Marketing: Doing a Market Analysis

In order to determine whether or not a business idea will develop into a viable opportunity, the entrepreneur has to establish if a market demand exists.  To do this, the entrepreneur has to consider the following: the characteristics and attitudes of consumers or industries that may buy the product (market structure); the size of this potential market measured in monetary terms (market size); the stage of the life cycle that this market finds itself (market capacity); and lastly the potential share of this market that the product or service will be able to claim for itself (market share).

 

Market conditions that make it possible for higher-potential ventures to thrive, are ones where unfulfilled market niches are involved.  Potentially low-growth markets exists where product differentiation is not common and the entrepreneur might be confronted with consumers that are exceptionally brand loyal and are unwilling to try out new of different products or services.  An example of this market is convenience stores, like Spar and Pick n Pay.

 

The average profit potential for a market can be used as a guideline when trying to determine if a market has enough spending power.  When trying to determine the attractiveness of a market, many entrepreneurs make use of Michael Porter’s framework (Porter’s five forces) to identify factors that influence a market’s profitability:

  • Buyer power
  • Supplier power
  • Barriers to entry
  • Threat of substitute products
  • Rivalry among firms in the industry

Information for conducting a market analysis may necessitate doing some research.  You can do this by either doing primary research, or by accessing secondary research.


Primary research is research that is proactively created for a specific purpose, and it is done by the entrepreneur himself. Gathering primary data involves a data collection procedure such as observation, networking, interviewing, focus groups, or experimentation and usually a data collection instrument such as a questionnaire.


In contrast, secondary research is research that has already been conducted for other purposes. Secondary data can be found in trade magazines, libraries, government agencies, universities and the internet.  A search in a library will often reveal published information on the industry, competitors, trends in consumer tastes and preferences, innovations in the market and even specific information about strategies now being employed by competitors already in the market.