How to write a Market Analysis
The process of constructing a competitor analysis requires extensive research and a thorough, structured approach. This market analysis template provides a starting point and a structure for the due diligence required when analyzing the competition and coming up with a plan to overcome the obstacles.
Importance of Market Analysis
Whether you own a small or big business for a short or long period of time, market analysis is important to ensure that you are staying on top of current market trends. It gives you an in-depth perception of what drives demand, of what strategies your competitors are using, of what marketing techniques best fit your products and services, etcetera. It also helps you reevaluate your current business plan and strategies so you can maximize business growth.
In other words, market analysis is the cornerstone of any successful business. You need to perform a market analysis on a regular basis so that you can stay ahead of the game.
Market Analysis Template Components
Different industries require different types of market analysis. At the same time, different businesses within the same industry will have to perform different types of market analysis. But the basic elements of market analysis that you can find in our market analysis template include the following:
Your market description will detail the type of market your operating in. For instance, what is your target market? What is the demographics of your target market? What are their needs? What is their purchasing behavior? Etcetera. At the same time, you need to discuss your market size so that you can have an overview of how profitable your target market will be. Speaking of profitability, you also need to include this in your market description. Based on the characteristics of your target market and its size, how profitable will it be to sell products and services to this set of customers?
PORTER'S FIVE FORCES
After describing your market, its characteristics, size, and profitability, you will have to discuss Porter's Five Forces. Porter's Five Forces is a framework used to analyze the market competition. These include 1) the bargaining power of suppliers, 2) the bargaining power of buyers, 3) the competitive rivalry, 4) the threat of substitute products, and 5) the threat of new entrants.
1- Bargaining Power of Suppliers
The bargaining power of suppliers refers to how easy it is for your suppliers to increase their prices. You need to determine this power because, with every increase in your supplier's prices, your net inflow will be affected. Therefore, you also need to consider the number of potential suppliers you can do business with, the uniqueness of the products and services they provide, and the cost of switching your supplier.
2- Bargaining Power of Buyers
The bargaining power of buyers refers to how easy it is for your buyers to influence your prices to drop. Market research comes into play when you analyze the bargaining power of your buyers. You need to determine the number of your buyers and of their orders. You also need to consider how much it will cost them to switch from your products and services to a rival's. Lastly, do you have the power to influence your buyers' purchasing behavior, or does their purchasing behavior dictate terms to you?
3- Competitive Rivalry
Just like your suppliers and buyers, you also need to familiarize yourself with your rivals. How many rivals currently exist in the market? What is the quality and quantity of their products and services compared to what you're offering? Getting to know your rivals also means analyzing their aggressive price cuts and marketing strategies as these factors can greatly influence the market's behavior.
4- Threat of Substitute Products
Say you provide banks a software that automates an important financial process. How easy is it for your customers (in this case, banks) to perform the process by themselves? How easy is it for your customers to replicate your software? How easy is it for your customers to outsource this service? These are questions that you'll need to answer when you analyze the threat of substitute products. Clients will often find a substitute because it will cut their expenses. If they find a cheaper substitute, then you will experience a huge decline in your profitability.
5- Threat of New Entrants
How easy is it for new businesses to enter your market? If your business is in the clothing industry, it may be relatively easier for new businesses to enter the market than if your business is providing an automating software to banks. You have to analyze the threat of new entrants because more competitors mean you'll get a smaller share of the market. You want to enter a business that is not that easy to enter, but also not that difficult for you with your expertise. Analyze the cost of starting a business in your industry and how regulated your sector is.
After studying Porter's Five Forces, you need to analyze market trends, which means you have to determine your customer's purchasing behavior, your supplier's influence over prices, the market's price sensitivity, etcetera. These are just some examples of market trends that you need to keep an eye out for.
Analyzing the competitive landscape will give you a clearer idea of what you're up against. By knowing your competitors' product quality, pricing, marketing strategy, etcetera, you can determine the areas in your business that need improvement, so that you can remain a top contender within the industry.
KEY SUCCESS FACTORS
Lastly, you need to discuss key success factors. How can you ensure the success and continued growth of your business? Which areas are your strength and where do you need improvements? How do you reach your business goals and objectives? Reevaluation will come in this part of the market analysis, so you have to have an open mind when deciding on the steps you will take moving forward.