A good knowledge of the market your business is in, as well as the kind of competition your business will encounter, is decisive for a success of your business. As described in the chapter “product(s) / service(s)”, customers will buy your product(s) and/or service(s) only if they can get a specific benefit from it.
Normally, you will not be the only protagonist on the market. That means, the benefit(s) your customers can derive from your product(s) and/or service(s) depend from the offers your competition is offering at the same time. Furthermore, it is important for you and your competition how the market itself is developing and what kind of factors can influence the market.
You should always have in mind that changes in the market structure can be a chance for your business, but also a risk!
The market analysis in this chapter of your business plan is supposed to help you to assess your project and to determine, how and where your business should be positioned on the market. In order to do that, you will have to have a look at the market itself, the customers, the competition and the product(s) and/or service(s) your competition is offering.
Description of the Total Market
Assign your product(s) and/or service(s) to a market (i.e. software, laser, medical, etc.) and describe the size (quantity of sold product(s) and/or services, turnover, etc.), as well as the expected market growth and other trends that could affect the market. Examine external factors that could affect the market on short and medium-term und show how these factors have any relevance for your particular business.
One of the most important information in your business plan is the market potential. The market potential shows the possible quantity of sales for a particular product and/or service within a specific market. You determine the market potential for a product and/or service by applying it to your targeted customer group, which means for a certain part of the total market, called market segment.
In order to do that, it is recommended to classify your customer into customer groups (equaling the market segments) by using appropriate criteria, which in return will enable you to estimate current and future sales and revenues.
Furthermore, creating market segments allows you to pinpoint your product(s) and/or service(s) to a specific customer clientele. The criteria used to create these segments will be chosen by you but have in mind that the number of clients and their buying patterns must be ascertainable and that you can reach all customers within one of these segments with the marketing strategy.
Possible criteria for market segments are:
|Geographical Criteria:||Countries, regions, cities, counties, etc.|
|Demographical Criteria:||Age, gender, income, profession, also company size, industrial sector (for business clients)|
|Behavioral Criteria (Buying):||Brand awareness, price awareness, central or decentralized buys|
|Behavioral Criteria (Use):||Frequency of use, use of the product(s) and/or service(s)|
Examine the strength and weaknesses of your most important competitors. Give information about quantity of sold product(s) and/or service(s), sales volume in USD, price formation, growth, market share, location, distribution channel(s), service and image.
Compare your own profile with the strength and weaknesses of your main competitors in a so-called SWOT-Analysis (Strengths, Weaknesses, Opportunities, and Threats).
Definition of SWOT’s:
(To achieving the objective.)
(To achieving the objective.)
(Attributes of the business.)
(Attributes of the market.)
Content and size of a market analysis depends on the information available. Lenders expect you to obtain and analyze the information that is commonly available. They also expect you to (if applicable) interview potential customers. What they don’t expect is for you to buy an expensive market study. Be careful with stating that there is no information available. Lenders know very well what kind of information can be obtained and from where.
One source for your information can be the office of statistics, chambers of commerce, confederations of industries, other banks, and insurances. Also, professional or trade journals as well as business brochures (from your competition) can be useful and give information about the particular market. Furthermore, conversations with customers and competitors can be very efficient, especially on trade fairs.
- What is the size of the total market (projected sales volume)?
- How many potential customers are in which regions?
- What is the growth rate for the total market per year?
- What trends affect the total market?
- What criteria can you use to segment the total market?
- What market segments are useful for your business?
- What is the potential for every relevant market segment (projected sales volume?
- Who are your main competitors?
- What are the market shares for your competitors (if known)?
- If known, what are your competitors’ price-, product-, distribution- and communication policies?
- What are your competitors’ strengths and weaknesses (image, service, innovational degree, location, economical potential, profit, etc.)?
- Are any potential customers bound to any of your competition? If so, how do you plan to delegate them to your business?
- Are there any market entrance barriers your business would have to overcome? What are these barriers and how do you plan to overcome them?