Market Analysis

This article is intended to stimulate your thinking about market size and growth rates and the various kinds of trends that are likely to influence demand for what you propose to offer. The points of this exercise are twofold:

1) to identify the extent to which the proposed venture can reach a sizeable scale or whether it’s more likely to be a niche business;

2) to identify the extent to which future demand is likely to grow or decline, based on trends that are likely to influence your customers’ buying habits.

These trends may be in any of six broad categories:

a) Demographic trends: trends toward greater or lesser numbers of people (or businesses, for business-to-business offerings) in various demographic groups, based on age, income, gender, education, ethnicity, etc. Census data are useful in quantifying these trends. Example: the trend toward an increasing number of people in older age groups in most developed countries.

b) Sociocultural trends: trends toward greater or lesser numbers of people (or businesses) engaged in various lifestyle or other activities based on social or cultural trends. Example: trends toward organic and vegetarian diets in some countries are creating increased demand for foods that fit these categories.

c) Economic trends: changes in income levels, economic growth, interest rates and other economic indicators can have profound effects on demand for many kinds of goods and services. Example: the rapidly growing purchasing power of families in many developing countries is creating increased demand for many kinds of consumer goods in Asia and elsewhere.

d) Technological trends: developments in mobile telephony, biotechnology and a vast array of other technologies portend powerful effects on demand for many other kinds of goods and services. Example: the development of global positioning satellites has spurred new demand for products and services for backpackers, mobile phone users and drivers caught in rush-hour traffic.

e) Regulatory trends: changes in laws and government policies affect demand in many ways. Example: changes in legislation for how older people are housed and cared for in developed countries has spurred demand for new kinds of housing alternatives and other services for the elderly.

f) Natural trends: global warming, the depletion of natural resources, and other natural trends can have surprising influence on some kinds of demand. Example: demand for writer resort accommodation in the Alps is likely to decline if global warming makes alpine snow sufficiently unreliable.

The challenge for the entrepreneur is to identify trends in any of these categories that are likely to have significant effect – whether favourable or unfavourable – on demand for what is proposed to be offered. The effect of such trends can be far more powerful than one might imagine.

The best places to look for such trends are in trade magazines and trade associations for your industry, government reports, consumer data sources like Keynote and Mintel in the UK and similar sources elsewhere, and in the general and business press. Finding objective sources of specific trends – and citing them – provides valuable indications to either support or detract from the viability of the entrepreneur’s vision of how eager customers are likely to be to accept what is to be offered. Later, at business planning time, these data provide a powerful boost to the entrepreneur’s credibility and can give important support for the veracity of estimates of market potential.

So, here are the data that are needed to complete a comprehensive macrolevel market analysis:

(i) Market size, ideally measured in any or all of the following ways:
– number of customers for the category of goods or services (athletic shoes or whatever) you will offer;
– total spending in the category;
– total units bought in the category.

(ii) Recent market growth rate, measured in any or all of:
– population changes;
– total spending in the category;
– total units bought in the category.

(iii) Forecasted market growth rate from credible sources, measured in any or all of:
– population changes;
– total spending in the category;
– total units bought in the category.

(iv) Favourable trends, with sources cited, in any or all of the six macrotrend categories:
– demographic
– sociocultural
– economic
– technological
– regulatory
– natural.

(v) Unfavourable trends, with sources cited, in any or all of the six macrotrend categories:
– demographic
– sociocultural
– economic
– technological
– regulatory
– natural.

Overall conclusions:

1. Is this a niche business or one that can reach sizeable scale?
2. What few specific and crucial macro-trends are important to the future of the venture? What are their implications for market attractiveness?
3. Overall, how attractive is the market you intend to serve?