The Market Analysis section should illustrate your knowledge about the particular industry your business is in. It should also present general highlights and conclusions of any marketing research data you have collected. However, the specific details of your marketing research studies should be moved to the appendix section of your business plan.
This section should include:
- An industry description and outlook
- Target market information
- Market test results
- Lead times
- An evaluation of your competition
Industry Description and Outlook
This overview section should include: a description of your primary
industry; the current size of the industry as well as its historic
growth rate; trends and characteristics related to the industry
as a whole (ie. what life cycle stage is industry in? what is its
projected growth rate, etc.); as well as the major customer groups
within the industry (ie., businesses, governments, consumers, etc).
Identifying Your Target Market
Your target market is simply the market (or group of customers)
that you want to target (or focus on and sell to). When you are
defining your target market, it is important to narrow it to a manageable
size. Many businesses make the mistake of trying to be everything
to everybody. Often times, this philosophy leads to failure.
In this section, you should gather information which identifies the:
Distinguishing characteristics of the major/primary market you are targeting.
This section might include information about the critical needs of your potential customers, the degree to which those needs are (or are not) currently being met, and the demographics of the group. It would also include the geographic location of your target market, the identification of the major decision-makers, and any seasonal or cyclical trends which may impact the industry or your business.Size of the primary target market.
Here, you would need to know the number of potential customers in your primary market, the number of annual purchases they make of products or services similar to your own, the geographic area they reside in, and the forecasted market growth for this group.The extent to which you feel you will be able to gain market share and the reasons why.
In this research, you would determine the market share percentage and number of customers you expect to obtain in a defined geographic area. You would also outline the logic you used to develop these estimates.Your pricing and gross margin targets.
Here, you would define the levels of your pricing, your gross margin levels, and any discount structures that you plan to set up for your business such as volume/bulk discounts or prompt payment discounts.Resources for finding information related to your target market.
These resources might include directories, trade association publications, and/or government documents.Media you will use to reach your target audience.
These might include publications, radio or television broadcasts, or any other type of credible source that may have influence with your target market.Purchasing cycle of your potential customers.
Here, you will need to identify the needs of your target market, do research to find the solutions to their needs, evaluate the solutions you come up with, and, finally, identify who actually has the authority to choose the final solution.Trends and potential changes which may impact your primary target market.
Key characteristics of your secondary markets.
Just like with your primary target market, here you would again want to identify the needs, demographics, and the significant trends which will influence your secondary markets in the future.
Market Tests
When you are including information about any of the market tests
you have completed for your business plan, be sure to focus only
on the results of these tests. Any specific details should be included
in the appendix of your business plan. Market test results might
include: the potential customers who were contacted; any information
or demonstrations that were given to prospective customers; how
important it is to satisfy the target market's needs; and the target
market's desire to purchase your business's products or services
at varying prices.
Lead Times
Lead time is the amount of time between when a customer places
an order and when the product or service is actually delivered.
When you are researching this information, you need to determine
what your lead time will be for the initial order, for reorders,
and for volume purchases.
Competitive Analysis
When you are doing a competitive analysis, you need to identify
your competition by product line or service as well as by market
segment, assess their strengths and weaknesses, determine how important
your target market is to your competitors, and identify any barriers
which may hinder you as you are entering the market.
Be sure to identify all of your key competitors for each of your products or services. For each key competitor, determine what their market share is. Then, try to estimate how long it will take before new competitors will enter into the marketplace. In other words, what is your "window of opportunity?" Finally, identify any indirect or secondary competitors which may have an impact on your business's success.
The strengths of your competitors are also competitive advantages which you, too, can provide. The strengths of your competitors may take many forms, but the most common include:
- an ability to satisfy customer needs
- a large share of the market and the consumer awareness that comes with it
- a good track record and reputation
- solid financial resources and the subsequent staying power which that provides
- key personnel
Weaknesses are simply the flip side of strengths. In other words, analyze the same areas as you did before to determine what your competitors' weaknesses are. Are they unable to satisfy their customers' needs? Do they have poor market penetration? Is their track record or reputation not up to par? Do they have limited financial resources? Can they not retain good people? All of these can be red flags for any business. If you find weak areas in your competition, be sure to find out why they are having problems. This way, you can avoid the same mistakes they have made.
If your target market is not important to your competition, then you will most likely have an open field to run in if your idea is a good one. That is, at least for a while. However, if the competition is keen for your target market, be prepared to overcome some barriers. Barriers to any market might include:
- a high investment cost
- the time it takes to set up your business
- changing technology
- the lack of quality personnel
- customer resistance (ie., long-standing relationships, brand loyalty)
- existing patents and trademarks that you can not infringe upon
Regulatory Restrictions
The final area that you should look at as you're researching this
section is regulatory restrictions. This would include information
related to current customer or governmental regulatory requirements
as well as to any changes that may be upcoming in regards to regulatory
requirements. Specific details that you need to find out include:
the methods for meeting any of the requirements which will effect
your business, the timing involved (ie., how long do you have to
comply, when do the requirements go into effect, etc.), and the
costs involved.
For more information on how to set up a marketing plan, check out Marketing Plan.
Information courtesy of the Small Business Administration.
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