Market Analysis By Bruce R. Barringer, PhD Department of Management University of Central Florida Orlando, FL 32816 Email: [email_address]
The market analysis breaks the industry into segments and zeroes in on the specific segment (or target market) that the firm will tackle.
The market analysis section focuses on describing a firm’s target market, its customers, its competitors, how it will compete in the marketplace, and its potential sales and market share.
The market analysis section helps define the nature of the business, affirms that a company has a well thought out target market and understands its customer and can generate sales.
Markets can be segmented in many ways, such as by geography (city, state, country), demographic variables (age, gender, family size, income), psychographic variables (personality, life style, values), behavioral variables (benefits sought, product usage rate, brand loyalty), and product type (this varies by product).
To test whether you have segmented your market successfully, the requirements for successful market segmentation are as follows: Homogeneity of needs and wants within the segment Heterogeneity of needs and wants between the segments Differences within the segment should be small compared to differences across segments The segment should be distinct enough so that its members can be easily identified It should be possible to determine the size of the segment The segment should be large enough to be profitable
Once a firm segments its market, it selects a segment within the market to target. Startups are usually best served by segmenting their industry carefully and zeroing in on a specific market segment intently on a single market rather than several markets.
Estimating the size of a target market for a market that doesn’t exist, or a market that is specific to a particular location or geographic area, is harder. You will probably need to do some marketing research yourself. Along with reporting the approximate size of a firm’s target market, the market analysis should also comment on industry trends that have the potential to affect the target market positively or negatively, if the information has not already been sufficiently reported.
There are many other issues pertaining to buyer behavior that may be important to cover in this section, depending on the nature of your business. For example, in many business-to-business startups it’s important to discern specifically who the “decision makers” are in the businesses you’ll be trying to sell to.
It’s also important to know whether your product is a high, medium, or low involvement purchase. A high involvement purchase is one for which the buyer is prepared to spend a considerable amount of time and effort searching. In contrast, a low involvement purchase is one that a buyer makes with minimum thought because it does not have much impact on his or her life
A competitor analysis is a detailed analysis of a firm’s competition. It helps a firm understand the positions of its major competitors and the opportunities that are available to gain a competitive advantage in one or more areas
Direct competitors: These are businesses that offer a product that is very similar to yours. These competitors are the most important because they are going after the same customers that you are. Indirect competitors: These competitors offer close substitutes to the product you will be offering. These firm’s products are important in that they target the same basic need that will be met by your product. For example, when people told Roberto Goizueta, the late CEO of Coca-Cola, that Coke’s market share was at a maximum, he countered by saying that Coke accounted for less than 2% of the 64 ounces of fluid that the average person drinks each day. “The enemy is coffee, milk, tea [and] water,” he once said. Future competitors: These are companies that are not yet direct or indirect competitors but could move into one of these roles at any time. .
This requires you to engage in competitive intelligence, which is the process of gathering information about your competitors.
Competitive Analysis Grid A competitive analysis grid is a tool for organizing and presenting the information you collect about your competitors. It can help you to see how you stack up against your competitors in key areas and illustrate your primary sources of competitive advantage.
There are four basic ways for a new firm to estimate its initial sales. The first way to estimate the sales for a new business is to contact the premier trade associations in your industry and ask if they track the sales numbers for businesses that are similar to the business you plan to start. The second way to estimate a new firm’s sales is to find a comparable firm, or a company that’s selling a comparable product. The third way to try to estimate sales is to conduct Internet searches to try to find magazine and newspaper articles that focus on firms in your industry. The fourth way to estimate a startup’s sales is to use a multiplication method and try to arrive at a reasonable number.
SEM 5 - B.P- LEC.5b
6-1 Chapter Six Market Analysis Dr. Bruce Barringer University of Central Florida