conduct a Market Analysis (And Understand Market Dynamics)
Today’s post will talk about how to Conduct Market Analysis, a vital component of any successful business.
According to a study by CB Insights, 42% of startups fail because there’s no market need for their services or products. Proper market analysis could prevent this by identifying the actual demands of the market.
Many ventures forget about this important step during the creation of their Business Plan, failing from the very beginning in their ultimate goal of being Sustainable and Profitable.
After reading this post you will be able to:
- Reducing Business Failure
- Identify potential growth opportunities.
- Understand customer needs and preferences.
- Recognize competitors and their strategies.
- Mitigate business risks.
And more, I will share with you my step-by-step guide I have used for market analysis for my business.
Let's Dive into the contents!
- Market Analysis: Definition
- Why Conduct a Market Analysis? 8 Statistics for your Success
- My Step-by-Step Guide to Conduct a Comprehensive Market Analysis
- Step 1: Define your Objective
- Step 2: Market Segmentation
- Step 3: Understand the Market Size
- Step 4: Consider Market Trends
- Step 5: Evaluate your Competitors
- Step 6: Three Methods to Define your Customer Persona
- Understanding Laws and Regulations
- Market Dynamics
- Common Challenges When Conducting Market Analysis
Market Analysis: Definition
With Market Analysis we refer to the process of evaluating the market’s size, the competitors within it, and all the market dynamics influencing it.
Understanding these dynamics is critical, as it provides valuable insights for decision-making, risk mitigation, and spotting growth opportunities.
Why Conduct a Market Analysis? 8 Statistics for your Success.
Better ROI on Marketing Spend: The Data & Marketing Association (DMA) found that businesses that utilize data-driven marketing are six times more likely to be profitable year-over-year. A thorough market analysis is a significant source of this data.
Citation: Data & Marketing Association. “Data-Driven Marketing: Looking Forward to 2016.” 2016.
Informed Product Development: According to Nielsen, 76% of new products fail within the first year. A significant reason is the disconnection between what customers want and what businesses think they want. Comprehensive market analysis bridges this gap.
Citation: Nielsen. “Breakthrough Innovation Report.” 2013.
Competitive Advantage: A B2B International survey revealed that businesses which consistently conducted market research were 28% more likely to display higher year-over-year growth than those who didn’t.
Citation: B2B International. “Market Research’s Role in Driving B2B Brand Performance.” 2017.
Enhanced Customer Satisfaction: According to a report by PwC, 73% of consumers say that a good experience is key in influencing their brand loyalties. Market analysis helps businesses understand their customer’s journey, pain points, and preferences, leading to a better overall experience.
Citation: PwC. “Future of Customer Experience Survey.” 2017.
- Importance of Understanding Customers: According to Salesforce Research, 84% of customers say being treated like a person, not a number, is very important to winning their business. Proper market analysis allows companies to better understand their target audiences and personalize their approaches. Citation: Salesforce. “State of the Connected Customer.” 2019.
- Increased Investment in Market Intelligence: A report from MarketsandMarkets highlighted that the market intelligence market is projected to grow from $5.3 billion in 2020 to $9.1 billion by 2025, at a CAGR of 11.4% during the forecast period. This suggests that businesses are increasingly recognizing the importance of understanding their markets.
Citation: MarketsandMarkets. “Market Intelligence Market Global Forecast.” 2020.
- Need for Adapting to Change: Accenture’s research indicates that 76% of business leaders expect their current business models to be unrecognizable in the next five years. Market analysis plays a crucial role in helping businesses anticipate, adapt to, and drive these changes.
Citation: Accenture. “Business Futures 2021 Signals.” 2021.
- Significance of Customer Insights for Growth: A study by the Boston Consulting Group found that companies that implement customer insights outperform their peers by 85% in sales growth and more than 25% in gross margin. Citation: Boston Consulting Group. “The Most Digital Companies Are Leaving All the Rest Behind.” 2017.
My Step by Step Guide to Conduct a Comprehensive Market Analysis
I am about to share with you my personal step-by-step guide I use to conduct Market Analysis for my business as well as for the businesses I work for.
The guide is made up of 6 different steps, each one representing a milestone of the whole process. Here you can have an overview with the infographic below:
Step 1: Define Your Objective
Nothing should start without a clear idea in your mind. At this stage, you should have an idea of business in mind that you want to validate by understanding its Market Value.
Your object has to be reasonable and clear, highlighting Business Figures (like sales forecasts and financial positions), timelines, and possible risks.
This will act for your as a compass whilst objectively evaluating your business feasibility, validating its market share.
Step 2: Market Segmentation
Consider the Market as the entire, worldwide pool of potential customers. If selling means putting the right product in front of the right people, it’s easy to understand that not every potential customer is a customer for your business.
By going through the market segmentation, you will create a cluster of potential clients, that often share similar “attributes” or “Metrics”.
Proceed to create your clusters by using the most common metrics like:
- Demographics: Age, gender, income, education, etc. This
- Geography: Region, climate, urban vs. rural, etc.
- Psychographics: Lifestyle, behavior, values, etc.
- Economic Conditions: Employed, Unemployed, Students, Business Owner
You should finish this step with a clear picture of what is your customer persona – nothing but a fictional profile that represents a particular target customer. Please note that you should have more than one customer persona (One for each combination of segments).
- Male / 20 -30 Years Old / Located in United Kindgom / Interested in Gaming / Employed
- Female / Teenager / Located in any city in the UK/ Interested in Hip Hop Music and Dance / Student
Step 3. Understand the Market Size
To understand the Market Size, we will have to consider three different definitions:
Total Available Market (TAM)
Total Available Market (TAM):
Definition: TAM represents the total market demand for a product or service. It’s the entire revenue opportunity available for a product or service if 100% market share was achieved.
Where to Find:
- Industry Reports: These often provide estimates of the total market size for various products and services. Salient offers access to free reports.
- Market Research Firms: Companies like Gartner, Forrester, and Statista frequently offer data on total market sizes for various industries. These might be paid ones though.
- Government Data: Depending on the industry, governments often collect and publish data about market sizes. Visit data.Gov.uk to check for available data
Serviceable Available Market (SAM)
Definition: This is the segment of the TAM that you can actually serve, given your business model’s limitations, such as distribution or geographical constraints.
How to Determine Your SAM:
- Segment Your Market: Based on geography, customer type, or other criteria relevant to your product.
- Analyze the Competition: Determine the part of the TAM that is already being served by competitors and how much is left for you.
- Market Surveys: Engage directly with a subset of the TAM to determine interest, then extrapolate that to the larger population.
Your SAM can be calculated using this formula: SAM= Targeted segment TAM X Maximum product price.
Using the segments defined before for your customers’ personas, you can head over to Facebook Business Manager and start populating the filters in the Audiences Page.
by the time you add all the filters, you will get a specific amount of potential clients matching your segments. Now, that number timed for your most expensive product price is your SAM for Facebook Marketplace.
Please note that Facebook is not representative of a worldwide SAM evaluation, however, it gives you an estimation of what your Serviceable Available Market can be.
Serviceable Obtainable Market (SOM)
Definition: This represents the realistic portion of the SAM that you can capture in the short term. It takes into account existing competition and your current resources.
How to Determine SOM:
- Evaluate Market Share of Immediate Competitors: If there are 10 companies offering a similar product, a simplistic approach might divide the SAM by 10 to estimate the SOM. A simple query that can find answers in Google.com or Statista.
Considering your geographic segment will give you different values.
- Historical Data: If you’ve launched products before, what market share did they achieve in their first years?
- Pilot Programs or MVPs (Minimum Viable Products): Launching a basic version of your product or running a pilot in a small region can give insights into potential market traction. More on how to create an MVP in my on creating a business plan.
A “reasonable” Target Market Share for a new company based in the UK can be around 5% for which this is the corresponding Serviceable Obtainable Market:
SOM = 5% * $4.7 billions = $235 millions
Narrowing Down to Your Market Size:
Now, whilst the $250 millions number might look big for you, just consider that this is just a “potential” number.
It doesn’t mean that you can reach that turnover in a day or in a year.
This is because at this point, you did not introduce any other additional considerations:
- Establishing your operations
- Geography and customer distribution
- Business constraint
- Market saturation
- Brand Awareness
- Cash Flo and Sales Forecast
- Market Size Fluctuation and Trends
Step 4: Consider Market Trends
Market Trends are meant to help you to project futuristic scenarios in your market.
Historical data are considered to be an important indicator of what can be happening in the future. However, this is not always applicable to all cases.
Google Trends offers great insights into the trends for search queries of Google’s users. just type some relevant keywords and you will be able to see results plotted on charts.
there are many other tools you can use to analyze market trends, but they often come with a payment option. You can think about investing in them for one month or two, just to get more information about trends.
Here I can name a few, some of them can be used for Search Engine Optimization (go and check the post if you haven’t already) as well:
Step 5: Evaluate Your Competitors
When it comes to launching a new product or service, you have to find out how hard the competition will be.
More precisely, you should follow these steps:
- Understand your main competitors and their strength points. It will be clear to you if you can compete in the same field or is better of focusing on a product/service that is different from what they offer already.
- Create two SWOT Analyses, one for you and one for each competitor of yours: Understanding your and their Strengths, Weaknesses, Opportunities, and Threats can guide you on what niches to exploit or what pitfalls to avoid.
- Understand your position: Where do you stand amongst them? What’s your market share? What differentiate your product from their? Are you able to compete with their PPC advertisement or is it better of focusing on other types of contents?
Step 6: Understand Your Customer Persona
We have discussed this in the previous section, your customer persona is a detailed profile of your target customers.
Once defined, any form of advertising, paid or organic traffic will be more efficient than just randomly advertising to anyone. Defining your customer personas is the first step of selling since you are placing your good/services under the nose of the right people.
You can create your customer persona using any of the three methods below:
Method 1: Social Media & Online Behavior Analysis
Tap into the wealth of information available on social media platforms and online forums.
Optimized For: Identifying new leads/clients from scratch, optimizing initial advertisement or content creation strategy
Monitor Brand Mentions: Use tools like Mention or Brandwatch to see who’s talking about your brand and what they’re saying.
Engage in Social Listening: Understand not just mentions, but broader conversations in your industry or around key topics. Read comments on posts and topics will help too.
Analyze Competitors: Look at the type of audience engaging with competitors. What content or campaigns are effective for them? Which platform is the best for you to win the competition strategically?
Join Online Forums: Websites like Quora or industry-specific forums can offer unfiltered opinions and discussions about your market.
Method 2: Interviews and Surveys for existing clients
Engage directly with customers to gather qualitative data about their behaviors, preferences, needs, challenges, and motivations.
Optimal for: New Product Development, fidelity, and loyalty programs, acquiring clients from competitors.
Select Participants: Choose a mix of customers—those who are loyal, new, and even those who chose a competitor.
Craft Questions: Focus on open-ended questions that dive into their buying decisions, needs, pain points, and personal demographics.
Conduct Interviews: Personal interviews can provide deeper insights, especially when you can read non-verbal cues.
Analyze & Synthesize: Group feedback into common themes. These patterns can inform the different sections of your persona.
Method 3: Analyze Existing Data
Quoting a recent citation, “Data is the new Oil”.
You can either leverage your existing data or access new sources of information by tapping into free or paid databases. Whilst this is the most complicated approach, I consider this the best strategy.
Optimal for: Fine-tuning of existing Customer Personas, and creation of brand new Profiles.
Segment Your Audience: Using tools like Google Analytics or your CRM, segment your audience based on behavior, acquisition source, geographic location, etc.
Behavioral Analysis: Examine actions users take on your website. What content or products resonate? Where do they drop off?
Demographic Data: Use demographic info (age, gender, location) to understand who engages with your brand.
Feedback & Reviews: Check product or service reviews. They can offer valuable insights into what your customers value or desire improvements on.
Understanding Laws and Regulations
Laws and Regulations are constantly adapting to the ever-changing market.
In your case what can make the difference is leveraging the existing rules and using them to your advantage. You should find out either opportunities (like tax breaks for sustainable practices) or possible threats (like restrictions on certain types of marketing).
The idea is to keep up with the change. I can only say that seeking experienced advice can work, as well as reading a lot.
You can’t describe the market as a static entity. Customer behaviors, Global Trends, Economic Conditions, and Geography, all contribute to Market Dynamics. They dictate the ebb and flow of market trends, prices, and demands.
Whoever is able to gauge and slightly predict where the market is going will gain a competitive advantage. Whoever is prepared to market change and fluctuation will have made its business resilient enough to endure over time.
On the other hand, the ones who didn’t consider preparing for Market Dynamics will be crushed in no time.
But how can you understand which ones are forces that cause shifts in market behavior?
Let’s have a look into this in the next chapter
The Four Major Elements of Market Dynamics
Element 1: Market Drivers
Factors that catalyze and stimulate growth in the market.
Example: Technological advancements have consistently served as drivers for many industries.
Statistics: According to the Consumer Technology Association (CTA), in 2019, the U.S. consumer technology industry was set to reach a record-setting $398 billion in retail revenues, driven primarily by the introduction and adoption of new technologies.
Implication: As new technologies emerge and become accessible, consumer behavior changes, leading to new opportunities and ultimately to increased sales and potential market growth.
Element 2: Market Restraints
Factors that impede or limit the potential growth or expansion of the market.
Example: Regulatory restrictions can create hurdles for many industries, especially those in health, finance, or environment-focused sectors.
Statistics: The pharmaceutical industry, for instance, can face delays due to regulatory constraints. The Tufts Center for the Study of Drug Development found that it takes an average of 12 years and over $2.6 billion to get a single drug to market, with regulatory approval processes being a significant contributor to this timeline.
Implication: Regulatory barriers can increase the time and cost of product development and market entry, making some markets more challenging and costly to penetrate. We have seen this impact during the rollout of Covid-19 Vaccine where different national regulations where affecting nations in a different way
Element 3: Market Opportunities
Untapped or underexplored areas in the market that businesses can leverage for growth.
Example: Many businesses expanded into emerging markets, like Africa and Southeast Asia, to capitalize on their growing middle class and digital transformation.
Statistics: According to the World Economic Forum, consumer spending in Africa is expected to reach $2.1 trillion by 2025, with a significant chunk spent on entertainment, consumer goods, and healthcare.
Implication: Recognizing and acting on such market opportunities can lead to the development of new products or services tailored to these markets, resulting in new revenue streams.
The creation of different Segments by Country with their respective Customer Personas can bring brand new opportunities and increased revenue stram.
Element 4: Market Threats
External factors or challenges that could jeopardize current market position or growth potential in the future.
Example: The rise of disruptive technologies, new competitive entrants, or unforeseen global events like pandemics can serve as threats.
Statistics: The World Trade Organization predicted that the COVID-19 pandemic would cause a decline in global trade between 13% and 32% in 2020, severely impacting various industries from tourism to manufacturing.
My study on Business Endurance and Survivability in the UK has shown the same results.
Implication: It’s essential for businesses to be agile, constantly monitor their external environment, and be prepared with contingency plans to navigate such threats.
Common Challenges when Conducting Market Analysis
As you will progress with your steps, you might find some “difficulties”. None of them should scare you after reading this section.
Dealing with Data Overload
Data is without any doubt one of the greatest sources of information. However, the format in which records are stored can be quite “raw” or “chunky”.
Having a bit of knowledge in data management and data analytics will help you along the way. If that’s your case, you can leverage pivot tables and lookup functions in Excel to make your life easier.
If you are not the data guys here are a couple of alternatives:
- You can hire a Freelancer to handle the data on Fiverr or Upwork. Personally used some services, I can only say this works fine and it’s quick.
- You can use AI to interpret the data. In this case, you will have to pay an amount to use some sort of code interpreter. I have used ChatGPT and also, in this case, this worked very well for me.
- You can purchase some already organized information from websites like Statista
When it comes to data overloading you just want to start with an organizational exercise first and a query exercise second.
- Organize your data in tables with relevant information. Create different files and worksheets and name them with meaningful names
- Query the files one by one trying to get general insight at first and eventually deep dive into the specifics
If you know already what are you looking for, this shouldn’t be too hard for you.
Keeping Up with Rapid Market Fluctuations
It does look strange but sometimes, by the time you have finished your market analysis, something has already changed.
I like the idea of imagining the market as something liquid with shape-shifting properties. Every time you look, nothing stays the same.
My idea is focusing on general insights for which, it is reasonable to think that hardly, something will fluctuate. Consumers for High Tech Headsets and Speakers will be mainly attracted by the same type of products unless a breakthrough innovation is made accessible to everyone.
No one predicted the major change when Apple introduced the smartphone, but now it is reasonable to think that smartphones will be part of our life until something amazing will be accessible to consumers.
Whilst the model or the type can fluctuate, market size and its prediction can be considered valid.
For your business, ask yourself if there is something imminent due to be introduced that can harm your long-term plan. Ask yourself: “Am I late in joining this market?”, ” What are my direct competitors introducing in their products?”
If you realize that nothing new is ready to be launched, you are starting on the right foot. If you do find that a massive innovation is imminent, will this is good as well, as you might still be in time to revise your business plan and adapt to this new demand.
Different Results from Different Sources
This is another common case I see every day.
Statistics and studies sometimes are showing opposite trends. Which one is telling the truth? Well, that would depend on the authority of the source.
Google is hardly wrong most of the time, but this is because it shows information from authoritative websites. University studies and Government sites have usually the most up-to-date data. Other platforms like Wikipedia e Investopedia have also been confirmed with authority too.
Stick to the major institutes, journals, and websites and you’ll be rarely working with the wrong data. Ultimately, you will develop business knowledge that will help you to validate the information given.
In this article, I have discussed how you can perform a thorough market analysis and shared my personal step-by-step guide to validate the market size.
I have highlighted different important aspects like going from your Total Available Market to your Serviceable Obtainable Market as well as 3 different methods to evaluate your Customer Personas.
Now I want to hear from you, which aspect for you is the most important when analyzing a market? And what do you do to cope with market dynamics?