Demystifying market analysis for your business launch

While there are several methods for carrying out this kind of exercise, like focus groups and in-depth surveys, good analysis doesn’t necessarily require specific technical expertise. “All it takes is curiosity and discipline,” explains Kevin Dugal. He’s an entrepreneurship coach at Futurpreneur, a national non-profit that provides young entrepreneurs aged 18 to 39 with the resources they need to start or buy a business.

To guide you through your first market analysis, Dugal summarizes key elements here: what it involves, the main methods and the steps to take before taking action.

What is market analysis?

Market analysis helps you understand a market by collecting and analyzing information on customers, competitors and industry trends. It helps you determine which market segments to target and underpins a solid marketing plan.

Typically, a market analysis seeks to answer at least the following questions:

• Who are the potential customers?
• What are their needs and habits?
• How sensitive to prices is the target market?
• What are our strengths and weaknesses compared to the competition? How do we stand out?
• What are the emerging trends in the target market?

Why is market research crucial for start-ups?

Starting a business requires a considerable investment of time and money. Intuition about the actual demand for a product or service is not foolproof. This is doubly true for budding entrepreneurs.

You need to conduct a market analysis to avoid losing time and money on a project that fails to find clients. Entrepreneurship is always risky business, and no venture is guaranteed to succeed, even after a lengthy analysis. That said, sound market research can significantly reduce the risks.

“Young entrepreneurs often neglect this step because they’re too wrapped up in their idea or venture. But a good analysis is just the thing for eliminating this bias,” adds Dugal.

What methods are used for market research?

Market research methods can fall into two broad categories:

Primary research – Research carried out by the business itself.

• Surveys
  Surveys can be done online, by phone or even by mail. They’re useful for collecting quantitative data on a range of topics from many people. Responses can be superficial.
• Field interviews
  These interviews involve meeting potential customers in the field to speak directly with them about their needs, their behaviours and what drives them.
• Focus groups
  This approach involves gathering current and potential customers to question them, in a formal and structured manner, about a product, service or market. It’s used to obtain detailed information about consumers’ likes and preferences.
• Product or concept testing
  Product or concept testing seeks to gauge the interest in and understanding and relevance of an offering prior to its market launch.
• Field observations
  With this approach, real-world consumer behaviours are analyzed to better understand habits and decisions. However, without direct feedback from those observed, this approach fails to grasp what motivates their actions.

Secondary research – Research bought by the business or found online.

• Market reports
  These documents provide an overview of a sector, including its size, structure, trends and growth outlook.
• Government statistics
  Government statistics provide reliable data on populations, economies and businesses, often at the national or regional level.
• Sector studies
  These studies provide an in-depth analysis of a specific sector. They include details on the players, competitive dynamics and issues, as well as a consumer demographic profile.
• Data from professional associations
  Data from professional associations yields information on a specific trade or industry, often tied to practices, standards and sector trends.
• Industry articles and public analyses
  Industry articles and public analyses make it possible to keep up with market news, identify emerging trends and better understand sector issues.

How will you carry out your first market analysis?

“First-time entrepreneurs often have limited financial resources,” says Dugal. “Buying market reports or organizing focus groups are not exactly realistic due to the high cost.”

Here then are five steps for doing market research on the cheap.

1. Get a market overview

Carry out secondary research to get a big picture of your market. This step will give you a high-level snapshot of market opportunities along with important background information to consider when developing a profile of your market and industry:

• market size
• consumer trends
• anticipated growth
• competitive landscape

2. Identify your potential clientele 

Dugal suggests, “Start with your product or service idea and ask yourself: who might this interest?”

Develop one or several personas. This will help you figure out where to go to meet your potential customers in the field, so that you can ask them questions.

Let’s say you want to open a spa for men. Your typical customer might be an active guy who really enjoys relaxing and sports activities. A gym or even an après-ski spot could be just the place to find individuals who fit this profile.

3. Plan your field interview

Once you’ve developed a persona and determined where you might find your potential clientele, you need to draw up a list of questions. Consider the following important points:

• How often do you use this type of product or service?
• Where and how do you currently purchase these products or services?
• What brands or stores do you currently favour and why? What are their strengths and weaknesses?
• How much are you currently paying for this type of product or service?
• Of the following, what is most important to you: price, quality, service or proximity?
• How much more would you be prepared to pay for a product that has the same features as our product or service?

4. Interview your potential customers in the field

Once you’ve prepared your questions, seek out your potential customers where they spend time. Start by interviewing a few dozen people to get a representative sample and begin to pinpoint trends. 

Note their responses and get their contact information, if possible. Then you’ll be able to email them a newsletter to keep them updated on your venture and even give them short online surveys to validate your ideas or ask additional questions. A number of low-cost tools can help you with this.

According to Dugal, “It’s normal to fear copycats and to be wary of doing interviews in the field. But in reality, when you’re starting out, the biggest threat is investing without understanding what people actually want.”

Also, avoid being too formal when approaching people. When you walk up to someone with pen and clipboard in hand, they may feel like they’re about to be interrogated—not quite the foot you want to start off on. On the other hand, a more natural and spontaneous conversation will elicit honest, detailed answers.

Use an iterative approach to narrow down your conclusions

Following your initial round of interviews, you should have answers to many of your high-level questions. Use these insights to alter your product, service or offering, and prepare a second series of interviews to test your alterations and drill down on certain answers.

With this iterative approach, you can confirm your hypotheses step by step, then identify new opportunities or issues and increase your chances of success before moving on to the launch phase. As Dugal notes, “By moving forward one step at a time, you remain agile, reduce risks and improve your odds of success.”

The information you gather here will be invaluable when it comes to determining which market segments to target. It will also be extremely useful in drawing up your marketing plan and will help you fine-tune your business model.

Next step

Ready to tackle your first market analysis? Download BDC’s free Supply and demand analysis tool.