One of the biggest keys to success for new businesses is planning and preparedness. According to research by the Harvard Business Review, entrepreneurs who have formal business plans are 16% more likely to achieve viability than those who did not start with a plan. To have an effective business plan that will lead to success, you’ll need to research your market and competition. That is where Market Analysis, Market Research, and Competitive Analysis come into the picture.
Table of Contents:Market Analysis vs. Market Research
Frequently the terms market analysis and market research are used interchangeably. While they are similar, they do refer to different processes.
Market analysis generally refers to a more extensive scope assessment of a market, including the market’s size in volume and value, the various buyer segments & patterns, competition, and the economic environment, as well as any barriers to entry.
Market research is a component of the more extensive market analysis. As a result, market research is often more specific to an identified target market and its customers. Since market research refers to a more detailed market analysis subset, it usually starts with one or a few questions in mind. The research conducted is done to answer those specific questions.
The market research process gathers information about your consumer’s needs, wants, and preferences. This research helps determine which data will ensure your product or service’s success.
Insights gained from market analysis:
- Industry trends
- Challenges within the market
- Competitors your target audience goes to for information and purchases
- Purchases and conversion influencers amongst target audience
Information you’ll learn from market research:
- Potential customer, their buying habits, purchasing behavior
- Price customers are willing to pay
- Size of target market
Types of Market Research
When conducting market research there are 2 basic types of research and data that you’ll use, Primary and Secondary Research.
Primary Research
Primary research is any research or data-gathering that you collect yourself or by someone you hire. Most primary research is done by direct interactions with customers or a target market. As a result, primary research is often more expensive to conduct. However, it can provide more direct insights connected to a business goal. Primary research can take various forms, but there are four main types of primary research.
4 Main Types of Primary Research:
- Surveys: a tool to collect data from your target audience
- Questionnaires: write questions related to your product / service for the survey
- Focus Groups: set of people who share common characteristics (target audience)
- In-Depth Interviews: ask questions related to your business
During your primary research, talk and observe potential customers by directly interacting with them. When talking to potential customers, encourage the flow of ideas and understand their pain points to understand them better. Pain points are problems customers are currently experiencing. Make sure you are talking in an inquiry mode instead of sales mode. Listen to their thoughts and don’t try to sell anything.
Secondary Research
Secondary research and data that was gathered from an external or pre-existing source. For many new small businesses, secondary research is more likely to be used as it less expensive to obtain and can provide insights faster. Most secondary research falls into two groups:
Two Types of Secondary Research:
- Public Government Statistics
- Commercial Data Sources
Public Government Statistics
Government data sources can be great resources of secondary information. While the data will likely be more general that your specific market or niche, you can get great data on things like demographics, employment, income and economic indicates to name few. Below is list of a variety of government statistics and resources from SBA.gov:
| Focus | Goal | Reference |
|---|---|---|
General business statistics Focus: |
Find statistics on industries, business conditions Goal: |
Reference: |
Consumer statistics Focus: |
Gain info on potential customers, consumer markets Goal: |
Reference: |
Demographics Focus: |
Segment the population for targeting customers Goal: |
Reference: |
Economic indicators Focus: |
Know unemployment rates, loans granted and more Goal: |
Reference: |
Employment statistics Focus: |
Dig deeper into employment trends for your market Goal: |
Reference: |
Income statistics Focus: |
Pay your employees fair rates based on earnings data Goal: |
Reference: |
Money and interest rates Focus: |
Keep money by mastering exchange and interest rates Goal: |
Reference: |
Production and sales statistics Focus: |
Understand demand, costs and consumer spending Goal: |
Reference: |
Trade statistics Focus: |
Track indicators of sales and market performance Goal: |
Reference: |
Statistics of specific industries Focus: |
Use a wealth of federal agency data on industries Goal: |
Reference: |
Commercial Data Sources
Commercial providers of industry data can also be a very helpful resource for data when conducting market analysis, market research and competitive analysis. Some of the most popular commercial data sources are:
- Pew Research Center: A nonpartisan American think tank based in Washington, D.C. It provides information on social issues, public opinion, and demographic trends shaping the United States and the world.
- Gartner: A global research and advisory firm providing information, advice, and tools for leaders in IT, finance, HR, customer service and support, communications, legal and compliance, marketing, sales, and supply chain functions.
- Forrester: An American market research company that provides advice on existing and potential impact of technology to its clients and the public.
- Statista: A German company specializing in market and consumer data. According to the company, its platform contains more than 1,000,000 statistics on more than 80,000 topics from more than 22,500 sources and 170 different industries.
How to Do Market Research
5 Steps to Conducting Market Research:
- Who to Target: Define your target customers buyer personas
- How to Target: Identify the persona group(s) to engage
- Prepare research questions
- Competitive Analysis
- Summarize Findings
1. Define your buyer persona:
A buyer persona is someone who represents your ideal customer, derived from your primary research. The buyer persona can be semi-fictional or a real person; however, using a real name is more beneficial. Buyer personas are key when targeting your audience and structuring your strategy. Make sure to list your buyer persona’s purchasing criteria in prioritized order. Their top priority is something that they often think about. Your buyer persona’s objective is to effectively reach and learn about real customers in your industry, allowing you to define your target customers. Some key characteristics of buyer personas are:
- Age
- Gender
- Education Level
- Job title and income
- Location
- Interests / Hobbies
- Family size
- Goals
2. Identify a persona to engage:
Once you have identified your buyer persona, pinpoint a group to conduct your market research. Focusing on only one persona leads to potential danger for your business. Verify that this group of people are similar to your buyer persona. This group of people should give you a better understanding of your ideal customer. It will help determine their characteristics, challenges, buying habits, purchasing methods, and behavior. These will enable you to connect better with your target audience. Make sure to have participants who have recently bought a product and participants who decided not to purchase a product as you’ll gain different insights.
How to complete this step:
- List about ten potential customers who are similar to your persona
- Contact each potential customer on the list and interview them. Validate your hypothesis with the customer
- If the customer validates your hypothesis, ask the customer for a letter of intent to buy the product.
- If the feedback isn’t aligned, take notes and think about how it affects your analysis
- Take new data, modify the earlier assumptions, and contact additional customers for further information
- If you can’t create ten customers who are excited about your product, reconsider your buyer persona
- Don’t share the list of potential customers and their information with others outside your company
3. Prepare research questions:
When preparing questions, make sure the structure of the questions are open-ended. Meaning, steer clear from “yes or no” type questions. Yes or no questions put constraints on your participants, which can mislead to incorrect information. It also prevents one-word answers, allowing for more detailed explanations and information. Create a guide or outline for yourself so that you can cover all the questions in a reasonable time.
Here are some examples of open ended questions:
- What websites do you use to discover new products?
- How does product X make you feel?
- What influences / discourages you from purchasing something in store? Online?
- How do you determine your budget to buy a product?
4. Competitive analysis
Competitive analysis helps find a market advantage by using information from your business’ competitors. Competitive analysis helps you identify your primary competitors and information about their products, sales, and marketing strategies. In this step, you will be able to define your core. A core is something that allows you to deliver benefits to your customer and add more value than your competitors. Competitive analysis will help you stay on top of the industry trends and standards.
Steps on how to do a competitive analysis:
- Who your competitors are
- What products does your competitors offer
- What sales tactics do they use and their results
- Pricing and other perks they offer
- Meet competitive shipping costs
- Analyze how competitors market their products and services
- Look at their content strategy
- Which technology does your competitor use
- Analyze competitors level of engagement content
- How do they promote content
- Research their social media and other platforms they use
- Perform a SWOT (strength, weakness, opportunities, and threats) analysis
3 different types of competitors:
- Direct competitors: Offer similar products or services that operate in your location where potential customers can substitute your product for others
- Indirect competitors: Do not provide a similar product or service but could still satisfy your potential customer’s needs. They share the same target audience.
- Replacement competitors: They can replace your product and service by providing a new solution.
In some instances, other industries can be competing to serve the same market you are targeting. Competitive analysis will make sure you can differentiate yourself in your industry from your competitors. In addition to using a SWOT Analysis, you can also use Porter’s Five Forces analysis. Porter’s Five Forces analysis includes the threat of new entrants, buyers’ bargaining power, the threat of substitute products and services, suppliers’ bargaining power, and the rivalry amongst existing competitors. Using this helps businesses assess industry attractiveness, trends that affect the industry and position them for success.
5. Summarize Findings:
Use findings from your market research and competitive analysis to improve your business. You can use your analysis to make your business processes more efficient for internal purposes. Otherwise, for external purposes, you can take your analysis results to speak with lenders about the research and conclusions. Be sure to revisit your market research and your competitive analysis for necessary adjustments. A quick way to summarize your findings is by using an outline. The outline can include background, participants, executive summary, consideration, and your action plan.