Market Analysis: Blueprint to Outsmart Competitors!

Why Conduct a Market and Competitive Analysis?

Within your business plan, the market and competitive analysis plays a pivotal role. It lays the foundation for successfully positioning your products or services in the market. Through this guide, we'll show you how to carry out this analysis effectively, enhancing your chances of standing out as the best solution for your target audience's problems, thus enabling informed decision-making.

Methods of Market and Competitive Analysis

Every business must differentiate itself from both direct and indirect competitors to be perceived as the top solution for its target audience's needs. Including a market and competitive analysis in your business plan boosts your likelihood of success by facilitating informed decisions.

These are key steps for conducting an effective competitive analysis:

1. Identify Direct and Indirect Competitors

To validate the feasibility of your business idea, conduct a thorough analysis of 10-20 direct and indirect competitors. Focus on aspects such as price-to-quality ratio, service, location, marketing, and sales; offline vs. online offerings.

Direct vs. Indirect Competition: Direct competitors offer similar products or services, whereas indirect competitors operate in the same market segment but focus on different niches or emphasize different features.

Example Direct vs. Indirect Competition Fashion Business:

• Direct Competition: A vintage clothing boutique directly competes with another local shop selling high-end vintage apparel. Both aim to attract customers seeking unique, quality pieces through their exclusive collections and service.
• Indirect Competition: The same boutique indirectly competes with an online retailer offering trendy, affordable clothes. Although not a vintage specialist, this retailer draws fashion-conscious consumers by providing convenient shopping and a variety of styles, including those inspired by vintage designs.

Example Direct vs. Indirect Competition Plumbing Business: 

• Direct Competition: A small plumbing business specializing in sanitary repairs competes directly with another local plumbing service offering similar services.
• Indirect Competition: The same plumbing business might face indirect competition from a larger hardware store that sells sanitary products and occasionally offers installation services. Customers might opt to purchase products from the hardware store and hire a plumber for installation instead of using the specialized plumbing service.

Tip: Create a checklist to gather relevant information about your competitors. This will help you identify their strengths and weaknesses and rank them accordingly (SWOT analysis).

2. Calculate Market Potential

The cornerstone of your market analysis is estimating the market potential using previously identified metrics. Considerations include the maximum possible customer base versus the actual demand for your product or service, product durability, and the consumption rate per customer.

Tip: For realistic estimates, refer to statistical analyses on product life cycles or consult freely available research, studies, and surveys within your industry. Explore key components of pricing brainly!

3. Conduct a PESTEL Analysis for a Resilient Business Model

Factors such as inflation, war, or rapid technological advancements based on AI exemplify external risks and opportunities that can impact your market entry.

The PESTEL analysis covers six critical external factors affecting a business: Political, Economic, Socio-cultural, Technological, Environmental, and Legal.

Key Considerations for Entrepreneurs and Businesses:

1. Political: Legislation, foreign policy, trade policies, tax laws, subsidies, political system stability
2. Economic: Economic growth, population size, interest rates, inflation rate, education level, exchange rates, taxation, income and purchasing power, unemployment, import and export activities
3. Social: Population age, social class, language skills, education level, values, religion, gender roles, demographic trends, lifestyle, mobility, consumer behavior
4. Technological: Developments in ICT, logistics, infrastructure, energy supply, digitalization, research funding, government and private R&D spending
5. Environmental: Environmental regulations, emissions, climate, infrastructure, raw material availability, conscious consumerism, energy sources, consumption, recycling, waste management
6. Legal: Legislation, competition law, environmental law, antitrust law, tax law, labor law, legal system, legal awareness, product liability