By the end of this chapter, you should:
Understand which aspects define a market analysis.
Understand the purpose of analysis in each aspect.
Be able to analyze each aspect so that it is relevant to your
Market analysis is a process that seeks to identify and quantify the
features of the market by using a range of Market Research
techniques. Based on a clearer understanding of consumers,
customers, competitors, distribution channels etc., the business is
then able to market more effectively. The goal of a market analysis
is to determine the attractiveness of a market and to understand its
evolving opportunities and threats as they relate to the strengths
and weaknesses of the firm. In business the most commonly
considered dimensions of a market are:
Market size (current and future).
Market growth rate.
Perhaps the most important question confronting anyone thinking
about creating a start up company, or marketing any product for
that matter, is how do you determine the size of the potential
The size of the market can be evaluated based on present sales
results and on the potential sales if the use of the product were
expanded. It is measured by the total volume and or value of all
sales in the market. Sales volume is measured in terms of the
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number of units of goods purchased, whilst sales value measures
the total amount spent by the customers on the volume of goods
sold. Estimating market size is an essential first step to calculating
the market share of a business, and of its competitors. Some useful
information sources for determining market size are:
Financial data from major players.
Determining the Future Market Size
The first thing to note about almost all methods for estimating
market size is that they are based on deconstructing the larger
question into smaller problems, and then building the results of
these smaller problems into an estimate. The best way to see this
approach is by estimating the market size as follows: 
where m = market size.
n = number of buyers in the market.
q = quantity purchased by an average buyer in the market
p = price of an average unit.
This is a common technique used by many companies, with the
major difference being how they break the problem down and how
they build it back up. For example, an Internet Service Provider
may think of the number of buyers at the level of a household -
since a household buys the Internet service, not an individual. In
contrast, an application service provider (ASP) selling to
corporations would likely focus on the employees in the company
who will use the service, rather than the company itself.
Chain Ratio Method
The art of breaking down a problem and then building it back up is
also at the heart of the chain ratio method, but it is more focused
on the size of the market in term of number of customers. Think of
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this as trying to determine the value of the ‘number of buyers in the
market’ in the simple equation above. This method can be used by
either breaking down the problem into smaller problems, then
building up, or estimating (really almost guessing) the size of the
total market and then doing some fine tuning.
Consider how you could use this to determine the size of your own
market. Start with the universe of all possible buyers. Then
systematically use percentages to fine tune the problem. The
important thing is to do this in a logical manner, and clearly state
your assumptions as you go along. Some of the assumptions can
verify the data, others will not verify, but for those that do not
verify you can do sensitivity analysis – change the numbers and see
how much of a change you have in the final result – to see if the
assumption is really that critical or not.
Attractiveness of a Market Segment
The following are some examples of aspects that should be
considered when evaluating the attractiveness of a market segment
Size of the segment, i.e. the number of customers and/or
the number of units.
Growth rate of the segment.
Competition in the segment.
Brand loyalty of existing customers in the segment.
Attainable market share given promotional budget and
Required market share to break even.
Sales potential for the firm in the segment.
Market research and analysis is instrumental in obtaining this
information. For example, buyer intentions, sales force estimates,
test marketing, and statistical demand analysis are useful for
determining sales potential.
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Suitability of a Market Segment
Market segments also should be evaluated according to how they fit
the firm’s objectives, resources, and capabilities. Some aspects of
fit include :
Whether the firm can offer superior value to the customers
in the segment.
The impact of serving the segment on the firm’s image.
Access to distribution channels required to serve the
The firm’s resources vs. capital investment required to
serve the segment.
The better the firm’s fit to a market segment and the more
attractive the market segment, the greater the profit potential to
Target marketing is the process of selecting one or more market
segments and then developing a product and offer which is aimed
specifically at these segments. The process involved is:
Select market segment.
Identify key attributes of customers towards product.
Ensure product is appropriate.
There are several different target marketing strategies, including:
Single segment strategy: Here, one marketing mix is
offered to a single market segment, rather than the entire
market. This strategy is also referred to as a concentrated
strategy. Smaller companies, with limited resources often
favour this approach.
Selective specialization: Various different marketing
mixes are offered to different segments in this strategy.
However, it is not always necessary to change the product
itself here, simply varying the promotional message or
distribution channels can be sufficient. This multiple
segment strategy is also know as a differentiated strategy.
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Product specialization: A particular product is altered
and varied making it more relevant to different market
segments in this strategy.
Market specialization: The company will specialize on
serving a particular market segment, offering a variety of
different products to that market.
Full market coverage: A company that uses this strategy
will attempt to serve the entire market. Either a mass
marketing strategy can be used where a single
undifferentiated marketing mix is offered or a differentiated
strategy where separate marketing mixes are offered to
What is Market Share and Why is it Important?
In marketing, market share is the percentage or proportion of the
total available market or market segment that is being serviced by
a company. It can be expressed as a company’s sales revenue from
that market divided by the total sales revenue available. It can also
be expressed as a company’s unit sales volume in a market divided
by the total volume of units sold. Therefore, the two important
measures are by:
Sales volume (the number of units sold).
Market share analysis is an important part of market analysis and
indicates how well a firm is doing in the marketplace compared to
their competitors. The result of the analysis is very useful to help
decide new strategies for an already released product.
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Measuring Market Share
An accurate measure of the market share is dependent on several
A satisfactory definition of market. This would answer
questions such as products to include, which geographical
areas, which means of distribution?
The availability of reliable, up-to-data information.
Agreement on which measures of share are most relevant.
For example, should market share be calculated on the basis of
sales revenues, profits, units produced or some other measure that
competitors in the market generally recognise as valid.
Market Growth Rate
Market growth rates are a key indicator of the health of your
company. If your company sales growth is greater than or equal to
market growth, your firm is comparatively healthy. If, however,
your company’s growth in sales is less than market growth, it is
very likely your firm is in trouble.
The market growth rate is also a key indication of the product’s
stage in the product life cycle. A high growth rate will usually
indicate the market is in the growth phase, where growth is high
and saturation is low. A lower, more-stable growth rate indicates
product maturation and, of course, a negative market growth rate
indicates the product decline stage.
Methods of Measurement
A simple means of forecasting the market growth rate is to
extrapolate historical data into the future. While this method may
provide a first-order estimate, it does not predict important turning
points. A better method is to study growth drivers such as
demographic information and sales growth in complementary
products. Such drivers serve as leading indicators that are more
accurate than simply extrapolating historical data.
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Important inflection points in the market growth rate sometimes
can be predicted by constructing a product diffusion curve. The
shape of the curve can be estimated by studying the characteristics
of the adoption rate of a similar product in the past.
Distribution is all about getting your product/service to the right
people at the right time with special consideration for profit and
effectiveness. Successful marketing does not end when a business
has developed a product/service and has found its appropriate
niche. When a product/service is purchased by a consumer, it may
have been bought directly from the business, or through a number
of intermediaries (wholesaler, retailer, etc); these are known as
There are several types of intermediaries as distribution channels:
Direct (on-site): Very common for small business,
products/services can be sold directly to the consumer on-
site i.e. directly from your shop, office or home. This type if
distribution works only when your target consumers are
within the local region and not based on a wide
Direct Mail: Also known as a mail shot, this type of
marketing can produce sales on local, national or even
global scale. Your business would send out flyers, leaflets,
brochures or catalogues (often targeted to particular
consumers) selling your product/service. Although very
effective, there is some cost involved but is considerably
cheaper compared to other sources of marketing such as
Small businesses need to acknowledge the different types of
distribution channels to utilize sales potential. Distribution channels
are influenced largely by the three types of factors – Market factors,
producer factors and product factors
Table 1 following, describes the factors that influence the
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Buyer behaviour: How do buyers want to purchase the
product? Do they prefer to buy from the retailers, locally, via
mail order or over the internet?
Buyers’ needs: For example, need for information,
installation and servicing. Which channels are best served to
provide the customer with the information they need? Does
the product need special technical assistance either to install
or service a product?
Intermediary cost: Intermediaries typically charge a
commission for participating in the channel. This might be
deemed unacceptably high for the ultimate producer business.
Resource availability: Whether the producer has the
resources to perform the functions of the channel. For
example, a producer may not have the resources to recruit,
train and equip a sales team. If so, the only option may be to
use agents and/or other distributors.
Product type: Large complex products are often supplied
direct to customers (e.g. complex medical equipment sold to
hospitals). By contrast, perishable products (such as fruit,
meat, bread) require relatively short distribution channels –
ideally suited to using intermediaries such as retailers.
Table 1: Influential Factors Regarding the Distribution Channel
Analysing the market isn’t as clear cut as estimating who might
want to buy your product with a view to shipping it out in their
general direction. This chapter has introduced you to several
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techniques for evaluating the market and covered a number of
aspects that could be useful to think about when employing those
1. “How to Size a Market - Part 1”
August 2007, requires free membership subscription)
2. “Target Market Selection”
http://www.netmba.com/marketing/market/target (viewed August
3. “Market Analysis – Measuring Market Share”
etshare_measuring.asp (viewed August 2007)
4. “Market Analysis”
5. “Distribution – Channel Strategy”
rategy.asp (viewed August 2007)
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