Market analysis is a crucial component of a business plan that helps entrepreneurs understand their target market and how they can thrive within it. It is a quantitative and qualitative assessment of a market that looks into the size of the market, customer segments, buying patterns, competition, and economic environment. The market analysis section of a business plan provides evidence that there is a niche in the market that the company can exploit and serves as the foundation on which the marketing and sales plan will rest.
The core components of a market analysis are:
- Industry analysis: Assesses the general industry environment in which the business competes.
- Target market analysis: Identifies and quantifies the customers that the business will be targeting for sales.
- Competitive analysis: Identifies the competitors and analyzes their strengths and weaknesses.
A thorough market analysis should answer questions such as the size of the market, potential customer segments, buying patterns, competition, and other important factors. It can reduce risk, identify emerging trends, and help project revenue. A detailed market analysis will usually be part of the business plan, since it gives entrepreneurs a greater understanding of their audience and competition, which helps them build a more targeted marketing strategy.
To conduct a market analysis, entrepreneurs should follow these steps:
- Define the objective of the analysis.
- Provide an industry outlook.
- Determine the size of the market.
- Identify the target market.
- Analyze the competition.
- Determine the economic environment.
The objectives of the market analysis section of a business plan are to show investors that the entrepreneur knows their market and that the market is large enough to build a sustainable business.
