The Need for a Market Analysis Business Plan

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The Need for a Market Analysis Business Plan

This article explains the need for a Market Analysis business plan. We will discuss why you need market analysis and what you must provide to the reader. And as you may know, building a business plan takes time and effort. Working out what you do, what funding you are looking for, and lots of fingers in the air to determine the numbers and future performances.

The most important part of the business plan is not looking internally but beyond your business. Without a serious look at your external environment, you can forget about your business plan’s impact. It’s not good enough to list potential competitors and tell the reader that the value of the market is around £2 billion per year and you can take 1% of it. Many plans say just that. 

You will need to pay careful attention to your Market Analysis, understand where your customers and competitors live, and understand your target market and how you can win within it. It must be a learning experience for you, not just the reader. You may not have looked hard enough if you have not learned something new.

What Is a Market Analysis?

Comprehensive Market analysis in a business plan shows that you have put the work in and proves to stakeholders like investors that you know your market thoroughly. It also shows them there is an excellent opportunity to create a sustainable business, resulting in the investor getting their money back and a decent Return on Investment.

It should also:

  • Assess the size of your potential market, both volume and value
  • Determine whether you can fill a gap
  • Assist your marketing strategy by defining your ideal customers and their buying habits
  • What makes your future customers tick?
  • Prove that there is a need for your product or service
  • Describe your competitors
  • Understand what the barriers to entry are

Some questions you could answer:

  • Who are my potential customers?
  • And how large is my potential market?
  • What are customers’ shopping habits?
  • What are potential customers willing to pay?
  • Who is my competition? – Knowing your competition inside and out
  • What are my competitors’ strengths and weaknesses?
  • What makes you different from your competitors?

Analysing your market will reduce the risks of failure because you have a better understanding of your customers and market conditions.

Market Need

Any market is continually shifting, and to understand the size of your market and whether customers are actually waiting for you, it’s sensible to identify current and future market conditions. You and your investors do not want the future stress of finding your product does not sell. 

How to Conduct a Market Analysis

Your analysis and research should incorporate the following:

Industry Outlook

What direction is your industry heading? Has it got a bright future, or does your plan rely on reintroducing gas street lighting? Therein, commencing market analysis within your industry offers a preliminary view of what’s expected to be your potential market in the future.

Market Size

Are you entering a big market or a niche market? There is nothing wrong with niche, but will you have enough customers to buy your product or use your service?

Product Life Cycle

If it’s a product you are creating, do you have any idea what its life cycle will look like? And investors and banks will want to know how your product will be developed and then enter the market. A product life cycle will include these headings:

  • Research and development
  • Launch
  • Growth
  • Decline

Projected Growth

What’s your year-on-year growth? How will your company perform? Remember to offer best-case and worst-case scenarios, allowing you to see how your product/service will look in the future.

Target Market

Define your ideal customer and how your offering will cater to them. However, it’s a mistake to think you can offer your product or service to anyone and everyone.

Demographics

Spend time detailing the following on your customer. Especially important for a B2C offering:

  • Age and gender
  • Location
  • Occupation and income level
  • Lifestyle

Research and Supporting Material

Information without data is just a claim. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:

  • Target group surveys
  • Actual potential and current customer quotes
  • Focus groups
  • Reading reviews
  • Feedback surveys

Market Value

Using top-down or bottom-up analysis to calculate your market value is best. It’s easier to do a top-down analysis, and it’s just a case of calculating the entire market and then estimating how much of a share you expect to achieve. Bottom-up analysis is data-driven and is usually more accurate but requires more work. You bring in the specifics of your business and then tell the audience how you can scale them into a projected market share. Bottom-up analysis incorporates:

Where will you sell your products?

  • Your competition
  • The price per unit
  • How many users do you expect to reach
  • The average amount a customer would buy over time

Competition

What’s the level of competition within your market? Are there competitors who have the most market share? How can you position yourself to differentiate yourself from the competition? As you will be undoubtedly aware, the competition consists of direct and indirect competitors.

  • Direct competitors sell the same product/service as you.
  • An indirect competitor sells a different but similar product to yours. But you are in the same market.

These sorts of questions need answering and highlight the need for a Market Analysis business plan.

  • What are your competitor’s strengths? – 4 ways to deal with competitors.
  • And, of course, what are your competitor’s weaknesses?
  • How can you exploit your competitor’s vulnerabilities in your own business?
  • Can you solve the same problems better or different than your competitors?
  • How big of a threat are competitors if you start trading on their patch?

Barriers to Entry

To avoid costly legal and business mistakes, it is crucial to identify the barriers to starting your business. Consider these:

  • How rapidly is technology advancing, and will your proposed offering be obsolete in a few years?
  • How will you stand out in a saturated market?
  • How much will it cost you to set up the business? How much would it require a future competitor to enter the market? Will it put them off? Consider renting space, finding recruits, and hiring employees; special equipment is usually expensive.
  • Is location important to how you will perform? Can you be on the back street of Oldham and trade well, or do you need to be on Regent Street, London?
  • How aggressive and tooled up is the competition? Will they knock your head off when you lift it over the parapet?
  • Are there specific government regulations you must adhere to or potentially block a new competitor from entering your market?

Is it worth the effort?

It may be challenging to start a market analysis exercise. Make it less daunting by doing one thing at a time. Break the tasks down into bite-sized chunks. You will feel less overwhelmed by the volume of information needed for a market analysis. When setting up a business or moving into a new market, you don’t want to cut corners. If you do, it will come back to haunt you.

Combine the analysis into a summary to ensure the reader is interested in reading your plan and knows what to expect.

Get to the Point

Be concise, and avoid fluff and repetition. Think of the questions an investor would ask you about the plan. Have your answers ready. And perhaps have noticeable highlights in the plan but are surrounded by excellent solutions when the reader picks up on them. It will help the investor think he is smart for pointing out these items, and you will show them that you know your stuff.

Revisit

Markets are always changing, and it’s vital that your business changes with your markets. So, keep your market analysis fresh and ongoing. A good analysis will allow you to see the future and quickly adapt to changes.

Summary

We explained the need for a Market Analysis business plan, why a plan is needed, and what you need to provide the reader. There is a military term that sums up why market analysis is essential in a business plan. Prior preparation and planning prevent a pretty* poor performance. Preparation significantly increases the chances that your business will be a success, even in a competitive market. Market Analysis will separate you from those who haven’t done their homework, and when you are handing it to an investor who has money to give you, the excuse that the dog ate it will not wash.

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