A market analysis studies the attractiveness and the dynamics of a special market within a special industry. It is part of the industry analysis and thus in turn of the global environmental analysis. Through all of these analyses, the strengths, weaknesses, opportunities and threats (SWOT) of a company can be identified. Finally, with the help of a SWOT analysis, adequate business strategies of a company will be defined.
The market analysis is also known as a documented investigation of a market that is used to inform a firm’s planning activities, particularly around decisions of inventory, purchase, work force expansion/contraction, facility expansion, purchases of capital equipment, promotional activities, and many other aspects of a company.
Market segmentation is the basis for a differentiated market analysis. Differentiation is important. One main reason is the saturation of consumption, which exists due to the increasing competition in offered products. Consumers ask for more individual products and services and are better informed about the range of products than before. As a consequence, market segmentation is necessary. Segmentation includes a lot of market research, since a lot of market knowledge is required to segment the market. Market research about market structures and processes must be done to define the “relevant market”. The relevant market is an integral part of the whole market, on which the company focuses its activities. To identify and classify the relevant market, a market classification or segmentation has to be done.
Market segmentation is an important way to find competitive advantage with its differentiation in market analysis. Market segmentation concentrates on market energy and power to gain competitive advantage. In other words, market segmentation is the concept tool to get the force (Thomas, 2007). In market analysis, market knowledge is required to analyze market structure and process. Since segmentation requires a lot of market research, various information can be extracted from it. Market segmentation can identify customer needs and wants and develop products to their satisfaction. Market segmentation can identify different products for different groups, better match customer wants and product benefits, maximize the use of available resources and focus marketing expenditures and competitive advantages (Karlsson,2012).
There is no specific way to segment market. However, businesses can follow generalized rules like geographic, demographic, psychographic, and behavioral. A good market segmentation should be sustainable, accessible, actionable, measurable, and differentiable (Karlsson,2012).
Dimensions of market analysis
David A. Aaker outlined the following dimensions of a market analysis:
- Market size (current and future)
- Market trends
- Market growth rate
- Market profitability
- Industry cost structure
- Distribution channels
- Key success factors
- Key success details
Market analysis strives to determine the attractiveness of a market, currently and in the future. Organizations evaluate future attractiveness of a market by understanding evolving opportunities, and threats as they relate to that organization’s own strengths and weaknesses.
Organizations use these findings to guide the investment decisions they make to advance their success. The findings of a market analysis may motivate an organization to change various aspects of its investment strategy. Affected areas may include inventory levels, a work force expansion/contraction, facility expansion, purchases of capital equipment, and promotional activities.
The market size is defined through the market volume and the market potential. The market volume exhibits the totality of all realized sales volume of a special market. The volume is therefore dependent on the quantity of consumers and their ordinary demand. Furthermore, the market volume is either measured in quantities or qualities. The quantities can be given in technical terms, like GW for power capacities, or in numbers of items. Qualitative measuring mostly uses the sales turnover as an indicator. That means that the market price and the quantity are taken into account. Besides the market volume, the market potential is of equal importance. It defines the upper limit of the total demand and takes potential clients into consideration. Although the market potential is rather fictitious, it offers good values of orientation. The relation of market volume to market potential provides information about the chances of market growth. The following are examples of information sources for determining market size:
- Government data
- Trade association data
- Financial data from major players
- Customer surveys
Market trends are the upward or downward movement of a market, during a period of time. The market size is more difficult to estimate if one is starting with something completely new. In this case, you will have to derive the figures from the number of potential customers, or customer segments.
Besides information about the target market, one also needs information about one’s competitors, customers, products, etc. Lastly, you need to measure marketing effectiveness. A few techniques are:
- Customer analysis
- Choice modelling
- Competitor analysis
- Risk analysis
- Product research
- Advertising the research
- Marketing mix modeling
- Simulated Test Marketing
Changes in the market are important because they often are the source of new opportunities and threats. Moreover, they have the potential to dramatically affect the market size.
Examples include changes in economic, social, regulatory, legal, and political conditions and in available technology, price sensitivity, demand for variety, and level of emphasis on service and support.
Market growth rate
A simple means of forecasting the market growth rate is to extrapolate historical data into the future. While this method may provide a first-order estimate, it does not predict important turning points. A better method is to study market trends and sales growth in complementary products. Such drivers serve as leading indicators that are more accurate than simply extrapolating historical data.
Important inflection points in the market growth rate sometimes can be predicted by constructing a product diffusion curve. The shape of the curve can be estimated by studying the characteristics of the adoption rate of a similar product in the past.
Ultimately, many markets mature and decline. Some leading indicators of a market’s decline include market saturation, the emergence of substitute products, and/or the absence of growth drivers.
A market opportunity for a product or a service, based on either one technology or several, fulfills the need(s) of a (preferably increasing) market better than the competition and better than substitution-technologies within the given environmental frame (e.g. society, politics, legislation, etc.).
While different organizations in a market will have different levels of profitability, they are all similar to different market conditions. Michael Porter devised a useful framework for evaluating the attractiveness of an industry or market. This framework, known as Porter five forces analysis, identifies five factors that influence the market profitability:
- Buyer power
- Supplier power
- Barriers to entry
- Threat of substitute products
- Rivalry among firms in the industry
Industry cost structure
The cost structure is important for identifying key factors for success. To this end, Porter’s value chain model is useful for determining where value is added and for isolating the costs.
The cost structure also is helpful for formulating strategies to develop a competitive advantage. For example, in some environments the experience curve effect can be used to develop a cost advantage over competitors.
Examining the following aspects of the distribution system may help with a market analysis:
- Existing distribution channels – can be described by how direct they are to the customer.
- Trends and emerging channels – new channels can offer the opportunity to develop a competitive advantage.
- Channel power structure – for example, in the case of a product having little brand equity, retailers have negotiating power over manufacturers and can capture more margin.
The key success factors are those elements that are necessary in order for the firm to achieve its marketing objectives. A few examples of such factors include:
- Access to essential unique resources
- Ability to achieve economies of scale
- Access to distribution channels
- Technological progress
It is important to consider that key success factors may change over time, especially as the product progresses through its life cycle.
The environmental analysis can be divided into two parts which are external and internal factors. External factors. Political issues, social potential force, and local economy called external environmental factors. Internal environmental factors belongs to company’s internal position such as employees, department structure, budget and so forth (Christina, n.d.). How environmental effect markets. According to the Parry, the government limit pollution emission, they mention environmental taxes to prevent company which produce pollution substance. In other words, the government drives the organization. On the contrary, the cost of products increase due to the environmental taxes. It means that company may take measure of reducing production which may grow unemployment rate by emission tax. Therefore, the environmental taxes leads an income equality. It is not an excuse ignore our serious environmental problem. Even though the higher income group also can benefit from windfall gains (Parry, 2002).
According to the Christina, competitive analysis is that company must know their competitors which have the same common services and products. The business can use like product cost, operational efficiency, brand recognition and market Dimensions of market analysis.
Except for David A. Aaker’s 7 main dimension of a market analysis including market size, market growth rate, market profitability, industry cost structure, distribution channel, market trends, and key success factor, there is another analysis of dimension market analysis. Based on Christina Callaway, dimension of market analysis can be divided into four parts which is environmental analysis, competitive analysis, target audience analysis, and SWOT analysis. The market analysis is to help company to illustrate current trend in the market and may affect the profitability (Christina, n.d.). At the same time, market analysis is also to determine the attractiveness in the market. A good marketing analysis can improve organization investment decision accurately, they can based on the attractiveness to change investment tactical.
The market analysis is to help company to illustrate current trend in the market and may affect the profitability for the business (Thomas, 2007). It can be seen as a part of industry analysis with using global environmental analysis. Company can identify strengths, weakness, opportunities and threats so that the business can define the business strategy. The market analysis is also reference for company’s activity, like decisions of inventory, purchase, work force, facility expansion and many aspects of company.
penetration to find the difference or competitive advantages between two similarly companies (Christina, n.d). How can we find the competitive advantage? Kevin (2016) says that “Anticipating and reading market needs can help business leaders take significant steps towards changing the game and obtaining competitive advantage.” (p. 70). How can we sustain competitive advantages? In terms of Richard research, The company should focus on sustaining competitive advantage due to the swift growth global competition. Therefore, Business practice management is the follow principle to maintain competitive advantage (Richard, 2006).
Target audience analysis
In the Christina contribution, target audience is for company to target their customer group who most likely to buy their products (Christina, n.d.). The group can be classified with location, age, gender, income, ethnicity, and behaviors. And people who make a decision of purchase can also be divided in the target audience. How identify market in accordance with Women’s enterprise centre the market can be classified in three types which are consumer market, industrial market, and reseller market. The company segment their market, research market, and identify why customer would like to buy their products (women’s enterprise centre, 2011).
SWOT is strengths, weakness, opportunities, and threats. It matches internal strengths and weaknesses up against opportunities and threats (Christina, n.d.). Strengths and weakness are internal factors which we can control. And opportunities and threats are external factors that businesses cannot control, but can however impact on. When using strengths and weakness, businesses need to collect raw data to get information. Businesses can get information by customer feedback, employee surveys. Furthermore, businesses also can identify the capability if it is weakness or strengths, resources and process. Opportunities and threats are the external factors. Business can get information from secondary data like environmental information, industry information and competitive data. The purpose of the business use the SWOT analysis is to get the information from it and match each other to develop the ideas and get into goal statement to form strategic development (Olsen, 2008).
Market communication has significant impact on building and maintaining the relationship of stakeholders. Market analysis elements is to form a strategic planning and the information is responsiveness, intelligence generation, and dissemination (Mike, Sandra& Felix, 2005). Besides, market communication provide the information focus on the customer needs and competitive advantage. At the same time, these information spread to customers means the company spread its brand value so that customer can make awareness of the company’s products. It is the communication channel between business and customers (Mike, Sandra& Felix, 2005).
Market segmentation is one of the important ways to find competitive advantage with its differentiation in market analysis. Market segmentation concentrates on market energy and power to gain competitive advantage. In other words, market segmentation is the concept tool to get the force (Thomas, 2007). In the market analysis, we need a lot of market knowledge to analyse market structure and process. Since segmentation needs to do a lot of market research so that we can get the information from it. Market segmentation recommends the market strategy. Market segmentation can identify customer needs and wants and develop products to satisfy them. Market segmentation can identify different products for different groups, better match between customer wants and product benefits, maximize the use of available resources, focus marketing expenditures and competitive advantages (Karlsson, 2012).
There is no perfect way to segment market but business can follow some rules like geographic, demographic, psychographic, and behavioral. A good market segmentation should be sustainable, accessible, actionable, measurable, and differentiable (Karlsson, 2012).
Global market segmentation
Since the globalization more and more developed, the global market become indispensability part of the business thinking. In order to explore global market, how market segmentation can be used in the global market. There are some aspects of defining the global market so which is more efficient to segment global market. Some researchers mention about Cross-National and Cross-Cultural Approach to segment global market. To differentiate country and culture, the company have to identify two areas which is vertical market segment existing internal area. Another area is external market segments which a group of countries has relationship of each other and share their characteristics. Compared with cross- cultural approach and cross-national approach, cross-cultural approach has its cultural stability of traditional values. cultural stability has a wide range of shared national-cultural values features, due to group solidarity, interpersonal harmony and so forth (Agarwal, Malhotra & Bolto, 2010). However, cross-cultural approach has challenge of environmental changes, cultural change and some other unstable factors (Agarwal, Malhotra & Bolto, 2010). Therefore, the main principle of looking at cross-cultural approach and cross- national approach base on perceive service quality. In the global service marketing, the marketing manager face a challenge of international services on account of the intangibility of services, unification standardizing services across national borders and difference of preference for customized services in different countries and culture. Therefore, it is significance for business to have a deep understanding service quality in facing across different countries, regions and cultures (Agarwal, Malhotra & Bolto, 2010).
In the software market, the trend of software is the price is high and coverage is low. In order to improve the trend, there is some problems of software market. Zhang (2014) mention that“ (1) What possibly discourages product differentiation in such a competitive market? (2) Why is versioning absent here? (3) How does the presence of free alternatives in this market impact its structure?”(p. 589). In order to improve these problems, Zhang mention that quality competition and market segmentation apply to the software market. In Zhang’s research, the software company lack of developed the method of quality competition, market segmentation, and versioning. In terms of market segmentation, software company think segmentation consumer market is not useful. Therefore, even though versioning is the least costless way of spread product information, the company still ignore it (Zhang, 2014).
The relationship between market segmentation and communication in marketing is interaction. For example, market segmentation is important in the social media. There is three perspectives supplier perspectives, interaction perspectives, and buyer perspectives. In order to balance these three relationships, business must do segment well. Otherwise, the buyer perspective and supplier perspective cannot interact very well may lead loss of promotion (Oxfordlearninglab, 2009). Therefore, social media is important method of communication in the market and market segmentation also unnecessary before the business use social media channel.
The literature defines several areas in which market analysis is important. These include: sales forecasting, market research, and marketing strategy. Not all managers will need to conduct a market analysis. Nevertheless, it would be important for managers that use market analysis data to know how analysts derive their conclusions and what techniques they use to do so.
- ^Dillerup, R., Stoi, R. (2006). Unternehmensführung. München: Vahlen.
- ^Unger, F., Fuchs, W. (2005). Management der Marketing-Kommunikation. Berlin Heidelberg: Springer.
- ^Bruhn, M. (2009). Marketing – Grundlagen für Studium und Praxis. Wiesbaden: Gabler.
- ^“Market Analysis”. NeMBA. Retrieved 3 August 2012.
- ^Dillerup, R., Stoi, R. (2006). Unternehmensführung. München: Vahlen.
- ^Aaker, D. A., McLoughlin, D. (2010). Strategic Market Management – Global Perspectives. West Sussex: John Wiley & Sons Ltd.
- ^“What is cost structure? – Questions & Answers”. AccountingTools. 2013-04-09. Retrieved 2016-04-03.
- George J. Kress,Taryn Webb, and John Snyder, Forecasting and Market Analysis Techniques: A Practical Approach(Westport, CT: Quorum Books, 1994)