Market analysis in business plan provides a detailed overview of the market in which your business will operate. Do you have a fully prepared market analysis in business plan? If no, keep reading.”
Market Analysis in business plan is a tool to ensure successful business operation. It helps people in analyzing the behavior of target customers and identifying the opportunities for growth of the business.
Start by identifying your target market
Imagine that someone walks into your business, or picks up the phone and calls you. It’s your perfect customer: someone who has the problem that you solve and is willing to spend money on your solution. Now imagine the details about this person. Who are they? Can you describe them?
Ideal customers and common traits
This “ideal customer” is your target market. Now, your business might have several target markets, but it will usually serve you best to keep your list of target markets to two or three.
Each of your target markets should share common traits. These might be demographic traits such as age group, gender groups, income levels, or locations. They might be what are called psychographic traits, which are groups of people that like the same things or have similar interests. Or, your target market might be a certain type of employee at another company, such as a CTO or head of marketing.
Most often, target markets are blends of demographic and psychographic groups. For example, you might be developing a new type of shoe targeted at female triathletes. Or you might be opening a hair salon targeting urban, hipster men.
Market segmentation
Creating multiple target markets for your company is doing what’s called “market segmentation.” This sounds complex, but all you’re doing is dividing your target markets up into different groups that you hope to sell to. Each market segment might have different characteristics and might buy your product or service for different reasons.
You might end up coming up with different marketing campaigns for different market segments or even customizing your product or service for each segment.
Talk to your potential customers
Once you have identified your target market, or at least made a good guess at who your target market is, you need to take the most important step in this entire market research process. You need to get up from your desk, get out from behind your computer, and go outside. That’s right, you need to go and actually talk to people in your potential target markets. This is called primary market research.
Yes, you can do online surveys and other research, but that’s no substitute for actually talking to potential customers. You’ll gain more insight into your customers just by seeing their work or home environments, and get a better understanding of how they make buying decisions by actually talking with them than any survey will ever tell you.
Do this one thing, and you’ll be miles ahead of your competition. Why? Because most people skip this step. It’s intimidating to talk to strangers. What if they don’t want to buy what you plan on making?
So, don’t be like most entrepreneurs (including me!) and skip this critical step. It can mean the difference between success and failure. Getting this step done early will help you refine your business model and make a clear impact on your future success.
Find out if your market is big enough
Once you have identified your target market and validated it by talking to them in person, you need to do research to figure out if your target market is big enough to sustain your business. If there aren’t enough potential customers to sustain your business and your competitors, then you need to consider changing your product or service offering.
For example, if your target market only has a few thousand potential customers, you either need to sell to them frequently or sell at a fairly high price to create a sustainable, profitable business.
To figure out if your market is big enough, you need to do some research. Use the attributes you defined in the target market step and then figure out how many people meet your demographic, psychographic, or location criteria. I’ve got some links to resources that will help you figure this out at the end of this article.
If you are targeting an existing market with established competitors, you do what’s called industry research. For example, perhaps you are building a new company in the market for sports drinks or the market for cell phones. In cases like this, understanding how much people buy of the currently existing offerings will give you the best sense of potential market size.
In this case, you want to look for industry reports and read trade publications for your industry. These publications often summarize the market size.
Document your findings
The final (and easiest) step in the market research process is to document your findings. How formal your documentation is will really depend on how you plan on using it.
If you only need to share your findings with your business partners and others in your business, then you can probably communicate fairly informally. However, if you’re looking for investors for your business, you may need to write a more formal market analysis and do a market forecast.
Presenting your market research
The single piece of documentation that every business should create is a buyer persona. A persona is a description of a person that hits on all of the key aspects of your target market. And, just like you might have several target markets for your business, you might have several different buyer personas.
Creating a buyer persona converts your target marketing information from dry research into a living, breathing person. For LivePlan, we’ve created a persona named Garrett who drives much of our product development. Garrett embodies the attributes of our ideal customer.
When we think about creating a new marketing campaign or developing a new feature for our products, we ask, “Would Garrett like this?” You can read all about the process we used to create Garrett in this article.
What are the methods of market research?
Secondary market research
Secondary research is typically known as desk research and involves seeking out existing research and data. This may be government census information, market reports, whitepapers, journals, news stories and articles, Twitter comments, and more. In a nutshell, it means using the internet to find out information about your market and industry from trade bodies, existing research and official government organisations such as the Office of National Statistics.
Advantages of secondary research – Desk-based research using the internet is usually free or low-cost, and can be done in your own time.
Disadvantages of secondary research – Finding existing data that can be applied to your specific market research objective can be a challenge, and information can vary in quality or be out of date, making it less relevant to your business.
Market research surveys
When most people think of market research, they tend to think of customer surveys. The most common market research method, surveys come in all shapes and sizes.
Surveys can be conducted in all sorts of ways, including telephone surveys, hosting a survey on a website, using social media polls, asking questions face-to-face with customers, using SMS text messages, or simply filling in a survey card in a restaurant or when leaving a shop.
Surveys can be self-administered, where the person being surveyed answers the questions alone – such as filling in an online survey using a computer at home – or they can be administered by a person who reads out the questions and records the responses, which are typically used in telephone surveys.
How does a customer survey work?
A customer survey is a cheap and simple way to gather information. It’s simply an identical set of questions that you ask a selected group of people, such as potential customers. Questions can either be open-ended, allowing for a wide range of comments, or more specific questions.
Surveys are only useful if you ask a large enough group of people the same questions. The larger the group, the more reliable the results. You need at least 40 people to complete a basic survey but it’s best to aim for at least 100 people for the results to be statistically relevant.
Advantages of surveys – Surveys are great for measuring specifics, such as getting a score between 1 and 10 for your customer service, where 1 is poor and 10 is excellent or by asking ‘how much are you willing to pay’ and giving options such as ‘£5’, ‘£10’ and ‘£15.’ By counting the responses for each option, you can get a clear idea of what most people think.
Surveys can be cheap and even free to run, especially online. Survey services such as SurveyMonkey allow anyone to set up and run a basic survey, and even help you collate and measure the results. Online surveys can be added to social media sites, such as your company Facebook page.
Disadvantages of surveys – Surveys aren’t useful if you’re still exploring the questions you want your market research to answer. The more open-ended the questions you ask, the more work it will take to wade through the responses to find useful information.
Focus groups
Unlike surveys, focus groups are a form of market research where you ask open-ended questions to a small group of people. The idea is to record their responses, giving space for more detailed and in-depth answers that help you understand customer thinking and how they feel about an idea.
Focus groups can be used following survey research. They can be used to present several versions of a product idea, for example, asking customers what they like or dislike about it, what they’d change, and the reasons for their responses.
Watch this: Want to know more about focus groups and how they are used? This short video from the University of Derby explains the advantages of focus groups and how they work.https://www.youtube.com/embed/ZLw0YXcseG0
How does a focus group work?
Focus groups are often held in a dedicated room with recording equipment and a one-way mirror so sessions can be observed, although a hotel room or other venue can be used. Sessions consist of between 6-10 people and attendees usually fit a specific profile, such as ‘mothers of children under 12’, or ‘men aged 40-50.’
Participants are usually paid in cash. Expect to pay each attendee around £25 to £60 per hour depending on location, with sessions typically lasting between 1 and 3 hours. A moderator will run the session, asking attendees questions and introducing stimulus such as a product prototype or sample of advertising. Responses are recorded, analysed and then presented back to you with any important findings or insights.
Advantages of focus groups – Focus groups are great for exploratory, qualitative research where you’re more interested in the thoughts and feelings from customers. They’re particularly effective for respondents, such as young children, who might not be suitable for other market research methods. Responses tend to be rich and deep, complementing customer survey results.
Disadvantages of focus groups – With a small group, responses can be biased and not represent the entire market, so conclusions will need to be seen in that light. It can be hard work and expensive to find the right target people to attend the sessions, and it can also be time-consuming to analyse all the recorded data afterwards.
One-to-one interviews
One-to-one interviews are one of the oldest and most widely used forms of market research. They typically involve a structured conversation or questionnaire designed to find out what people think, need and want.
How do one-to-one interviews work?
Conducted in a similar manner to focus groups but with just one person, one-to-one interviews are a qualitative market research method. You can interview people at home, in the street or shopping centre, in an office or at a specialist market research facility. Usually interviews last an hour or two and may be recorded for future analysis.
There are lots of different interview formats, depending on the goal of the research, such as free-flowing interviews more akin to a conversation, through to highly structured questions and activities such as word association games.
If you’re running one-to-one interviews at a market research centre, the format usually involves the interviewer sitting in the room with the person to ask them questions while a researcher/company may watch through a one-way mirror.
Advantages of one-to-one interviews – One-to-one interviews generate rich data. The use of visual aids and the detection of social cues and body language allows the interviewer to gain a deeper insight to specific questions and answers, as well as deducing the validity of each response.
Disadvantages of one-to-one interviews – They’re expensive due to the cost of interviewer and the time required to capture data and bias can creep in on both sides. Also, the interviewee may not fully represent the breadth of opinions of the target market.
Observation
Watching how customers use your products or services is a quick way to spot potential problems, such as how difficult it is for customers to navigate your online store. Observation spans a huge range of applications – from browsing habits on a website to watching the flow of traffic into and out of a car park.
How does observation work?
Observation is a type of qualitative market research, where you gather insights and information by watching people go through a series of activities. Observation is usually hidden – for example using online customer monitoring software such as LuckyOrange or through security cameras – though some might be overt, such as walking with a customer around a store. They don’t have to take place in special rooms or labs; observing customers in shops, restaurants or even out-and-about are all valid approaches.
Advantages of observation – While you always need permission and full consent from a subject, if you’re able to watch them covertly subjects often behave more naturally and show their true actions, rather than their ‘ideal selves’ that they typically show to strangers.
Disadvantages of observation – Observation is time-consuming and expensive. Researchers have little control over the situations and environments typically used in observational research, and sometimes the act of observing can bias results or influence the situation. Someone who knows they’re being observed may act less naturally.
Testing
Testing focuses on learning about people’s experiences. Often used in later stages of product development, it’s a chance for potential customers to test out your product or service. It can be used to ensure a product is fit for market – such as being robust enough when handled – to getting feedback on how a product works.
How does testing work?
Any time that your customers try a new product or service is technically a test – for example, a restaurant chain may place a new dish on the menu, advertising the dish with discounts and money-off coupons. Sales of the new dish can then be tracked to validate its success, and feedback sought from customers as to whether they liked it.
Advantages of testing – Testing can result in specific feedback that can help hone a product. By letting customers test a product, any rough edges can be refined before rolling it out on a larger scale. Testing also puts the product in a real-world environment, which can throw up usability issues that otherwise wouldn’t have been spotted.
Disadvantages of testing – It can sometimes be expensive and time-consuming, and some companies can often overlook this stage because it happens quite far into the development cycle.
Conclusion
Marketing plan is the marketing strategy of any marketing company. The marketing plan will describe the overall approach to marketing intended for the product, service, or company. Market research is vital in writing effective business plans, organizing business projects and target markets. All successful companies do market research before they start their business.