Market Analysis - Explained
What is Market Analysis?
Written by J. Mance Gordon
Updated at April 17th, 2024
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What is a Market Analysis?
A market analysis examines the potential market for a business's products or services to identify the characteristics.
What should be included in a Market Analysis?
The following should be included in a market analysis:
- Characteristics of potential customers (segmentation),
- Number of potential customers (market size),
- Level of customer demand for the product (priority), and
- Price customers are willing to pay for the product or service.
What are the Characteristics of Customers?
Customer characteristics are anything that identify things about customers, such as:
- Demographics
- Geography
- Socio-Economic status,
- Interests, values, beliefs,
- Trends,
- Etc.
What are Customer Segments?
Identifying the customer segment will allow you to understand who wants or needs your product and is qualified as a potential customer.
For example, customer trends may give rise to increased demand for your product, higher prices at the level of demand, or new customer segments within the market.
What is the Appropriate Price?
You need to know how much a potential customer in a given customer segment would be willing to pay for your product or service (i.e., how much revenue you can expect from each customer segment).
What is the Market Size?
The market size (made up of all of the identified customer segments) will tell you how many of those people who want your product(s) are in the market.
Market size = the number of potential customers x the quantity purchased by an average buyer x the price of the unit.
What is Customer Priority?
Priority shows the willingness of customers to purchase at a given level of information about the product (i.e., sales and marketing effort by the business).
What is a Market Analysis Useful?
The number of potential customers, market size, price, and customer priority, taken together, will allow you to make projections of how many sales you will make at a given price. For example, grabbing 1% of the market value yields a specific amount of potential revenue.
How Companies Use a Market Analysis?
Companies use the market analysis to choose the customer segment and corresponding price point that maximizes value (profit on sales).