“Hey, I think there’s a market for this product and I’m going to open a store to sell this product”. Half a year later, due to poor sales, the product was unsalable, and the store had no choice but to close. Brutal but true.
Sometimes we find something that might have market potential, and we’re so excited that we’re ready to act. Starting a business can be exciting, but it can also be a lot of work — if you do it right. Market analysis is one of the first hurdles you need to overcome when you’re taking a business or product idea out of your head and onto paper.
An accurate market assessment is your first step towards a successful business.
What is A Market Assessment?
A market assessment (or analysis) is an assessment or study of the market available in a particular niche or industry. The term “market” broadly refers to the state of who and how many people buy and sell a particular product or service.
The idea is to study the dynamics of the field in which you intend to do business. It contains many aspects. You need to understand who your customers are, their spending habits and specific needs, the size of the market and other businesses you will be competing with.
Whether you are starting a brand new business or an existing business is looking to enter a new market, market assessment is one of the essential steps. It will provide real data support for your business, not empty “I think”.
These are the questions you need to focus on:
- The search index size of the product.
- Product search trends.
- The audience of the product. Including gender, age, income, and geographic location.
- Your potential competitors.
- Upfront investment.
- Payback period.
- . .
Benefits of Conducting A Market Assessment:
There’s a good reason that most, if not all, business loan providers need a business plan that includes market analysis — and it brings a lot of benefits. Let’s take a look at some of the key benefits below:
- It helps you identify market trends. Conducting market analysis allows you to see the entire market – which helps your business stay on top of or stay ahead of trends emerging within it. For example, trending products in your niche or gaps that offer opportunities.
- You find potential customers and how to communicate with them. Perhaps the most obvious benefit is that you can identify exactly who your customers are and develop a marketing strategy that fits your target market.
- It reduces your business risk. Building a new business can be risky, especially if you start running before you walk, i.e. planning your business strategy before investing too much can help you identify where your pain points might be and if the risk is too great, as well as help you validate your product ideas.
- It provides a benchmark for evaluation. Through comparative market analysis, you’ll be able to identify the minimum KPIs your business needs to execute – from there you can set goals to exceed them.
- It provides direction for business decisions. A complete market analysis document can help you become the “North Star” – and you can base your business decisions on it. It’s much easier than guessing your way.
- It provides better revenue and cash flow forecasting. It’s hard to guess how much your business will make until you start selling, but market analysis can help you make predictions based on market trends.
These are some of the many benefits you will gain from conducting a market assessment or appraisal.
Disadvantages of Conducting A Market Assessment
The benefits of conducting a market assessment cannot be overemphasized. But it’s not all glitter and rainbows – there are some downsides to running a market assessment, especially with your first business.
Here are some common drawbacks:
- This can take a lot of time and effort. If you choose to do a market assessment, you will have to devote a lot of time and effort to doing it – you can dedicate your time to other important business tasks. Everything from market quotes to customer profiles takes a lot of time and effort.
- Market analysis may be limited. If you are running your first market assessment, you have little practical knowledge to help guide the content of the assessment. Many businesses rely on customer surveys or existing customer feedback that you may not have access to. So your evaluation will be limited to what you can observe. The more your customers accumulate, the more comprehensive your market analysis will be.
- Depending on your method, it can be expensive. If you do not choose to do the assessment yourself, you will need to hire someone to do the assessment for you. There are two main options: hire freelance consultants or hire in-house marketers. Both of these options will affect your budget to start your business upfront, but they can provide better insights if you’re not well versed in market research.
This isn’t an exhaustive list of potential headwinds for market assessments, but you shouldn’t take it lightly — each one could prove to be a challenging hurdle. However, in most cases, the benefits outweigh the disadvantages.
How to Conduct A Market Assessment
- Determine market conditions
- Research your target customers
- Run a competitor analysis
- Build financial forecasts
- Understand industry regulations and barriers to entry
1. Determine Market Conditions.
The first part of your market analysis should contain an overview or description of the industry you wish to operate in. Take a look at where the industry is headed.
- Are there current trends affecting the industry?
- What is the market growth rate?
- What is the life cycle of products and services in the industry?
These are the questions your market overview should answer. However, while this section is always at the front of the document, it can be done more easily after you’ve done other research. You have multiple channels to investigate market conditions, such as Google Trends and the Keyword Planner within Google Ads. They can easily show you the search growth and search index of your product over a certain period of time. You can use this to understand basic market or industry trends.
2. Research Your Target Customers.
Who your product is for, or what type of product your target customers need. This is what we will focus on next. No matter how great you think your product is, you can’t serve everyone in the world. Trying to do this will waste a lot of time. Therefore, your best bet is to focus on the customer base most likely to be interested in your product – this will be your niche.
You need to define your segmentation strategy to help you identify individuals within your target audience. Targeted segments help you narrow down your audience based on shared sets of characteristics, such as:
- Demographics: age, gender, occupation, education level and religion (if relevant to your business). For example, our product – scraping board, it is not only suitable for beauty lovers around 30 years old, but also suitable for fitness people who relax after exercise. However, you would never push them to someone over 60.
- Geographical Location: Where your target customers live and work. Maybe some products are very popular in one area, but no one cares in other areas. For example, if you plan to recommend sweaters to people located in the tropics or even near the equator, the results will not be good.
- Purchasing behavior: Are your customers likely to be impulse buyers? Or is your product a well thought out investment? Are they more likely to shop in a brick-and-mortar store, online site, or on social media? Often, impulse shoppers are more profitable.
- Psychological Traits: What are your customers interested in, what they are passionate about, or what personal values they may have. Such as anime peripherals, etc. You can easily push these products to the corresponding anime lovers, and they will happily pay a higher price to get their favorite anime merchandise. But if you’re trying to sell these products to a population that’s totally uninterested in anime, it’s almost impossible for you to succeed. (Unless your product is really useful, not just anime peripherals.)
Accurate analysis of your target audience can maximize your conversion efficiency, especially when you promote your products through paid advertising.
3. Conduct Competitor Analysis
Another important market segment is your competitors – it’s hard to identify a market need that no business has already met.
In this section, you need to research which businesses you will be competing with for customers.
Some of the main areas you need to cover are:
- Who are your direct and indirect competitors
- Competitor market share
- Their strengths and weaknesses (SWOT analysis is helpful here)
- What you have to do is different from them
After you’ve researched each competitor, it’s helpful to rank them according to their threat level: the most serious to the least threat to your business.
At the same time, you can also optimize your product promotion through competitor analysis. For example, if you are planning to open an online store, you can gain a lot of useful information by analyzing your competitors.
- Competitors’ core keywords and promotion keywords.
- Competitors’ promotion channels. Google search? Youtube video or Facebook?
- Competitor audience.
With this information, you can optimize your product promotion. You can directly use your competitor’s keywords for promotion, you can learn from your competitor’s promotion channels, and you can learn from your competitor’s audience to divide an audience. With this content, you can save a considerable amount of trial and error costs.
For example. As the leading gua sha factory, our force keywords is about “gua sha wholesale”. So we googled to find out the competitors that existed. Then on https://www.semrush.com/: fill in the competitor’s URL, and finally we can see the main keywords of this website. It can be found that some are what we need and some are not suitable for us.
For example, the keyword “gua sha wholesale”, as a gua sha factory, this B-end long-tail keyword is undoubtedly very suitable for our business model. However, the gua sha retail price is not suitable for our business model. Therefore, we can create corresponding content and advertising promotion for Gua Sha wholesale, and at the same time exclude the content and keywords of Gua Sha retail, so as to make our audience more accurate and improve our conversion rate.
4. Create Financial Forecasts
You will try to find out the profit potential of your business in this area. The numbers you want to include are:
- Your potential market share: Explain how your sales and marketing efforts will earn you the market percentage or valuation you are looking for. If you enter an oversaturated market, you will have a hard time gaining market share.
- Pricing and Gross Margin: How much your product will cost compared to how much you would make or source to sell online. If you’re planning to start a retail business, this article on retail pricing can help.
- Cash Flow: How much you will see to lose at the start, when to break even, and when to expect a profit.
If you’re doing market analysis for a new business, your forecasts will be based on educated guesses, which is fine until you get hard data.
5. Understand Industry Regulations and Barriers to Entry
The last area you need to focus on is the industry regulations (if any) you need to comply with.
For example, if you sell food products, you will need to check the food regulations in your country. Another example might be that you need a specific license to sell a certain type of product, such as alcohol.
It’s important to find out what regulations are relevant to your niche – breaking the law can result in fines and sometimes jail time. Therefore, it is best to go through this section as thoroughly as possible with the regulations relevant to your niche, and stick to it strictly.
However, another barrier to entry that you need to consider is technology, i.e. do you need to invest a lot of money up front for a particular technology or machine? Identifying these types of barriers to entry can help you feel more prepared when crossing them.
Invest In Building the Foundation of Your Small Business
Conducting market analysis is an important step in building a business – it’s the first thing you do when you start turning your business idea into reality.
While doing market analysis yourself is not the easiest task in the world, it does help you gain insight into the niche you want to do business in. This also includes testing whether your business is a viable solution to a real problem or to a real market need.
And when you are proficient in the skills of market analysis and have enough experience to accumulate.
But whether you conduct research or outsource it, a thorough market analysis can mean the difference between your business struggling to get off the ground and thriving.
Now, are you ready to start your business? So get started with market research now!
