How to create a market analysis: easy steps

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Based on the target group definition, a business plan is followed a step to create a market analysis including competitive analysis. In the market analysis, you determine the relevant market size and focus on future market developments. With the help of the competitive analysis, you can identify barriers to entry, analyse your direct competitors and assess the attractiveness of the market. In order to finally determine the sales potential of your business concept, you can use our free revenue potential tool to use.

For both areas, to create a market analysis and competitive analysis, you can choose from supported start-up coaching to profit from sth.

3 Steps to Market Analysis

Creating a meaningful market analysis is not that difficult. The basis is an accurate description of the target group as well as sound market research. Based on this, one can analyze the market relevant to its business model in more detail and then take a closer look at the relevant competitors in the final step.

On the basis of this information, it is then also possible to do your own sales potential Estimate.

1. Target group as a basis for market analysis

Since you the target group already defined, you should find it relatively easy to determine the market that is relevant to you. In any case, create the market analysis part of the business plan with a brief description of the market. This also helps the reader to quickly get an idea of the environment, market and competition of your business idea in the business plan.

2. Create market analysis: how big is your market?

After you have explained in the business plan which market is relevant for your business idea, we continue to the market analysis. Unfortunately, one of the most common reasons for the failure of business start-ups is insufficient market analysis. This makes it all the more important that you shine here with a complete market analysis. Investors also attach great importance to a sound market analysis.

The market analysis in the business plan starts with the determination of the current market size. Then, gradually work through the other chapters of market dynamics and market potential when you create your market analysis:

  1. Market size
  2. Market growth and market dynamics
  3. Market potential

Market size – how big is the market today?

The starting point of the market analysis is market size. Central here is the question of sales and, if necessary, units sold per year. The data on the market size should ideally be from the last quarter or last year. With a current market size, you can also more easily determine the next relevant point on the topic of market analysis: market growth.

Market growth and market dynamics – what is the trend?

A complete market analysis not only includes the current state of play, but also shows the growth rates of the last 3-5 years. A forecast for market development (market dynamics) over the next 3-5 years is important for your sales planning and for potential investors for which a sound market analysis is crucial. Include market dynamics if you want to create a complete market analysis.

Market potential – how big could the market become?

In any case, it is advisable to integrate the market potential into the market analysis. When it comes to market potential, you answer the question of when a market is completely saturated – so it’s about the long-term growth potential in your target market. This part of the market analysis is particularly relevant for strategic planning.

If you have described and quantified the three key points of the quantitative market analysis, you should analyze other important, market-specific factors for the Market and Competition section.

You do this with the help of the competitive analysis, which corresponds to the qualitative element of the market analysis.

3. Competitive analysis: an attractive market?

Competitive analysis is an important part of the market analysis. When analyzing competition, you look at the individual factors that are important for a market. This part of the market analysis is not primarily about finding market size figures or calculating the potential, but rather about analysing and describing the most important characteristics of the market.

Michael E. Porter, marketing guru from America, designed the 5-Forces (5-strength) model, which is well-known in the consulting industry, as part of the competitive analysis. The following graph for competitive analysis shows which factors play a role in the analysis of the market and competition:

In detail, the 5 factors of the competitive analysis include:

  1. Negotiating power of customers
  2. Bargaining power of suppliers
  3. Replacement products on the market and competition
  4. New competitors and barriers to entry
  5. Competitors in the market

Negotiating power of customers: A competitive analysis begins with your customers and their bargaining power. How do customers respond to price increases or decreases, how important is your product to your target group?

Supplier’s bargaining power: If there are only a limited number of potential suppliers, their bargaining power is usually large. You need to take this into account when analysing competition and think about how you can respond to huge price increases if necessary – especially if the bargaining power of customers in your market is also great.

Replacement products on the market and competition: Check the competitive analysis to see if there are any alternatives to your offer. What new technological advances could mean that your product is suddenly no longer in demand. For example, the Walkman was replaced by the CD player and then by the MP3 player.

New competitors and Barriers to entry: When a market is attractive, new competitors usually enter the market. In the competitive analysis, it is important to determine how high the barriers to entry are for potential new competitors. There are Barriers to market entry especially relevant for start-ups, we have dedicated a separate section in the chapter Market Analysis to this sub-topic of competition analysis.

Competitors in the market: All the above factors have an impact on the market and competition, and thus on the rivalry between competitors. That’s why a key part of your competitive analysis is to find and evaluate information about your competitors. The goal is to find out how high the rivalry is, who dominates the market and which of your competitors perform particularly well and why. 

With a complete competitive analysis, you conclude the topic “Market and Competition – Create a Convincing Market Analysis including Competitive Analysis”.

The aim of a complete market analysis, which consists of the quantitative element of the market analysis as well as the qualitative factors of the competitive analysis, is to be able to identify the strengths and weaknesses of the various stakeholders. This allows you to identify opportunities and risks based on market analysis. These insights from the Chapter Market and Competition will later be valuable and important for the strategy, marketing and risk part of your business plan.

Market research: the basis of market analysis

If you want to create a sound market analysis and competitive analysis, you can only do so if you have enough information about your target market. 

Ideally, you can also exchange ideas with an experienced start-up consultant who can help you with market and competition analysis. Benefit from the supported start-up consulting!

Let’s go: start with the market analysis!

Start the market and competition chapter in your business plan with market analysis, and then move on to competitive analysis. The market analysis starts with the Market size.