Market analysis: what it is, what it is for and how to do it
The success of your business depends on a series of operations that you must implement even before launching your products or services on the market; among these, one of the most important is the so-called market analysis.
This particular tool offers you the opportunity to have clearer ideas about the context in which your startup will operate and thus allows you to make more informed and more effective decisions, avoiding dangers and exploiting all the advantages of the market itself.
Before understanding how to do a market research nowadays, however, it is advisable that you take the time to understand, in more detail, what it really means to carry out a market analysis, what it is actually used for and why it should be performed in a very specific way.
Market analysis: what is it?
Market analysis consists of a specific analytical research that allows you to know in depth the context in which a company operates and, more precisely, the market, the relevant sector and the target to which it is addressed. In even more practical terms, market analysis studies the motivations, decision-making processes and behaviors of consumers: thanks to this information it is possible to understand their needs and desires and act accordingly to satisfy them before and/or better than others, identifying the reference market most suitable for the products or services offered.
It is essential that you have a clear understanding of the definition of market analysis, but also its evolution over time. Market analysis was born in the United States of America in very distant times, that is, at the end of the nineteenth century; Over the years, it has gradually abandoned the traditional exclusively statistical approach to embrace other disciplines (such as psychology, sociology and communication) and adopt a method of analysis capable of integrating the quantitative and qualitative approach.
We will see later, in more detail, how you will have to do your market analysis. First, in fact, a further step is necessary: you need to concretely understand what this tool is for and why it is so important for the success of your business.
What is market analysis for? Why is it important?
We have already said: market analysis helps you to learn more about the socio-economic context in which your company operates, from the competition to the target. But in what way? In fact, there are many ways in which a market analysis can prove useful to your company. Specifically, a market analysis can help you to:
- validate the right business model;
- shape a data driven company business plan;
- identify possible obstacles to your business on the market and have clear ideas on possible alternative plans to avoid or overcome them in a timely and effective manner;
- understand the potential of your product or service and the opportunities offered by the market, as well as the specific actions to exploit them to your advantage;
- identify the critical success factors, that is, the set of skills to be developed and behaviors to be adopted to achieve the goals you have set for yourself;
- evaluate if, when and how to launch your product or service; a new product;
- determine the price of your products or services and understand if your target is willing or not to pay a higher price for what you offer;
- analyze the behavior of your competitors and understand what is already working (or not working) on the market, how to avoid making their mistakes and how you can differentiate yourself;
- evaluate the effectiveness of your commercial actions and the level of satisfaction of your customers (and, possibly, understand how you can improve Customer Satisfaction);
- identify what are the other factors that, in addition to competition and demand, can affect the success of your business;
- predict market developments and, consequently, the future scenarios in which your company will find itself operating, so as to always be in step with the times and to be able to respond promptly to new external requests.
This last aspect, in particular, is very important: remember, in fact, that the market in which your startup operates is changeable and therefore it is essential to have full knowledge of both the current situation and all possible future evolutions, in order to ensure the right stability to your business.
Only by correctly carrying out your market analysis (and periodically updating it) will you be able to avoid being caught unprepared and to anticipate the moves of your competitors, preventing problems and seizing the opportunities that will present themselves to you.
A multidisciplinary, quantitative and qualitative approach gives you the opportunity to complete your market analysis in the correct way, ensuring you have an overview of your target market. The time has finally come to understand, concretely, how a market analysis is done.
How to conduct a market survey: methods and examples
To properly conduct a market analysis, you must follow some very specific steps. More precisely, it is necessary:
- identify the goals of your market analysis;
- define the research areas;
- segment the market and identify your target audience;
- define the communication channels through which to communicate with your target;
- find the most suitable questions to ask the target;
- perform the research and analyze the results.
Remember: each step just mentioned has its own importance, starting with the definition of the research objectives. Indeed, all the other variables depend on the final purpose of the analysis, primarily the tools to be used and the specific techniques to be adopted. You are about to discover the most common methods.
Competitor analysis, or competition analysis, consists in studying competing companies in order to understand what determines the success of companies operating in the same sector as you and what may be the strengths or weaknesses of your product or service on the market.
In this regard, remember that competitors are divided into: direct (i.e. those offering a product or service similar to yours), indirect (i.e. those offering different products or services but which respond to similar needs, desires and problems) and potential (those that may in the future produce products or services similar to yours).
Identifying who your competitors are is, therefore, the first step. Then, based on your specific objectives, you will have to choose what to monitor (the product? Sales? Marketing?) And select the most useful tools to do it (social listening tools? SEO analysis tools?).
Interviews, focus groups and surveys
By now it will be clear to you that the choice of the right technique for your market analysis inevitably depends on the objectives you have set for yourself. Interviews, focus groups and surveys are among the most established techniques, but each has its advantages and, inexorably, its disadvantages.
The interviews are part of the category of qualitative research and are useful for getting an idea of customer opinions and evaluating their shopping experience. They can take place directly (i.e. face to face) or indirectly (telephone or online). The contact with the person to be interviewed and the agreement on the means to be used for the interview are the steps that precede the actual interview, in which it is necessary to define the questions in order to go deeper and deeper until obtaining the necessary information.
Focus groups are also part of qualitative survey techniques. They are particularly useful for gathering different points of view on the same theme and for stimulating debate by encouraging the emergence of new ideas. The focus groups consist of interviews addressed to a fairly small homogeneous group of people (about 7-12), whose attention is focused on a specific topic that must be analyzed in depth, also thanks to the interventions of the moderator who leads the discussion, favoring the interaction between the interviewees.
Qualitative data has the great advantage of describing a topic, rather than just measuring it. This provides a more complete picture of the situation, including opinions and points of view in the analysis, but analyzing the results is more complicated than a quantitative research, which instead focuses on easily measurable facts and data, thus providing a statistic representation of the phenomenon under analysis. This is where surveys come into play, which consist of submitting an appropriately selected sample of subjects to a question.
Data from secondary research
Among the key concepts of market analysis that you cannot fail to know is the distinction between primary data and secondary data: the former are the result of research developed ad hoc to investigate a specific problem or make a precise decision, while the data secondary (or indirect data) is data that is already available and that is useful for making new marketing decisions. The secondary data, in turn, are divided into internal secondary data (produced and collected within the company) or external (provided by external structures).
In recent years, an ethnographic approach applied to marketing has become increasingly popular in market analysis, which, through the observation of consumers in their “natural environments”, aims to understand their behavior and how interact with consumer goods. The conviction underlying this approach is that, through market observation, it is possible to more easily and clearly grasp attitudes, spontaneous behaviors and other details of the context which, through other market analysis techniques, would be more difficult to perceive.
Segmentation and demographics
To study your target market, you can also resort to market segmentation, a particular process that consists of dividing a large population or a large slice of the market into different subgroups of consumers, identified on the basis of certain shared factors.
Among the factors usually taken into consideration are demographic data (such as age, income bracket, level of education, etc.): in this case we speak of demographic segmentation.
When conducting your market analysis, carrying out a demographic segmentation can be very helpful to understand which age group you should focus your marketing activity on, to understand the different interest that your product or service is able to arouse in certain groups of people and to identify the moves you can take to increase your market share.
Other factors useful for market segmentation may be geographic data (in this case we speak of geographic segmentation and consumers are distinguished based on where they live), psychographic data (psychographic segmentation, which segments consumers on the basis of their style of life and their values) and behavioral data (behavioral segmentation, focusing on how consumers interact with products or services).
How to choose the search method that best suits your case
In the previous lines you had the opportunity to explore some examples of market analysis methods. As already underlined, the era in which the market analysis was conducted using a single specific approach, of a quantitative or qualitative type, is now outdated and has given way to an integrated approach, which combines quantitative analysis with the qualitative one and combines analytical and statistical tools and psychosociological techniques and practices.
If you decide, as desirable, to resort to an integrated approach of this type, you must not forget that each research method is articulated in a different way according to the specific purposes that guide your market analysis: always keep in mind what you are trying to understand your market.
Market research examples
To help you proceed without error in choosing the most correct market analysis for you, it is advisable to make a further brief overview of the most popular market research examples and associate them with the specific needs they meet. Remember, however, that this is a purely indicative classification.
To investigate the needs and desires of your customers, you can use interviews, focus groups and surveys, but also the observation of the market and its segmentation. If your goal is to learn more about market trends, opportunities and risks, you can opt for competitive analysis or secondary research, but as in the previous case, focus groups and market segmentation can also prove helpful. If your precise purpose, on the other hand, is to evaluate the results of your marketing efforts, you should consider resorting to competitive analysis and using interviews, focus groups and surveys.
Another market research tool not mentioned so far, but very common (especially online) is the A/B test: it is a method through which you can test two different solutions, sending them to two different groups of users, in so you understand which one works the most.
By now you will have understood that market analysis is a fundamental step that you cannot ignore when you decide to start a new business. Not only that: it will also be very useful before launching a new product or service or entering a new market.
Do not forget, then, that the markets (and your customers) are constantly evolving: for this reason, once you have the results of your market analysis, remember to check them periodically, with new surveys.
Jack Dorsey, the co-founder of Twitter, once said:
“Refine every detail, and reduce the number of details to perfect.”
The experience gained in the field of market analysis will help you understand which specific factors to keep under observation over time and how to refine them in order to ensure success.