FREE online courses on Business Plan Basics - The Essential Elements of a
Good Business Plan - PART 2 - Market Analysis
The Market Analysis section should illustrate your knowledge
about the particular industry your business is in. It should also present
general highlights and conclusions of any marketing research data you have
collected. However, the specific details of your marketing research studies
should be moved to the appendix section of your business plan.
This section should include: an industry description and
outlook; target market information; market test results; lead times; and an
evaluation of your competition.
This overview section should include: a description of your
primary industry; the current size of the industry as well as its historic
growth rate; trends and characteristics related to the industry as a whole (ie.
what life cycle stage is industry in? what is its projected growth rate, etc.);
as well as the major customer groups within the industry (ie., businesses,
governments, consumers, etc).
Your target market is simply the market (or group of
customers) that you want to target (or focus on and sell to). When you are
defining your target market, it is important to narrow it to a manageable size.
Many businesses make the mistake of trying to be everything to everybody. Often
times, this philosophy leads to failure.
In this section, you should gather information which
identifies the:
-
Distinguishing characteristics of the major/primary market you are targeting.
This section might include information about the critical needs of your
potential customers, the degree to which those needs are (or are not) currently
being met, and the demographics of the group. It would also include the
geographic location of your target market, the identification of the major
decision-makers, and any seasonal or cyclical trends which may impact the
industry or your business.
- Size
of the primary target market. Here, you would need to know the number of
potential customers in your primary market, the number of annual purchases they
make of products or services similar to your own, the geographic area they
reside in, and the forecasted market growth for this group.
- The
extent to which you feel you will be able to gain market share and the reasons
why. In this research, you would determine the market share percentage and
number of customers you expect to obtain in a defined geographic area. You
would also outline the logic you used to develop these estimates.
- Your
pricing and gross margin targets. Here, you would define the levels of your
pricing, your gross margin levels, and any discount structures that you plan to
set up for your business such as volume/bulk discounts or prompt payment
discounts.
-
Resources for finding information related to your target market. These
resources might include directories, trade association publications, and/or
government documents.
-
Media you will use to reach your target audience. These might include
publications, radio or television broadcasts, or any other type of credible
source that may have influence with your target market.
-
Purchasing cycle of your potential customers. Here, you will need to
identify the needs of your target market, do research to find the solutions to
their needs, evaluate the solutions you come up with, and, finally, identify
who actually has the authority to choose the final solution.
-
Trends and potential changes which may impact your primary target market.
- Key
characteristics of your secondary markets. Just like with your primary
target market, here you would again want to identify the needs, demographics,
and the significant trends which will influence your secondary markets in the
future.
When you are including information about any of the market
tests you have completed for your business plan, be sure to focus only on the
results of these tests. Any specific details should be included in the appendix
of your business plan. Market test results might include: the potential
customers who were contacted; any information or demonstrations that were given
to prospective customers; how important it is to satisfy the target market's
needs; and the target market's desire to purchase your business's products or
services at varying prices.
Lead time is the amount of time between when a customer
places an order and when the product or service is actually delivered. When you
are researching this information, you need to determine what your lead time will
be for the initial order, for reorders, and for volume purchases.
When you are doing a competitive analysis, you need to
identify your competition by product line or service as well as by market
segment, assess their strengths and weaknesses, determine how important your
target market is to your competitors, and identify any barriers which may hinder
you as you are entering the market.
Be sure to identify all of your key competitors for each of
your products or services. For each key competitor, determine what his or her
market share is. Then, try to estimate how long it will take before new
competitors will enter into the marketplace. In other words, what is your
"window of opportunity"? Finally, identify any indirect or secondary
competitors, which may have an impact on your business's success.
The strengths of your competitors are also competitive
advantages which you, too, can provide. The strengths of your competitors may
take many forms, but the most common include:
-
an ability to satisfy customer needs
- a
large share of the market and the consumer awareness that comes with it
- a
good track record and reputation
-
solid financial resources and the subsequent staying power which that provides
-
key personnel
Weaknesses are simply the flip side of strengths. In other
words, analyze the same areas as you did before to determine what your
competitors' weaknesses are. Are they unable to satisfy their customers' needs?
Do they have poor market penetration? Is their track record or reputation not up
to par? Do they have limited financial resources? Can they not retain good
people? All of these can be red flags for any business. If you find weak areas
in your competition, be sure to find out why they are having problems. This way,
you can avoid the same mistakes they have made.
If your target market is not important to your competition,
then you will most likely have an open field to run in if your idea is a good
one. That is, at least for a while. However, if the competition is keen for your
target market, be prepared to overcome some barriers. Barriers to any market
might include:
- a
high investment cost
-
the time it takes to set up your business
-
changing technology
-
the lack of quality personnel
-
customer resistance (ie., long-standing relationships, brand loyalty)
-
existing patents and trademarks that you can not infringe upon
The final area that you should look at as you're researching
this section is regulatory restrictions. This would include information related
to current customer or governmental regulatory requirements as well as to any
changes that may be upcoming in regards to regulatory requirements. Specific
details that you need to find out include: the methods for meeting any of the
requirements which will effect your business, the timing involved (ie., how long
do you have to comply, when do the requirements go into effect, etc.), and the
costs involved.
