The market analysis section is part of the business plan. This section demonstrates your grasp of the business and presents overview of market intelligence you have gathered.
The following sections are essential parts of the market analysis: market overview, target market information, market test results, lead times, and an evaluation of your competition.
This overview section should include: a description of your primary market, the current size of the market as well as its historic growth rate, trends and characteristics related to the market as a whole (i.e., What life cycle stage is the market in? What is its projected growth rate?), and the major customer groups within the market (i.e., 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.
Target Market Description
- 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 in 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.
- 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.
- 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.
- Market trends, demographics and potential changes which may impact your primary target market, along with key characteristics of your secondary markets.
- 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’ products or services at varying prices.
- Purchasing cycle of your potential customers. 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.
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’ success.
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.