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10 important factors for market analysis

10 important factors for market analysis

Market analysis is one of the abilities that all business operators should benefit from, that’s why in this article we discuss 10 important factors for market analysis.

Think of entrepreneurship as an example. Entrepreneurship begins with ideation. But not everything ends with ideas. It is important to be able to analyze the target market and see how the market views our idea and product.

For this reason, a part of the business model and documents that are prepared as a business plan are always dedicated to market analysis.

Market analysis can be applied to any type of market: from clothing and car markets to money and gold markets.

In the following, we examine 10 important factors in market analysis:

  1. The degree of necessity of the product for the market (Urgency)
  2. Market size
  3. Potential Price Range
  4. The cost of attracting a customer or creating a new customer ( Customer Acquisition Cost )
  5. Product Delivery Cost
  6. Product Uniqueness
  7. Speed ​​to market
  8. Up-front investment
  9. Cross-sell potential
  10. Product Lifespan

Note that in this article we do not intend to evaluate different situations. So if we talk about the size of the market, we don’t want to say whether the smallness of the market or its largeness is good or bad. Rather, we simply want to examine the important factors in market analysis.

1- The degree of necessity of the product for the market (Urgency)

The first question we have to think about is that the market, that is, all those who demand this product or may have it, to what extent do they see our product as needed and necessary?

Sometimes the market is convinced that the original product is essential (such as third-party insurance) and all that is left is to choose our offer from a variety of offers.

But sometimes the principle of the product may not be considered very serious (such as life insurance). So we have two steps ahead of us:

  • Educating the market and convincing the market to use the product in general.
  • Convincing the market to choose our offer among all offers.

Here we must pay attention to several points:

  • The product demand is not the same in different market segments. For example, owners of expensive cars are more likely to consider car insurance more necessary than owners of cheap cars.
  • Necessity is perception and attitude. Therefore, the need for the product and its necessity can change with the training of the target market. For example, by educating the market through advertising and content marketing , the supplier of nutritional supplements may be able to increase the attitude towards the necessity of supplements in their target community. The same issue can be raised about herbal medicines and organic and natural products.
  • The degree of necessity of the product from the point of view of the market changes with the change of the target market. Suppose you want to conduct online training courses. If you choose your target audience as a group that has used online training so far, they will look at your services differently than a group that has only used physical services so far.

It is clear that if you can correctly identify the answer to this question, your assignment for the future of the business and the strategies you should choose will be more specific.

Market size

2- Market size

When we talk about market size, we mean the result of the existing demand for a product. Market size can also be defined in different ways, including the following ways:

  • Potential market : the total potential demand that can exist for the product.
  • Active market : the total active demand that provides this product from us and our competitors.
  • Required market : the total demand that is necessary to achieve in the following years to return the initial investment.

Here you should pay attention to two points:

  1. The first point is that the size of the market is different from the size of the industry. In the first case, we are talking about the amount of demand, and in the second case, we are talking about the amount of supply.
  2. The second point is to remember that the market is big or small, there is no inherent advantage. Rather, organizational resources, product type, our position in the market, the ability to compete and dozens of other factors together determine what size of the market can be suitable and desirable for us.

3- Potential Price Range

When we define a product solely by its type, we may fall into the trap of generalization. In the sense that it is possible to unintentionally attribute the characteristics of a part of the market to the whole market.

For example, suppose we are talking about the housing market.

Is the market of apartments under 50 meters really the same as the market of apartments above 500 meters?

Does a market that has a few hundred million tomans for housing and has to supplement its budget with a loan behave the same as a market that considers a few billion tomans to buy a property?

The behavior of these segments, their response to price changes, the effect of marketing and sales strategies on each of them can be different.

Therefore, when we think about a product and its market, sometimes it is appropriate to specify which segment of the market we mean.

In other words, we are talking about a market segment that is willing to pay between A and Z Rials for product X.

Think about the car market. Even in a limited and controlled market like the market of our country, the budget that two customers consider for buying a car can differ up to 100 times. In such a situation, talking about the car market without distinguishing the price range can be misleading.

It is necessary to pay attention to some basic points such as price range separation in the initial steps of market analysis and it can better clarify the hidden corners of the market for us.

4- The cost of attracting a customer or creating a new customer (Customer Acquisition Cost)

Customer acquisition cost is one of the important parameters that can influence many of our decisions.

Ignoring this factor in market analysis can be very expensive for us. To the extent that a business that has an economic justification at first sight, goes out of the scope of justification and we cannot implement it in an economic way.

When we talk about the cost of acquiring a customer, we need to find the answer to at least two questions:

  1. Cost of customer acquisition: If someone is already a customer of this type of product or service, how much would it cost us, on average, to leave the current supplier and become our customer?
  2. Cost of creating a customer: if someone has never used this product or service, how much should we spend to make them become our customers?
    Obviously, these are not easy-to-answer questions. Their exact answer will be determined only after the implementation of the activities and the start of the business.

But estimating and estimating them is a necessity. Also, examining active and historical businesses can provide us with good ideas for estimating these costs.

But even a poor customer acquisition cost analysis is better than no analysis at all.

5- The cost of delivering the product to the customer (Product Delivery Cost)

One of the costs that many of us forget in the market analysis and economic evaluation of businesses is the cost of delivering the product to the customer.

Even when we estimate and determine the cost structure, sometimes this cost remains out of our sight.

The reason can be that we often feel that this cost will be announced independently and has no role in the price of the product.

But in practice, many things happen that make us think about the cost of product delivery.

Including the fact that customers consider the final cost of the product in the form of product price + shipping cost, and we must be able to compete with others in the final price of the product.

Also, sometimes with the aim of gaining market share and more effective competition, some of our competitors undertake the cost of sending the product and take it from the customer.

In such a case, we will have to digest and absorb all or part of this cost in our cost structure.

If you talk to book publishers, you will come to the conclusion that sometimes they have to spend up to half of the back cover price to get the book from the publisher’s warehouse to the customer’s hands. The cost that the broadcast network absorbs.

Your answer to the question of what you want to do with such an expense and what is your estimate of it, can even change your business model.

The cost of delivering the product to the customer is one of the costs that are sometimes hidden from our eyes, while the amount of this cost can often not be ignored.

My point is not that paying such a fee is unnecessary or necessarily unfair.

This issue becomes more clear in examining the difference between brokerage and mediation, that sometimes, the existence of intermediaries is value creating and unavoidable.

The topic of our discussion is that in the product and market analysis, we should also pay attention to the delivery costs so that this important part of the cost structure is not overlooked.

6- Product Uniqueness

The dream of every business is that its product is unique. To the extent that he can tell the customer: either you have to buy from me or completely, give up having such a product.

But we know that rarely happens in the real world. Many products are easily imitated. Some products can be copied with investment and effort.

The easier it is to imitate a product, the more difficult it will be to compete in the market. But we should not think that uniqueness is only in the nature of the product. The market you are considering is also important.

You need to think about how well your target market understands the differentiators you can create. Of course, understanding is not enough and the market must be willing to pay for this distinction.

The degree of uniqueness of the product is one of the parameters that we should pay attention to. Part of this feature is a function of the nature of the product, and another part is a function of the market’s view of our product.

The answer to this question can determine the fate of a business in the medium and long term. It will also force you to adopt some policies in your marketing and sales and avoid some other policies.

The uniqueness of the product

7- Speed ​​to market

Suppose today you realize that the market needs a product that falls within the scope of your activity. Or that the market expects you to make changes to your product features. Or you even come to the conclusion that you need to make improvements to your product to compete with other competitors.

In your desired market, what is the distance between design and market launch?

A restaurant may be able to fill the gap between design and delivery in a matter of days or weeks.

This means that after realizing the need for a new product or a change in the current products, it can add the new product to its list of offers with a relatively high speed.

But a bank, an automobile company, or a company active in the pharmaceutical industry may need months or years to change their product because changing the technological infrastructure or voting for regulatory approvals is usually not quick and easy. This feature will change the way you approach the market.

When your speed to market is high, you may pursue an idea that is fostered in design thinking by trial, error, and learning by doing.

But if the speed of access to the market is low, it is necessary to study more from the beginning and the cost of making mistakes will be very high.

Based on this, not only the competitive strategy, but also the pattern of providing and injecting your capital will change, and ignoring this question can be very costly.

Compare the speed to market between a publisher that sells paper books and another that offers digital content.

The cost of error is not the same for these two publishers. Therefore, their investment method , production structure and even their quality control mechanisms will be different, or expected to be so.

8- Up-front investment

What is the minimum initial investment to enter this market?

If another competitor wants to offer my same product or service in the same market where I am currently working or intend to operate, how much initial investment will he need?

Or the more important question is, what effect does my presence in the market have on the initial investment by the next competitors?

Consider this example:

When Samsung or Apple launch their products, the initial investment cost for other manufacturers and suppliers is reduced. Because, a number of manufacturers invest in the supply of raw materials and production of parts, and formally or informally, they will welcome the remaining of their capacity to be used by other brands in any way.

People are exposed to the promotion of new products and the need for the product is strengthened in their minds. Now, due to the fact that they may not have enough money and budget to buy the top brands in the market, the demand for alternative brands is increasing. In other words, sometimes pioneer investors inevitably become the road-smoothers of follower businesses.

In summary, there are two main questions to think about in the field of initial investment:

  • How much is the initial investment to enter the market I want or the segment I want?
  • What benefits or costs does being a leader or a follower in entering this market impose on me in terms of the investment required?

9- Cross-sell potential

What other products will my target market need in addition to buying my product? What role can I play in providing them?

  • The car buying market is probably concerned about leasing and financing services.
  • The market of organizing and executing events probably needs event marketing and information services.
  • A market that moves to software solutions will probably also need hardware services.

Can I consider these as part of my business growth potential? Or will I not have an advantage compared to competitors who specialize in this work?

What does my target market expect from me? Does he expect me to offer complementary and ancillary products? Or that he prefers me to work in a limited and specialized way?

Longevity of the product

10- Product Lifespan

The meaning of the product’s viability or the product’s lifespan is not how long it takes for the product to be destroyed after the product is produced or released.

What we mean is that after designing a product, how long can it be produced and offered without serious changes?

Think of two publishers, one offering various software manuals and the other offering literary classics.

In appearance, the market of both publishers is the market of book lovers and book readers. But one of the markets is very dynamic and constantly expects products to be redesigned and updated.

While the other market will not have such a desire unless, over the course of several decades, expectations are gradually created in terms of typesetting or cover design changes.
Here, the market’s expectation is partly dependent on the product’s features and partly on the market’s taste.

For example, we know that in the mobile industry, manufacturers try to create the attitude of the customer to consider the life of the product shorter.

On the other hand, think about matches, which may be produced for several decades, with minimal changes, and the market does not expect serious changes in its design and production.

I do not intend to value here. Both types of markets exist and presence in each of them requires its own strategies. But it is important to know the expectations of the market and take it into account in our product design and business analysis, because otherwise we may lose the power of competition in the market.

Sometimes, the term Evergreen is used to describe products that can be produced and supplied without design changes .

In the end, I would like to know, in your opinion, if in a market, the cost of attracting a customer and the cost of creating a customer are very close, what will be the difference in the marketing strategy compared to the situation where the cost of creating a new customer is very high?

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