Enjoying baking as a passion and running a bakery as a business are two different things. To sustain the latter, you need a market environment that supports consistent growth and profitability.
But how do you know if the market you want to enter is viable? Who should you target? Who’s your competition? How do you price your products?
The short answer: Market analysis.
The long answer: This blog post!
Read through and understand what market analysis is, how to conduct an insightful analysis, and refer to a real-life example. Moreover, discover effective tips for writing market analysis in a business plan.
What is a market analysis?
Market analysis is a thorough evaluation of market space to understand your target audience, competition, and regulatory landscape. An in-depth understanding of these aspects assists businesses in leveraging the right opportunities, targeting the right market, mitigating risks, and building a successful venture.
Market analysis vs. Industry analysis
Most people use the terms industry and market analysis interchangeably. However, they’re quite different in terms of scope, quality of data they gather, and the insights they offer.
Industry analysis offers a macro overview (bird’s eye view) of the industry in which the business operates, i.e. beauty and personal care industry. It helps determine the health and future prospects of the industry by examining the economic, regulatory, and competitive factors influencing it(industry size, scope of industry, barriers to entry, etc).
Market analysis, on the other hand, offers a micro perspective (worm eye view) of your niche market, i.e. luxury hair care market. It digs deeper revealing the precise characteristics of your target customer, the key competitors, available market share, and the opportunities present for your business.
Ideally, businesses should begin their analysis with a general overview of the industry and then narrow it down to their particular niche.
Why should you conduct a market analysis?
You must conduct market analysis whether you are starting a new business or expanding an existing one. Doing it to write a business plan should not be your primary reason.
Instead, you should consider the following reasons to conduct market analysis:
- Target the customers who actually need your solution.
- Develop products that can address the pain points of your customers.
- Position your product at the right place for your intended audience.
- To leverage missing gaps in the current offering and convert that into an opportunity.
- Price your product appropriately for its audience.
- Understand the marketing voice and adopt the strategies that will effectively reach your audience.
- Beat the competition without losing your edge.
With that said, are you ready to start the analysis? Let’s begin.
How to conduct a market analysis?
A comprehensive market analysis validates your business idea and offers strategic insights to make your business successful. To ensure that you conduct a thorough and insightful analysis, follow this step-by-step guide.
1) Define the objectives
Before starting your analysis, ask yourself a simple question: What do I want to achieve from this?
Do you want to understand the market for your new product or its perceived value?
Do you want to identify effective marketing channels for your business? Or test the competitive landscape of your business?
Think through and you will have your reasons to conduct market research. You can also use ChatGPT to get a more thorough perspective on your market research objectives.
For example,
“I am doing market research to launch an online nutrition brand targeting the North American region. Tell me what should be the objectives of my market research.”
Now, pen down the objectives that resonate with you and determine the scope of your market research.
2) Gather market insights
Begin your analysis by gathering a macro perspective (bird’s-eye view) of the industry and the market you want to enter. This is especially essential if you’re writing a business plan for investors.
They need to know whether the industry you plan to enter is growing or shrinking. Also, they need an overview reflecting the industry and market size, its future, competitive landscape, and emerging trends.
Now, you can gather a general overview by referring to the reputed publications and research papers in your industry.
For instance, if you’re planning to start a luxury haircare brand in the US, there are reports by Grandview Research, Fortune Business Insights, and Statista to get substantial data. Even the free versions of the reports offer enough insights for you to get a headstart.
You can also use ChatGPT to gather a general industrial overview like,
“I am starting an online luxury haircare products brand in the US. I want you to give me a general overview of this industry and market space by gathering data and insights from reputed research studies.”
This is just a part of what ChatGPT generated. Use it as a starting point to find more original and verified information for your industry.
Once you have your general overview ready, dig deeper into individual segments, as we illustrate in the following steps.
3) Identify the competition
Let’s begin micro-analysis by making a thorough competitive analysis of your business.
Identify your competitors
Start by making a list of your direct and indirect competitors. If you don't know who your top competitors are, a simple Google search can offer wonderful insights.
For instance, search for “Luxury hair care brands in the US,” and you will get a series of listicle entries that you can use to gather further insights. Remember, Google Search might only highlight your search competitors and not your actual business competitors.
Analyze competitors
Visit the competitor’s website. Study their products or service offerings and note similarities with your offerings. Identify the gap in their current offerings and study their pricing structure.
If possible, try to use their product or service first-hand to get more thorough insights.
Analyze marketing strategies
Study the marketing strategies of your competitors to understand how they attract traffic, i.e. their marketing channels.
Are they getting major conversions through organic search or paid ads? Which of their marketing efforts are performing well?
Semrush’s traffic analysis can offer incredible help in understanding the competitor’s marketing strategies and performance.
As the screenshot indicates, this particular market player is gaining a major share from direct marketing, i.e., branding while organic search ranks second.
Now, continue digging deeper to understand how and where your competitors gain traffic from.
4) Determine your target audience
Another prominent aspect of market analysis is the study of your target market.
The question you chase here is—who would your products and services serve?
While companies may have a rough understanding of their potential customers, they need to refine it by gathering more thorough insights.
Here are a few steps to follow for your target market analysis:
Creating a market segmentation
Your business will most likely cater to different segments of customers. Identifying these segments and grouping them together is called market segmentation.
To determine your market segmentation, you can refer to the reports from your niche market. However, if that’s not easily accessible, you can use tools like Google Analytics, Hubspot, or ChatGPT.
We used ChatGPT to create market segmentation for the same luxury brand, and a simple prompt helped us get a thorough segmentation.
As a luxury haircare brand, you would be catering to high-income professionals, beauty enthusiasts, fashion and media professionals, and even the aging population. But you can’t adopt the same approach to target all these segments.
So what do you do?
You gather as many insights as possible through primary and secondary sources to understand each of these customer segments in detail.
Gathering data
When it comes to gathering data you collect quantitative and qualitative data.
Sources like BLS and Statista and existing customer data can help you gather quantitative data for your customers. However, for qualitative data, you can use the methods of survey, focus groups, and interviews.
As for how to reach these segments, you can use email, events, social media, online communities, and targeted advertising. Now, you can use tools like Google Forms, Zoho, and QuestionPro to collect qualitative data. However, we used the AI feature of Survey Monkey to design a survey for the luxury haircare brand and it took us less than 2 minutes.
Note: This is just a small section of the survey crafted by Survey Monkey.
Survey Monkey also distributes the survey and gathers responses to help you get a quick start.
Once you have the survey responses coming in, you will have direct feedback from your target audience that will help you understand their needs, preferences, pain points, buying patterns, and overall behavior more innately.
Besides you will also get some concrete demographic details that can be used to reach your target audience more efficiently.
Creating Buyer’s persona
Once you have some data handy, start creating your buyer’s persona.
A buyer’s persona is nothing but an imaginary representation of your ideal customer outlining their demographic (age, income, location, education) and psychographic details (lifestyle, interests, behavior, values).
Such personification helps understand who your customers are, where to find them, and how to attract them.
We asked ChatGPT to create the buyer’s persona for the luxury haricare brand and it didn’t disappoint.
You can further use these personas to form patterns and analyses about your audience.
For instance:
You can see how Jessica relies more on online testimonials compared to Emily who takes influencer recommendations quite seriously. While Jessica is brand loyal, Emily values aesthetics and the latest trends.
Such insights tell you to invest more in brand and trust-building activities while also focusing on influencer marketing.
Competitor’s data for target market analysis
You can gather a lot of insights by studying the target audience of your closest competitors.
Take this example of Semrush’s One Target. It analyzes the demographics, socioeconomics, and behaviors of competitors' audiences by fetching online data.
You can use such data to target your market or simply find a missing gap in the current offerings.
For instance:
From this data, we can evaluate that the age cohort of 25-34 is the largest target market for all players. If you are targeting the same market, you need to adopt a marketing language and medium that resonates with the audience in this age group.
As for the missing gap, none of the companies have a viable share in the age cohort of 55+.
Is it a market gap that can be leveraged? Dig deeper and you might have a potentially viable market to capture.
5) Identify emerging trends
What’s new in the industry? Is there anything you could add to your products to make them more competitive?
We used ChatGPT to gain insights on the luxury haircare segment and this is what it offered.
While this is a list, you can always double-check. We also did that with Google Trends to see their (emerging trends) performance in the US market.
Here’s the trend we gathered and surprisingly customized haircare isn’t as huge a segment as we believed it to be.
Such market analysis helps you prioritize the innovations in your offerings and build your unique competitive edge.
6) Draw your competitive advantage
Whatever your business idea is, someone out there is already working on it.
So, what makes you unique? What’s something that will make customers loyal to you?
To launch a successful business, you need a competitive advantage, and the easiest way to find that is with a SWOT analysis.
A deep introspection of your own business will help you fill the blanks here.
- What are your biggest strengths? It could be your product offerings, scientific formulation, patents, or brand ambassadors.
- What are your weaknesses? It can be your competitors, budget constraints, marketing challenges, or digital landscape.
- Do you have any opportunity? Analyze the gaps in current market offerings and find ways to leverage them for your benefit. Your competitor’s weakness is most likely an opportunity for you.
- Are there any threats to your business? It can be government regulations or a declining industry demand.
Deep dive using the data points captured earlier and draw your competitive advantage.
7) Determine your market share
The most important aspect of the entire analysis is the understanding of market share.
The methods of TAM (Total Addressable Market), SAM (Serviceable Available Market), and SOM (Serviceable Obtainable Market) can be used to determine this market share.
To offer a quick overview:
- TAM: Considers the total market demand for your product
- SAM: Considers the market segments that you can realistically target
- SOM: Calculates the share of your business considering its competitive landscape and revenue model.
Continuing the same luxury haircare example, here’s how ChatGPT calculated the estimated market share.
Since we fed data into GPT before asking for such quantitative answers, the response was quite relevant.
However, make sure that the predictions it offers don’t overassume or undervalue your share.
8) Put the research to use
It’s time to pull everything together and use the data and analysis to form business and product decisions.
Here are a few different ways to put your market analysis to use:
- Refine your unique selling proposition (USP) or build a new feature to sharpen your competitive edge.
- Use the key findings to enhance your product or service features.
- Develop targeted marketing strategies to attract and retain your customers.
- Devise contingency plans to mitigate risks and challenges.
You can foster growth and profitability for your business by effectively utilizing market analysis to make strategic decisions.
Now that you understand a thorough process of conducting analysis, let’s understand how to place it together for your business plan.
Tips for writing your business plan market analysis
Here are a few tips that will help you write an efficient market analysis for your business plan.
1) Always rely on data
Instead of relying on intuition, rely on data to make informed decisions for your business. Not just that, use both, primary as well as secondary sources of data to make a detailed market analysis.
The idea is to start with secondary sources to gather a general overview and then dive deeper into the micro perspective with focus groups, surveys, and interviews.
2) Validate your findings
Always cross-verify the reference of your information. This is especially true if you are using ChatGPT or a related tool for gathering base data.
The accuracy of the data is quintessential when you’re using the findings to form business strategies.
3) Be direct
The market analysis in your business plan needs to be concise and on-point. No need to add your market research and findings in this section. Add them to the appendix.
Your market analysis section should simply synthesize the key findings and tie them back to how your business can benefit.
4) Always make it visual
Don’t make your summary textually dense. Small paragraphs, interactive visuals, charts, and graphs make the entire section enriching and more easy-to-understand.
Even for you, it would be much easier to make informed decisions when you have the key findings of your analysis presented visually.
5) Begin with a summary
Give readers an overview before bombarding them with information. Add a short but engaging summary and highlight the key data before the readers dive into hard figures.
6) Use tools
Spend time understanding your market but when it comes to translating that analysis on paper, use resources like an AI business plan generator and business plan templates.
These tools will add structure to your market analysis making it easy to absorb and understand.
And that’s pretty much it. Once your analysis is ready, revisit it regularly and update the changes to keep it relevant.
But wait, there’s more! Let’s do you one by sharing an example of a real company to make this entire blog post more digestible.
Business plan market analysis example
Since we have discussed luxury haircare brands throughout this article, an example of Kérastase would fit perfectly here.
Business: Kérastase
Location: North America
Summary
Kérastase, a subsidiary of L'Oréal, is a prominent luxury haircare brand that has been operating in the US for several years. Renowned for its high-performance products and personalized solutions, Kérastase aims to expand its market share and solidify its leadership position in the US luxury haircare market.
Core Objectives
- To outline the luxury haircare industry landscape.
- To identify current market trends and opportunities.
- To analyze the competitive environment and Kérastase's positioning.
- To assess the target market for Kérastase.
- To explore strategies for increasing market share and achieving growth.
Industry Overview
The US luxury haircare market, valued at approximately $6.14 billion, is experiencing robust growth due to rising consumer demand for premium haircare products. Key factors driving this growth include increased disposable incomes, heightened awareness of hair health, and the influence of social media on beauty standards.
Market Trends
- Sustainability: Eco-friendly and sustainably sourced products are gaining popularity among consumers.
- Personalization: Customized haircare solutions tailored to individual needs are in high demand.
- Clean Beauty: Consumers are prioritizing transparency in ingredient sourcing and formulation.
- Technology Integration: Advanced technologies in product formulations and digital tools for personalized recommendations are becoming more prevalent.
Competitive Landscape
Kérastase competes with several other luxury haircare brands, including Oribe, Moroccanoil, Aveda, and Bumble and Bumble. Each brand has unique selling points, such as innovative ingredients, sustainability practices, and high-performance results. However, Kérastase distinguishes itself through its extensive product range, strong salon partnerships, and personalized hair diagnostics.
Target Market Analysis
Kérastase primarily targets affluent consumers who value high-quality haircare products and are willing to invest in premium brands. The target demographic includes women aged 25-55 with high disposable incomes, a strong interest in beauty and wellness, and a preference for personalized solutions. There is also a growing male segment interested in luxury grooming products.
Market Share
Kérastase currently holds a significant share of the US luxury haircare market, estimated at around 8-10%. The brand's robust distribution network, reputation for high-performance products, and strategic marketing efforts have enabled it to maintain a competitive edge. To achieve a larger market share, Kérastase must leverage its strengths and explore new growth opportunities.
Growth Strategies
- Strengthen E-commerce Presence: Enhancing online sales channels and direct-to-consumer strategies to capitalize on the growing trend of online shopping.
- Innovative Product Development: Continuously developing innovative products that cater to emerging trends, such as clean beauty and scalp care.
- Strategic Partnerships: Expand collaborations with top salons, influencers, and digital platforms to increase brand visibility and reach.
- Targeted Marketing Campaigns: Implementing targeted marketing campaigns to engage both existing and new customers, focusing on the brand's unique selling points and personalized solutions.
- Customer Loyalty Programs: Develop loyalty programs to retain customers and encourage repeat purchases.
The bottom line
Rounding up, an insightful market analysis sets the cornerstone for your business to succeed. It highlights the missing gaps in your current strategy and empowers you to make data-driven decisions.
Whether you’re setting up a new business or growing an existing one—market analysis should be a continuous part of your business process. Evaluate the market conditions regularly, refine the strategies, and implement the changes as you grow.
Need a few more examples? Refer to these business plan examples on Bizplanr and check their market analysis section to get a more practical overview of different businesses.
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Frequently Asked Questions
What is the main purpose of market analysis in a business plan?
The primary purpose of market analysis is to assist businesses in understanding their target market, competitive landscape, market share, and trends within the industry.
What are the best tools for conducting market research?
Some of the best tools for market research and analysis include SEMrush, Ahref’s, Google Trends, Google Analytics, Survey Monkey, and Problem Index. These tools can help with different market research processes like designing surveys, analyzing trends, assessing competitors, etc.
What are the key differences between primary and secondary research?
Primary research includes gathering first-hand data from the source in the form of surveys and interviews. Secondary data, on the other hand, uses data from publications and research studies to form conclusions.
What steps should I take after completing a market analysis?
After completing your market analysis, use the findings to make strategic decisions for your business. Here are a few ways you can do that:
- Determine your competitive advantage
- Improvise the product offerings
- Devise a pricing strategy
- Draft your marketing materials
- Define the key metrics
How do I validate the accuracy of my market research data?
Always cross-reference your data with other reputed publications to ensure its efficacy. Apart from that, review the data collection methods, verify the source’s credibility, and ensure logical consistency within the data.
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