When trying to analyze the market, different factors must be taken into consideration. You will need to review the state of the market today as well as future projections, the competition, segmentation and do you best to describe the overall atmosphere in the market. Look for substantial facts and figures, but don’t overdo it. It is enough to show that the market is in constant growth and that there is forward momentum.
- Current State of the Market – Google your way around the data and try to find relevant statistics showing the way the market behaved over the past few years. Show the growth (preferably in graph or table format) and explain why this happened. Spice it up with a quote or two preferably from experts in the field or a well respected research company.
- Future State of the Market – This is basically assumptions made by both market leaders) and respected market research companies who give out a yearly forecast on the growth potential of a market.
Example: According to Juniper Research, “Internet advertising spending has surpassed predictions. In 2005 alone the growth rate jumped by 40%, and this year we expect the growth to reach 21%. An additional trend worth noting is the passage of commodity advertisers, such as car manufacturers, to online advertising. This trend can be explained by the declining effectiveness of television advertising, and the appearance of appliances such as TIVO that allows skipping commercials. In addition, a broad range of advertising possibilities using video, animation etc increases the effectiveness of online advertising.”
- Porter’s Analysis - Prof. Michael Porter, in his book “Competitive strategy: Techniques for analyzing industries and competitors”, defined a model by which we can examine the competitive forces that work on a specific industry. This model is really straightforward and once you put all of the pieces into place you should be able to have a better view of the forces in the market. Read more about Prof. Porter’s model at http://www.quickmba.com/strategy/porter.shtml for a better understanding of how to implement it into your plan.
- Market Segmentation / Target Audience – Who are you trying to target? Who will be the end consumer that will buy your product or use your service? The more you break it down, the easier it will be for a person reading the plan to get a clear view of the business potential. Here is Wikipedia’s definition:
“Market segmentation is the process in marketing of dividing a market into distinct subsets (segments) that behave in the same way or have similar needs. Because each segment is fairly homogeneous in their needs and attitudes, they are likely to respond similarly to a given marketing strategy. That is, they are likely to have similar feelings and ideas about a marketing mix comprised of a given product or service, sold at a given price, distributed in a certain way and promoted in a certain way.”
Not all businesses require an in depth market segmentation analysis. When the product or service you intend on developing or providing is intended for the end consumer (meaning a person and not a company), it is wise to perform such an analysis (even if it just looks like extra work to you). I have taken the liberty of providing you with the basic variables for market segmentation. Don’t use all of them but definitely use some of them:
Geographic Variables: region of the world or country (East, West, South, North, Central, coastal, hilly, etc.), country size,
Demographic Variables: age, gender, sexual orientation, family size, family life cycle, Education (Primary, High School, Secondary, College, Universities), income, occupation, education, socioeconomic status, religion, nationality/race (ethnic marketing), language.
Psychographic Variables: personality, life style, value, attitude
Behavioral Variables: benefit sought, product usage rate, brand loyalty, product end use, readiness-to-buy stage, decision making unit, profitability, income status.
- Direct and Indirect Competition – This section is doubly important, mainly because it will probably be the first question you will encounter when talking to anyone else. Some entrepreneurs tend to say that they have no real competition, but unfortunately, that is the wrong answer. If a business has no competition, than it has no market either. If you couldn’t find direct competition, you can definitely find indirect one. You simply didn’t Google enough.
- Key Success Factors – This is the part of the plan where you must specify what key elements need be aligned in perfect harmony for the business to function properly, or die. For example, if the business is technological by nature and based on a specific algorithm that needs to be developed, and you fail… it’s safe to say that the business will go belly up.
- The Business Environment – You did your best in trying to analyze the market. You checked out the competition, the market as it is today and what people think it will be in the future, you segmented and found statistics to back up your ideas, analyzed the forces in the industry that influence it directly and now its time to sum it all up. In just a few lines, explain in plain English why the time is now.
If you have any comments or feedback about this post, feel free to drop me a line at doron@dhconsulting.info and I will gladly answer all your questions.