A Poor Mom’s Guide For Writing A Startup Business Plan Part 2

Market Analysis

The market analysis is the process of determining the attractiveness and the dynamics of your target market. The most common tool for marketing analysis is the SWOT and the PESTLE analysis. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats.

 

PESTLE stands for Political, Economic, Social, Technological, Legal, and Environmental. You need to understand the demand and the supply that occurs within your industry as they relate to your target market.

 




 

The study includes the market size, growth rate of the market, market trends, market profitability, key success factors, channels of distribution, and the industry cost structure.

 

The importance of a good market analysis in your industry is very critical for developing your business strategy and implementation. Identifying market trends and issues help in identifying some factors that can have an indirect or direct impact on your business or customers.

 

A good economy overview is important in helping you determine where your current market is and in understanding where it is going. Trend analysis gives you a very comprehensive strategic advantage. It simply compares data over time to identify any consistent trends or market behavior.

 

How you develop a strategy as an ultimate response to these trends largely depends on your market analysis. Trend and market analysis practically gives you raw data so you are going to gain a good insight how your business has performed and at the same time, predict where your current business practices and operations will take you.

 

You can use the market analysis to improve your business by identifying the areas where you did good or performed well, duplicating the process, or tweaking the process to make it more efficient. A market analysis can help you identify where the business is underperforming and provides qualitative and quantitative evidences to help you make an informed decision about your business.

 

 

One of the most critical sections of your business plan is your market analysis. People change. Their preferences change. Trends evolve from these people. Market behaviors needed to be monitored, if you really want your business to survive its first few years and make it last forever. How do you evolve your business with your type of market behavior and trends?

 

Apparently, you need to understand what is going on and which trend highly influence your sales process? With effective market research and analysis, you gain invaluable information about your competitors, economic shifts, demographics, the current market trends, and the spending traits of your customers.

 

This section entirely demonstrates your knowledge about your target market so you best understand how to develop your business and to create a marketing strategy for brand positioning and market penetration. What to include in your market analysis?

 

 

 

Demand and supply

Determining the demand and supply can be very useful in ascertaining the potential demand of your product. In this section, you give a short description of your industry, which includes its characteristics and trends.

 

You are going to provide some information about your target market and the distinguishing characteristics as well as the critical needs of your potential customers.

 

In addition, you need to give a good insight about the behavior, annual purchases, size, and the forecasted growth of the target market. First, know the demand and supply of your product.

 

Demand. How do you determine the demand and supply of your market? Demand accounts for the amount of goods that is similar to your product or services, which includes the alternative product or services, by which your target market may find interesting in satisfying their needs.

 

Conducting a market survey would best fit in determining the demand for your product category or industry.

 

A market with a large demand spells success. It means having a large market with a huge need for your kind of product category that may not be fully met yet or isn’t significantly saturated.

 

You cannot immediately conclude the large demand is good unless you also measured the supply.

 

 

Determining the existing demand and forecasting the future demand is a necessity, because it gives you an accurate insight of the probability of growing your startup business.

 

The insights can be most helpful when you are in the process of creating your business strategy.

 

An inaccurate data may produce inaccurate suppositions due to lack of forecasting techniques, historical trend smoothing, and other grave errors related to inaccurate industrywide demand forecast.

 

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The following simple steps can help you in your market forecast

 

  • Define the market

 

  • Divide the total industry demand into its main components

 

  • Determine the key drivers of demand in each segment

 

  • Know the trend and behaviors of your key drivers

 

  • Determine market acceptance of your product for each segment

 

 

Take note that when you are defining the demand of your market, an understanding of the product substitution is critical.

 

For example, a big price difference offered by a substitute unbranded product may make the market purchase the unbranded product over the brand.

 

Let us discuss the marketing mix later in a different article. A good example is the Levis brand and unbranded pants that may offer almost the same proposition to the market.

 

A careful quantification of the unique value proposition you offer and the economic value of the alternative products may help you gain an idea about the preferences and buying behavior of your market. Yes, the demand is there, but what are the choices available to your target market?

 

 

One technique is to divide the total demand into its main components for separate analysis. The idea is to make each category small and homogeneous enough so you are able to apply and determine the drivers of demand consistently. This helps you capture real time data or true situation of your target market.

 

Target market segmentation helps calculate the demand in a certain segment, so you get an estimate about the size of your market and know the feasibility of your business.

 

How do you know your business potential? Segmentation, targeting, and positioning requires a strategy and you need to outline it here.

 

Analyze the spend within the category. If the demand is inelastic, the total expenditures will be positively related to price changes.

 

 

If the demand is elastic, total expenditures will be negatively related to price changes. If the demand is unitary elastic, spending will be invariant with respect to the price changes.

 

For example, if the price of the candy increases substantially, the amount quickly drops. Other commodities are less responsive to price changes.

 

The degree to which price influences consumption is called elasticity of demand. In this case, the demand for candy is highly elastic. The more the candy costs, the less you will buy.

 

The concept of consumer demand can be used to analyze the market behavior. The goal is to understand how instrumental responding or spending is controlled by the instrumental contingencies, such as the price.

 

Recent history is filled with stories of companies and sometimes, about stories of the entire industry making grave strategic decisions, because of inaccurate industrywide demand forecasts. It may not stem from lack of forecasting techniques, skills, tools, but may be due to a shared mistaken fundamental assumption, that relationships seen to have driven the demand in the past would continue to be the same and unaltered in the future.

 

As a market demand analyst, it is a mortal sin not to foresee the changes in your industry’s end user behavior or understand the market saturation point of your product or industry. History can sometimes be an unreliable guide especially at this time where domestic economies become more international, and the industries evolve as new technologies emerge.

 

 

There are four simple steps you can use in any market analysis and forecasting

  1. Define the market
  2. Divide the total industry into its main components
  3. Forecast the drivers of demand in each segment and project how they are likely to change

 

The factors that drive forecasts of the total market size may differ from those that determine a particular product’s market share. An understanding of the product substitution is critical, because most people behave differently if the price or performance of potential substitute products change.

 

Go to the StartUp Business Plan Part 1

 

Go to the StartUp Business Plan Part 3

 

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