Do you have an interesting product or unique service, but you are still afraid to start your own business? Are you not sure if your idea will succeed? Many people do not take action because they do not know how to deal with such doubts. The solution is extremely simple – market analysis with very simple-to-use tools.
Market analysis – what is it?
We call market analysis activities that allow us to know or better understand certain market mechanisms, behaviour and processes. Thanks to it, we can learn about the barriers that need to be overcome, adjust the scale of our activity to the needs of consumers or develop a proper development strategy.
What is market analysis? In order to properly interpret the market situation, it is necessary to analyse both the environment closer to the company and the condition of the entire region (state or continent). The micro- and macro- environment of a company is a convenient way of describing these areas.
How to do a market analysis? The first of them is a narrower concept. The analysis of the micro-environment includes getting to know the competitors, potential buyers and suppliers. The study of the macro situation gives information on legal, political, technological and social aspects. All this data is important when planning your business, because it enables entrepreneurs to better prepare for market entry and to obtain the necessary resources more efficiently. Greater knowledge is a prerequisite for better organisation of work, and this is one of the most important components of success.
How to conduct a market analysis? First steps
As we mentioned in the introduction, market analysis is conducted with certain tools. One of them is the concept of the 5 strengths of Porter.
This method is used to examine the micro-environment. It allows to get to know the structure of the sector in which the entrepreneur intends to enter and to verify its potential. The model developed by Michael E. Porter is to assess the strength of the influence of buyers and suppliers on the company, the intensity of the competitive struggle in the sector and the threat of the emergence of new producers or substitutes.
It will be easier to understand the mechanism of this tool of market analysis when we give an example of a study for a fictitious company. Let us assume that we want to establish a restaurant in Warsaw, which offer a traditional Polish cuisine. There are not many catering outlets offering at least similar products in the region of our restaurant, but there are a lot of suppliers here who are fighting against competition intensively. The huge amount of supply companies reduces their bargaining power, and the small number of catering establishments means that the customers do not have many choice, which reduces their ability to influence us and the strength of competition in the sector. Due to the attractiveness of the area, the possibility of new entrances and substitutes (cafés, fast food) is a major threat.
But is that enough?
What about tools for market analysis? Once we know how the micro-environment looks like, it is worthwhile to carry out a study of the macro situation. A PEST analysis can be used for this. It involves identifying the political, legal, economic, social and technological factors which are connected with our activities. The result of using such a tool is basic, however, it might be very valuable knowledge of what we can, should and must do.
Let us come back to our example with the restaurant in Warsaw. Analysing the legal and political aspects will make us aware of what standards our restaurant has to face and what we have to include in the contracts we sign with suppliers or employees. Analysing further, a look at the economic background will allow us to choose the appropriate financing for our activities or match the offer to the financial capabilities of potential customers. The subsequent listing of our products will be dependent on social factors, such as lifestyle, habits or preferences of buyers. The last step in market analysis will be to take a look at the technological situation. We do not want to invest in outdated equipment. We are interested in the newest solutions that will allow us to deliver high quality products in a fast and reliable way.
Get the edge over your competitors!
Whether you want to set up a new business or develop it, market analysis allows you to build a powerful knowledge base that will result in more freedom to do business, which will clearly increase your opportunities in the sector.
Porter’s 5 strengths or the PEST model are just examples of tools for market analysis you can use. Many other methods have been developed that offer a slightly different perspective. The example is SWOT (check what is SWOT analysis), which allows you to assess the strengths and weaknesses of the company and the opportunities and threats it faces. The BCG matrix, on the other hand, gives you the opportunity to find the company’s current position. The models used in the market analysis are not difficult to use, but the conclusions drawn from them are invaluable. The more accurately you use the tools of market analysis, the greater the advantage you gain over your competitors. Do not get ahead of others. Try them out and beat your rivals.