Even though most people use the terms market research and market analysis interchangeably, the two are vastly different. Market research is part of market analysis. Market analysis, on the other hand, is a form of research that seeks to look into all the factors influencing business. The approach allows companies to know where they stand and how to improve their standing.
Market research, on the other hand, does not look into all factors influencing business. This research is mainly focused on user behavior and preferences.
The success of market analysis relies heavily on the researcher’s ability to identify the relevant success metrics- factors that drive the success of the business of interest. Success metrics change with industry and market. Before starting on market analysis, determine the factors that drive growth and profitability in your sector of interest. These factors are your success metrics. They’ll form the basis of what is defined as success, and inform the analysis of how you fare against the competition
That said, this guide isn’t meant to be employed as is; iterate it to fit your unique success identifiers. The guide outlines six steps for practical market analysis:
- Segmentation: Break down the market. Never approach your client base blindly.
- The Target Market: Understand your market. Know it’s ups and downs.
- Market Need: Identify the pain points you solve. Find more, if possible.
- Competition Analysis: What is the competition doing? How can you beat them?
- Analyzing Findings: Make sense of the data. Be objective.
- Compiling the Report: How do You Make Your Report Appeal to the Masses?
Each step seeks to answer some questions and uncovers underlying truths. These steps are addressed separately, and in greater detail, below:
Segmentation divides the broader target audience into specific groups. It’s a key component of market research and, therefore, pivotal to any marketing strategy. Segmentation has two main advantages:
- It directs the marketing effort.
- It maximizes returns.
Let’s take a closer look at these advantages:
Focusing Marketing Effort
Market size influences the cost of marketing. The broader the scope, the higher the cost. That isn’t necessarily a bad thing- if returns are favorable. However, there’s one problem with the approach; good returns are rarely, if ever, the consequence of targeting a broader audience.
The phenomenon isn’t unique to marketing. The 80-20 rule asserts that 80% of gains are attributable to a meager 20% of the effort. To illustrate, that means that you get 80% of all your profits from 20% of your clients.
The paradox here is that marketing energies are expended equally among all customers, even though a small percentile is disproportionately profitable. What would happen if you focused the greater of your marketing efforts on the 20%?
Simple! More profits for less effort.
This reality makes segmentation hugely consequential to your marketing analysis. Effective segmentation identifies the most profitable demographic, informing all future marketing endeavors.
As illustrated above, customer groups aren’t equal. Some demographics buy disproportionately more than others. Segmentation affords you the unique opportunity to analyze the buying habits of different demographics. When you make the smaller- and more profitable- market groups the focus your marketing efforts, you reduce the cost of marketing- while enjoying better returns for your efforts.
Therefore, investing marketing efforts on a market segment in proportionality to the group’s profitability is the quickest way to improve the profits of any marketing approach. That said, identifying the most profitable segment is easier said than done. It all falls back to the accuracy of your market segmentation. Poor segmentation runs the risk of grouping the high-fliers with the under-achievers.
So, what makes or breaks your market analysis?
Effective Market Segment Analysis
Effective segmentation begins with the appropriate identification of micro-markets in the broader market. There are four main segmentation strategies used:
- Informed Assumptions
- Usage Metrics
- Customer Need
- Customer Attitude
This approach relies heavily on theoretical categorization rather than experiential or observational reality. For example, Millennials may automatically be grouped as social media users without any input from them. The classification is both justified and most likely accurate, but it ignores the possibility of the existence of Millennials who don’t use social media.
What if such Millennials were your most profitable market? Imagine how disastrous it would be for your findings if your assumptions ignored your most valuable demographic.
On the bright side, this approach reduces the scope of research with minimal effect on its accuracy. That’s why it’s the most popular pattern of segmentation. The main problem with informed assumptions is that they neglect the fact that trends evolve, more so in the dynamic markets of the digital era.
It’s perfectly reasonable to assume that people over 50 are not massive gamers. Now, imagine the world 30 years from now; the current Millennials will make the better part of people aged 50-plus then. These Millennials will more than likely carry their gaming tendencies into the future. At that point, the perfectly reasonable assumption (that people aged over 50 are not big gamers) will no longer be so reasonable.
That’s why the knowledge of market trends must always temper all informed assumptions; what passes for infallible truth this year may prove utterly false in 2020.
This metric of categorization is the most effective approach for identifying the elusive 20%. As suggested by the name, classification follows the degree of product usage. The analysis begins by segmenting the market according to usage. Segmentation, according to usage, is popularly achieved via decile analysis. Once the classification is through, the heavy users (20%) are easily identified.
All the other forms of categorization listed here are geared towards identifying existing customer bases. Uniquely, customer need seeks to identify new customer bases that can easily be converted. Rather than identifying the client groups most likely to buy an existing product, customer need analysis seeks to guide the iteration of the product to better suit a broader market.
Under this classification, market segments are grouped according to need. If you’re already connecting with a large group that expresses the need for something new, the profitable move is to produce something new. This way, you don’t have to invest more money to forge new customer relations.
This approach seeks to reap the benefits of what has proved to be an essential commodity in the digital marketing era- customer relationships. Good relations are hard to come by; it makes no sense to build a relationship and not monetize it.
Imagine that a company is marketing its new gaming laptop. The device is faring well, but an analysis of customer need reveals an interesting trend; the gaming device attracts more graphic designers than gaming enthusiasts. With that discovery, the best move would be to re-design the device for graphic design and monetize the existing relationship with graphic designers.
Customer attitude is an important metric for a business seeking to build better customer relations. This metric is psychological; user preferences reign supreme. The market is not analyzed along the lines of demography.
On the contrary, this analysis seeks to identify the motivation behind a purchase. It looks into the heart and mind of the entity behind the purchase. That said, informed assumptions are usually integrated into this categorization. For example, the heavy millennial presence on social media platforms can be reasonably assumed to be the result of a deep desire for peer approval and social contact. Gen X, on the other hand, is not overly concerned with approval and social connection because these people have (arguably) lived a fuller life.
That said, the only way to be sure of the motivation behind a purchase is to ask the purchaser. This approach is, therefore, heavily reliant on the scope and source of data. It’s easily the most challenging form of categorization. Difficulty aside, it’s the most important data when building customer relations.
In a nutshell, grouping the market according to customer attitude is challenging, but it’s worth every ounce of energy spent.
Now that you understand the different types of market segmentation strategies, how do you employ them in your 2020 market analysis?
Hacking Market Segmentation in 2020
Before attempting to segment the market, make sure you understand it. That’s easier said than done. Don’t rely on anecdotal pieces of evidence to segment the market. Base your decisions on data from reputable sources.
After segmentation analysis reveals micro-markets in the broader market, react appropriately. Segmentation reveals the differences in the market groups. The differences render one-cloth-fits-all approaches unhelpful. Tailor a unique marketing approach for each micro-market.
Now, what is the best research approach for identifying segmentation metrics?
Researching the Best Segmentation Metrics
Market research is broadly categorized into two groups:
- Primary Research
- Secondary Research
Primary research is the best approach for segmentation analysis. We’ll focus on that for now; secondary research is discussed in greater detail under competition analysis.
Primary research encompasses two research strategies:
- Exploratory Research
- Specific Research
This is an important step in primary research. It’s aimed at identifying the problems most likely to make an appearance during research. It’s typically limited to a small group of respondents who are used to determine the issues most likely to be faced by the broader research approach.
Solutions for the potential problems are then formulated in advance, streamlining the next step. As illustrated, exploratory research is preparatory in nature. To hack segmentation in 2020, be sure to conduct thorough exploratory research. The better prepared you are, the clearer your thoughts will be while doing the research.
Unprecedented problems in the field have a tendency of shifting focus from the research to the problem as people seek quick fixes.
This is the part of the research where you interact with the market. All interaction intends to identify the most appropriate segmentation metrics. Always ensure that the scope and nature of the interaction are thorough enough to justify your conclusions.
After segmentation, the micro-markets that you can do without MUST be done away with. The competitive nature of today’s market demands that you cut costs wherever possible.
What happens when you cut costs by ignoring unprofitable segments?
The money spent on non-responsive micro-markets will be saved, increasing your profit margins or better; you get to lower your prices without compromising product quality. In a highly competitive niche, the pricing makes or breaks a brand. Segmentation, therefore, gives you the ability to offer the same old quality at a new and better price.
2020 may be the best year yet!
Now that segmentation analysis is hacked, let’s move on to market analysis:
Dissect the Target Market
Markets are dynamic. Changes bring with them both risks and opportunities; it all depends on your response.
The most appropriate response market change is one that is informed by a deep understanding of the market. That said, markets are not easily understood. Many factors come together to shift or maintain market direction. Consequently, the market must be assessed across different metrics:
- Market Size
- Market Trends
- Potential Profits
- Success Factors
- Target Audience
- Influencing Factors
The market size has three critical influences on the product:
The pricing of a product becomes increasingly important as the market size increases. The increased importance is a consequence of increased competition. The bigger the market, the more the competitors, and the riskier it is to overprice your product. Pricing is so important; it’s used to crush the competition now and then. Big corporations can afford to under price their products because they enjoy benefits like economies of scale, which small businesses don’t. When the latter fail to compete with the prices, they close shop- literally.
In smaller markets, competition isn’t an issue. Consider the case of monopolies; they enjoy a lot of flexibility when it comes to pricing. Evidently, market size analysis must be part of your 2020 market analysis.
Similar to price, branding plays an increasingly important role where the market is big. The better your branding, the better you’ll fare against the competition, and the higher your profit margins.
The cost of marketing increases with the size of the market. This is why it’s rarely advisable to target a big market; it’s also why segmentation is so important.
This is where the dynamic influences of the market come into play. Identify trends in your target market respond appropriately to the threats and opportunities. Inertia in a dynamic market is a recipe for disaster, think Kodak.
Kodak dominated the photography niche for the better part of a century. By 1976, 85% of all cameras were sold by Kodak. It was the undisputed intelligence in all matters of photography.
You can’t remain static
In 1975, one of its engineers invented the first digital camera. Kodak’s executive team dismissed the invention.
Considering how well the company was still doing a year after the dismissal (1976), the executives can be excused for it. What happened next, however, is inexcusable.
Even years after the market showed an interest in digital photography, Kodak remained static. Fast forward to 2012, and the company is filing for bankruptcy. Inertia destroyed Kodak.
Imagine what it could do to a small business?
Always watch out for market trends. Rebrand if necessary, but always evolve with the market.
No one invests in a business without the promise of profit. Determine how profitable your market is and be on the lookout for new opportunities for profit. Many factors can be used to determine profitability; below are three useful metrics:
- Buyer Ability
- Supplier Ability
- Entry Barriers
The money available to purchase your products is a crucial pointer of profitability. Buyer ability is so important; it’s enough grounds for changing your target market. Buyer ability also influences pricing. If your target has a small purchasing ability, high prices are out of the question. Find creative ways to cut the cost of production to make it feasible to sell at low prices.
That said, you should consider changing your target market or engage more profitable micro-markets.
This refers to the suppliers’ ability, or lack of, to meet the market’s demand. Aim for markets where the demand is much higher than the competition’s ability to supply. This way, you are assured of a market with very little competition, translating to increased profits.
This is a double-edged sword. What keeps you from venturing into a market will also bar others from joining you. This means that after overcoming the barriers, you’ll enjoy a near-monopolistic dominance of the niche.
If the niche is highly profitable, the barriers are a good thing. Show your investors the profits that await them on the other side of the obstacles, and they’ll have your back.
This is an analysis of the factors that give you an edge over the competition. Before identifying the success factors, seek to understand the factors that made the competition succeed. Identify their shortcomings and create a better offer to the clients.
In the digital market, three factors (almost) always give you an edge over the competition:
- Customer Relationship
- Economies of Scale
- Efficient Resource Utilization
Good customer relationships lead to customer loyalty. The customer of the modern market is spoiled for choice; need is no longer a critical motivating factor. Emotional connection is now the most essential motivation behind most purchases.
Strategize how you’ll improve customer interaction. Add emotion to your strategy. Tell your story in a manner most likely to resonate with your target audience on an emotional level.
Economies of Scale
If you can offer the quality the competition is offering at a lower price, you win. That’s, of course, dependent on customer relations. Most people will opt for an iPhone over a cheaper Android phone not because of quality but because of their relationship with Apple.
That said, buying in bulk allows you to buy cheaper. Shipping and distributing your products in bulk also allows you to enjoy economies of scale. These little discounts add up in the long run, increasing your product margins. They even afford you the unique opportunity to reduce your products’ prices with no consequence to your profits.
When you beat the competition in resource utilization, you’ll likely beat them at prices. Always look for ways to minimize waste and recycle more.
Efficient resource utilization also allows you to reduce your carbon footprint, an attribute that is becoming increasingly appealing in today’s market. When you hack efficient resource utilization, wear it like a badge of honor. Use it as a unique opportunity to connect with your clients.
You can even use your nature-friendly process as a marketing strategy. Showcase how you make quality products without damaging the environment, and you’ll win yourself some loyal clients.
This is an analysis of the existing distribution channels. The cost of distribution influences pricing and profits. Look for ways to lower the price of distribution and time of delivery. Look at how the competition handles distribution, learn and improve their strategies.
If the competition’s use of the available distribution channels is beyond reproach, seek out new distribution channels.
Define your target audience; be explicit in the description. The better you understand the audience, the easier it is to mount a marketing campaign that resonates with them. Below are a few pointers for defining your target audience:
- Marital Status
- Pain Points
These are external factors that influence the market. The political climate is a good example. Political trends also influence market trends. If the politics is evolving to favor green options, adjust appropriately. The sooner you adapt, the higher the chance that you’ll have the edge over the competition in the future.
Explain the Market Need
Your business must satisfy a practical customer need to be feasible. Show that you offer something the target audience values enough to spend money. Market need analysis also reveals any unintentional needs that may be attracting clients to you. Such needs offer rare opportunities for increasing customer satisfaction.
A quick example:
Imagine a perfume company that discovers that one of their products is flying off the shelves because it also happens to be mosquito repellant. The perfume was only intended to smell good; the repellant characteristics are purely coincidental. Such a company then has new opportunities to venture into a new market, outdoor enthusiasts who want to smell good.
The perfume can then be modeled and branded to resonate with the new demographic without expensive marketing campaigns.
How then do you analyze the market need? Below are a few strategies:
- Category Analysis
- Purchase Timing
- Consumer Trends
- Occasional Usage
Category analysis seeks to identify the product’s categorization and the reasons behind the classification. In the last example, the perfume is categorized as a mosquito repellent by some because of its inadvertent-repellant properties.
Determine how your clients categorize you and why. Compare your product to other products classified similarly. This out-of-the-box approach is instrumental when hunting for inadvertently-satisfied needs.
The time your product is purchased can tell you a lot about the need you satisfy. Consider a company selling all-natural headache treatments. Some clients will buy the medicine at the onset of the headache, others when the pain is well-advanced.
These two categories will have reasons for their decisions. Each reason is a need satisfied. For example, most of the clients may prefer the treatment for the onset of headaches because it is fast-acting. In such a case, the company satisfies the need for quick-acting headache solutions.
Consumer tastes and usage patterns change with time. Find the factors driving the change. Find out if users plan to change the frequency of product usage in the future. If the respondent intends to use your product less often in the future, find the reason behind the decision. This approach points you towards a need you are yet to address to the customer’s satisfaction.
For example, a customer is planning to buy less of your clothes in the future because she feels you don’t make designs appropriate for pregnant women. In that answer lies a potential niche. Roll out a line of beautiful clothing for pregnant ladies, and you’ll keep your client base intact. You don’t want your clients snooping around your competitor’s shops; they may decide to stay.
Determine other products that clients use interchangeably with yours. Find out the customer’s favorites. Query the respondents further to determine why they chose what they chose. The customers’ preferences will always point you towards a need you should address more appropriately.
If clients use your product occasionally, determine what makes the product inappropriate for more extensive usage. Ask the respondents if they would recommend the product to friends and why. The reason why they would or would not recommend to friends is indicative of the needs that you’ve met or should meet.
Secondary research methods mentioned at the beginning of this guide are best suited for competition analysis. The main difference between primary research and secondary research is that secondary research relies on gathered data; primary research seeks out information from the party of interest.
When analyzing the competition, primary research isn’t feasible. Your competitors will not be too keen to divulge the information you seek. That said, there are multiple sources of data that can be used to form a clear picture of the competition. Secondary research relies on three main sources:
- Public Sources
- Commercial Sources
- Internal sources
Government statistics are free and offer the most reliable view of various markets and industries. The Bureau of Labor & Statistics is especially helpful when you want to get a broader picture of the competition. That said, oftentimes, details matter. To best understand the competition, go beyond the general overviews found in government statistics. For generalized market trends, on the other hand, Government statistics are your friend. Governments have the unique ability to conduct country-wide and industry-wide research yearly.
This is an analysis of the market that can be availed for a fee. Research agencies like Statistia conduct research, analyze the data, make suggestions, and sell their reports. These sources go deeper than public sources in terms of specificity, but that comes at a cost. For best results, complement public sources with commercial sources. That way, you get both generalized and specific views of the same phenomenon.
This is data that is available in-house; think records of market weaknesses and strengths. So, how can your records be used to understand the competition?
Well, that depends on how much you resemble the competition. If you are of relatively equal sizes with (relatively) the same amount of operational capital, then you are likely to face similar challenges. That said, this metric should be used with moderation. It’s not unheard of related businesses to have vastly different market experiences.
Competitive analysis is all about determining the competition’s market share and how to beat them. To do that, you must consider four factors:
- Define the Competition
- Barrier to Entry
Know the Competition
Define the competition in the most precise way possible. List your competitors and justify why they qualify to be considered competition? What market segment do they challenge you for?
Competition is as varied as the micro-markets, identify all of them. Find out how they operate, why they are better than you where they are better, and why you are better where you are better. When you are thorough in your research, the findings reveal multiple opportunities for towering over the competition.
Barrier to Entry
The harder it is to get into a market, the lower the chance that competition is high. Determine how difficult it is to get into your market of interest. Identify competitor trends? Are they overlooking the barriers and just flowing in, or will the barrier hold for another decade or two? Why do you think that?
Get into the details.
Another thing to remember is that there will never be a shortage of risk-takers, like yourself, who will tackle the barriers to get to the profits. Build good relationships with your customers before the competition rises. If the competitors find you with a loyal following, their numbers won’t matter.
Give credit where due. Identify the areas the competition is superior. What makes them superior? How can that be changed?
It is the competition’s strength that attracts clients to them. Find a way to mimic or better their appeal. For best results, assess the competition’s performance on the different factors that drive demand and determine success in your industry. For example, dependability is a significant factor in the insurance industry. Insurance firms can, therefore, analyze how they fare against their competitors on this metric.
Identifying a weakness you can leverage gives you an edge over the competition. If it’s an area you’re both weak, the better. Turning this weakness around will improve your customers’ satisfaction while encroaching on the competition’s market share.
Let’s now look at how you make sense of all the data collected.
Analyze Your Market Analysis Findings
Research is useless if the data isn’t appropriately analyzed. The purpose of the analysis is to formulate actionable suggestions that will help the business maximize profits and growth. That said, market analysis can quickly inundate you with data if you lose your focus. Below are three strategies for hacking data analysis:
Objectivity will help you maintain your focus even amid overwhelming data. The objective defines the metrics of interest and what you want to find out from the analysis.
Quick example: You want to find out why your customer conversion rates are so low. With such an objective, you’ll find it hard to wander into irrelevant data like the size of the market.
Express your objective clearly and concisely before attempting to make sense of the data.
This refers to the most desirable outcome expected from the research. Describe what you expect the research will do for the business. With such focus, you’ll be able to sift through the data and focus on the metrics that promise the outcomes intended.
So, how do you define outcomes?
A quick example: You want to increase sales. This outcome will inform the analysis of the data and help you focus on the metrics that have the most significant impact on sales. As simple as the strategy may seem, it’ll help you wade through a sea of data and ignore the temptation to undertake a new goal now and then.
Describe your priorities. What are the most pressing reliefs sought from the analysis? A thorough market analysis will expose potential opportunities in their hundreds, if not thousands. Without focus, the sheer magnitude of opportunities may easily redirect your energies. However, when you prioritize reliefs sought, your energies are focused on the pre-set goals.
Compiling the Findings
The compilation of the analysis is crucial to the overall success of the research, especially if you want to use it to reel in investors. Below are four strategies to help you get the best out of your efforts:
- Sniff Out Vanity Metrics
- Employ Graphics
- Second and Third Opinions
- Ask Your Mentors
Vanity metrics are metrics that seem significant on the surface but have little to no influence on the product. Imagine a marketing video posted on YouTube; the number of views is a vanity metric. The purpose of the video is to get people to make a purchase or engage the video via comments in the very least.
In the example above, the number of views may make the product seem popular but that is neither here nor there. True success is when people engage you in the comment section seeking to know more about the product. Such leads are easy to convert.
After you’ve conducted a thorough market analysis, complement it with an in-depth grammatical analysis. Typos and semantic errors give the impression that the work isn’t credible. That said, proofreading your work can be quite tricky; that brings us to the next point:
Ask others to read through the analysis and give their suggestions. Most people are too good to talk ill of something as labor-intensive as an analysis of the market; that can be a problem. You want honest feedback, the harsher, the better.
To overcome this, ask people to name five things they find wrong with your work.
Lengthy letters and numbers are annoying- face it. Employ eye-catching graphics to illustrate relationships and increase the document’s overall appeal. Visual representation is more engaging than plain old’ data; it also gives the analysis a professional feel. Punctuate your report with colorful graphic illustrations wherever possible.
Run it Through Your Mentor
Get the opinion of a mentor. Professional input will help you improve your report’s credibility.
In a Nutshell
The modern market is data-driven. The trend is bound to hold in 2020. That said, only a thorough analysis of the market can equip you with data that is both reliable and useful for making profitable decisions.
Market analysis looks at all the factors influencing the market and determines their influences on the various factors driving success. It helps a business to appreciate where it is in terms of success and how success can be magnified. To come to those conclusions, however, you have to make sense of a large amount of data.
Market analysis digs up a lot of data, most of which is not immediately actionable. Focused analysis of the data makes sense out of the scattered bits of information. This type of analysis formulates data-informed suggestions of how problems should be tackled. Additionally, analysis of market trends helps businesses approach the future in confidence. With the right approach, 2020 will be the best year for your business.