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What is Market Analysis? - Definition & Examples

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  • 0:04 Market Analysis
  • 1:10 Conducting Market Analysis
  • 2:03 Target Market
  • 3:43 Cultural and Legal Regulations
  • 4:52 Lesson Summary
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Lesson Transcript
Instructor: Allison Tanner
How do you determine the most suitable market for your industry? What are the risks and benefits of operating in a particular market? This lesson discusses the definition and purpose of a market analysis.

Market Analysis

What if you have branded one of the best coffee shops in your home city, and in just two years you have opened five locations and become extremely profitable? Chances are you will want to continue expanding. In order to make the best business decision, you will want to conduct a market analysis.

A market analysis is an assessment, which allows you to determine how suitable a particular market is for your industry. You can use market analysis to evaluate your current market, or look at new markets.

Whether you are a startup, looking to expand, or reevaluating your current market, a market analysis helps you to identify the attractiveness of a market. It also detects current and future risks of operating in that location.

Market analysis provides you with a holistic, or well-rounded picture of the markets you are interested in operating in. The components of the analysis include several evaluation tools, including a discussion of your industry and its outlook in the market. It also analyzes the target market, conducts a competitive analysis, and identifies cultural and legal regulations.

Conducting Market Analysis

When you conduct a market analysis, you are going to look at several characteristics of the market you are interested in entering. You are also going to determine how suitable your industry is for the market.

Industry Description and Outlook

Think back to the coffee shop. When preparing to expand, you will want to conduct an in-depth analysis of your industry and consider what the future of your industry looks like. For example, what does the coffee shop industry look like and how large is the coffee industry. You may also want to look at the growth rate of the industry, and the anticipated rate of growth over the next few years.

In short, the industry description and outlook takes into consideration:

  • Definition of your industry (what do you offer)
  • Size of your industry
  • Rate of growth
  • Potential for growth
  • Trends in the industry
  • Sustainability of your industry

These measures provide a broad overview of your industry and its potential for growth and profitability.

Target Market

Once you have a broad picture of what your industry looks like and what its capabilities are, you want to identify your target market. The target market is the specific population you want to market your products to.

  • Who do you want to sell to?
  • What age group do you want to sell to?
  • What is the general level of income of your target market?
  • Where does your target market live?

You want to dig in to specifics of who the population you are targeting is, and what they desire out of the products you are offering.

  • Do your customers like chocolatey mochas, or do they prefer black coffee?
  • Do they live fast-paced lives, or do they have 20 or 30 minutes each morning to enjoy their coffee?
  • Where does your target market live?
  • How large is their population?

When conducting a target market analysis, you will want to find out as many specific details as you can about your target market.

Competitive Analysis

In addition to knowing your customers, you also want to know your competitive advantage and who your competitors are.

  • How quickly do you need to enter the market?
  • What are potential consequences of entering this market?
  • Who offers similar products?
  • How many competitors are there?
  • What does your competitor do well?
  • What could your competitor do better?
  • How similar are your target markets?

You want to know the probability of success in the market by determining how quickly you need to enter, and who your primary competitors will be.

For example, let's say you specialize in coffee made by the cup. Although major coffee shops like Starbucks would be competitors, your target markets would be different. Starbucks is interested in the quick in-and-out customer, while you would be more interested in the customer who has 20 to 30 minutes each morning.

Cultural and Legal Regulations

While you may be able to identify the market, customer, and competitors, you need to know any relevant cultural or legal regulations as well.

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