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Market Analysis for Small Business

Buzzle Staff
The market analysis is the most intimidating part of writing a business plan, but it's the part that has the most potential to get your business off to a strong start and adjust to a changing marketplace down the road. You get out what you put in, so make it thorough.
When you're starting a business, it's important to take a good, hard look at the market you are trying to enter. This helps you plan your approach to marketing, pricing and general operations, and as such, should be included in your business plan.
Once your business is established, periodically re-analyzing the environment in your industry can help you adapt your business to changing attitudes, economies and regulations, and help you sidestep potential roadblocks.
Although the term "market analysis" sounds technical and intimidating, it's rather simple, if involved. You don't need an M.B.A. to do this. It's all about examining your industry, target demographic, pricing structure and competition.


Research your industry. Find out how it's been doing, and where it's going. Has it dropped off recently? Is it due to economics or new regulations? Is it projected to resume its previous levels? In how long? Is it growing, or is it stable?
Get a feel for the difference between steady and stagnant - one is characterized by slow but steady growth, the other by inactivity. Find out if your industry is changing - if everyone else seems to be branching off into niche markets, positioning yourself as an all-around provider may not be the best idea.

Target Demographic

Who is your ideal customer? Know everything about them. Know who they are, where they live, how much money they have and how much money they spend. The Census is handy for this.
If your business is locally-based, it behooves you to know how much of your target demographic leaves the area every year, and how many move in. Once you know the facts, start looking into the intangibles. What do they like? What do they buy? What level of customer service do they expect?
Once you know your target market inside and out, explore other potential markets - they may not be your main source of revenue, but they could prove valuable down the road when you're trying to eke out every last drop of profit to fund expansion.

Pricing Structure

In your business plan, you'll have to justify your prices - your market analysis helps with that. Look at your production costs, overhead, labor, etc., but don't stop there - look around and see how much everyone else is charging, but focus on those who serve your target market.
Does perceived value play a role in your industry? What else affects sales, price-wise? Do you plan to offer discounts? How will that affect your bottom line? How deep will the discounts be, and will they more than make up for themselves by effectively driving sales?
You can't set your prices arbitrarily. If you plan to charge substantially more than everyone else, what about your product or service makes it worthwhile to the customer?


Finally, analyze your competition. Ideally, you will look at what the competition is doing throughout your market analysis, but here is where you put it all together. What makes you think your business will be superior to them? Where are they failing the market? How do you plan to fill that gap?
Become intimate with the way your main competition does things - you might learn something, even if it's what not to do.
Your market analysis can go as deep as you want it to - the deeper, the better. Be prepared to rethink some of your ideas as you find out what's going on out there. Your business may look great in your head, but it has to survive in a real economy.