Wouldn't it be fantastic if you could start a business with complete confidence that it will be successful? While it isn't possible to look into the future literally, astute ecommerce business owners are aware of several actions you can take to validate your business ideas and ensure there is a consumer base willing to pay for your service. Making a market Analysis is one of those company planning processes.
What is market analysis?
In business, a market analysis is a review of a particular sector, submarket, or vertical market. A type of market research called market analysis may help you comprehend your target market, the competitive environment, and how your brand and product fit within all of these.
By confirming that there is a market need for what you are offering and that customers are prepared to pay for it, a market analysis before starting a business assures that you will have an easier route to success.
Because it provides you with a thorough insight into your customers, your market analysis also helps you better understand how to sell your items. If you require capital from outside lenders or investors, it demonstrates that you have done your homework and can convince them that your company plan is viable and worth their investment. Instead of internal assessments, your market analysis is mostly concerned with external issues. It effectively acts as a gut-check to see if your company concept has a chance of succeeding.
At a minimum, your market analysis should identify the following:
- Who your target customer is
- The size of your target market
- Where, why, and how they shop
- The price people are willing to pay for what you sell
- Your competitors and their strengths and weaknesses
You should keep in mind that the market is constantly changing, so established organizations may also utilize market analysis to evaluate new product concepts or handle issues.
To illustrate this point, consider the market analysis conducted by iHeartRaves when the COVID-19 epidemic initially broke. The clothing company provides items that people wear to get-togethers and music festivals, activities that were slowed down or even stopped when the epidemic started. Thus, the brand needed to change direction. So, after doing a brief study to determine what chances it could explore, it adjusted its advertising strategies and added face masks to its product selection.
How to do a market analysis
To complete a market analysis for your ecommerce business, follow these 3 steps:
1. Research the industry
It's time to comprehend the sector as a whole now. You may gain a bird's-eye view of the market landscape by researching your chosen industry.
Consider the following while researching your specific sector for your market analysis:
- Market size: Calculate the number of enterprises and customers in your possible industry. A large market may be saturated and force you to specialize, whereas a smaller market may have plenty of room for new businesses.
- Market value: Discover how much money the industry makes each year. With so much consumer spending, there will be lots of opportunities for you to take your piece of the pie.
- Market demand: As many as 42% of new business startups fail due to a lack of demand, therefore it's critical to confirm that people want what you're offering before pursuing your concept.
- Market need: Identify market gaps and how the current environment falls short in certain areas.
Here are some reputable places to check for this data:
- US Bureau of Labor Statistics
- North American Industry Classification System
- USAGov data and statistics about the US
- US Census Bureau Census Business Builder
- US Bureau of Labor Statistics consumer price index
- US Department of Commerce Bureau of Economic Analysis
- US Federal Reserve daily interest rates
- Federal Reserve financial data
- Bureau of Economic Analysis gross domestic product
- US Census Bureau Statistics of US Businesses
There could also be resources for a particular industry. For example, the American Pet Products Association and the American Veterinary Medical Association are good places to look if you want to launch a pet company.
2. Understand your audience
The individuals that drive demand in your sector are your target market, therefore it's time to delve further into your study to better understand them. This process entails segmenting your audience based on shared traits and doing consumer research.
You should find out the following information when researching your target audience:
- Where they live
- How old they are
- Where and how they shop
- What technology do they use
- How they interact with brands
- Their current market perceptions
- Their pain points and challenges
- What they buy, and how much money they spend
- Where they work, what they do, and how much they make
Internal and external sources are also used in audience research. You may gain insightful information from your current audience if you already have one. To learn what they think, do polls and questionnaires. You should also seek longer, more in-depth conversations with people who best represent your target audience. You may spend money on focus groups for your research if you don't already have an audience you can use.
External information has equal value. You should be aware of factors like the locations of your audience's homes, workplaces, and hangouts as well as their income and spending habits. Additionally, you should grasp how they currently see your sector or product (s). Here are some locations you may find outside information about your client:
- Bureau of Economic Analysis consumer spending
- US Federal Reserve consumer credit data
- US Consumer Product Safety Commission research and reports
- US Census Bureau
- US Bureau of Labor Statistics demographic data
- US Bureau of Labor Statistics employment (and unemployment) data
- US Bureau of Labor Statistics earnings data
- US Bureau of Labour Statistics employment data
Additionally, you may use social listening to monitor what people are saying online, SEO research to discover what people are looking for, and customer reviews to learn whether or not they enjoy the products that are currently on the market.
3. Know how you stack up against competitors
When performing a market analysis, you want to understand the competitive environment just as much as you want to know about your audience. Knowing who your rivals are may help you identify how your brand is unique and how you can set yourself apart from other market participants.
It's critical to set yourself apart from rivals since doing so will boost perceived value and encourage people to choose your alternatives over those offered by rival brands or companies. To maintain the competition as the industry changes, Albert Matheny, who created the natural protein brand Promix in 2011, has relied on market research and analysis. “Identify some distinctive consumer propositions or distinctive brand values, and then make them as plain and obvious as possible. In a Shopify Masters lesson, he advised viewers not to try to showcase too many distinct things. “Evolve constantly and ask yourself, “How can I improve this product?”.
Understanding your brand, business, and what you offer to the table is the first step in learning how to distinguish. To comprehend your position in the market, you might do a SWOT analysis, which highlights your distinct strengths, weaknesses, chances, and threats.
Here’s a hypothetical SWOT analysis for an online t-shirt business:
Additionally, you should undertake a competitive analysis now. In general, you should choose seven to ten rivals to include in your competitive study. Include a range of rivals, such as those that operate in the same sector as you, and sell products to customers who are comparable to yours as well as those who do the same but with somewhat different customers. This entails pursuing a wide range of direct, indirect, and tertiary rivals.
You should research your rivals to learn what they have to offer, how they present themselves, and how the public views them. We've produced a free template that you may use to aid with your competitive analysis. You can cover all your bases because it features rows for each competitor's pricing, offering, marketing, shipping, and more.
How to write a market analysis for a business plan
A condensed version of your market analysis may be prepared for your business plan even if you may have a more thorough one for internal use. The marketing and business development teams will particularly benefit from this.
Another thorough document that details every aspect of your company, including your market analysis and other components like business structure, operations and logistics, and financials, is your business plan. Thus, you should summarise the results of your complete in-depth investigation while writing the market analysis portion of your business plan.
Focus your investigation on the data that most strongly supports the validity of your proposition and its chances of success. Keep in mind the sort of business plan you are producing and the audience it is intended for. Use tables, charts, and bullet points as needed to present the information.
Our free business plan template may be used as a starting point when creating a business plan for your enterprise. It will lead you through each part.
Moving forward with your business plan
Your market analysis, while crucial, is only one part of your overall business strategy and plan. You will be prepared for success by conducting thorough business planning for every aspect of your entrepreneurial enterprise.
