Market analysis: what is it and how to do it

A market analysis provides information about industries, customers, competitors, and other market variables. You can also determine the relationship between supply and demand for a specific product or service. Based on these insights, you can make more informed decisions about possible marketing strategies.

What is a market analysis?

The market analysis is a subfield of market research that examines the conditions, trends, and competitors in a specific market to identify opportunities and risks. It provides a foundation for strategic business decisions and market positioning.

Furthermore, it is an essential part of a business plan, in which entrepreneurs document their business idea in writing. As part of the market analysis, a specific market is systematically examined.

With the insights gained, businesses can identify opportunities and risks within a market. The definition of the target group serves as the basis for market analysis.

How suitable is a particular market for your offering? A market analysis helps answer this crucial question. Any market participant—whether a company, entrepreneur, or private consumer—can conduct a market analysis. In all cases, it serves as a decision-making tool. Information is gathered and evaluated from both suppliers and consumers to make buying or selling decisions. Additionally, businesses can assess their current market or explore new markets.

Different methods of market analysis

In order to carry out a market analysis you will require reliable information. Generally speaking, small companies tend to carry out the necessary research for their market analysis themselves. Larger companies, on the other hand, often commission market research institutes to do it for them. A market analysis can be carried out using various methods of data collection. A distinction is made between primary and secondary research.

With primary research, experts from a target market are interviewed in order to collect new data. The advantage of this is that it is still your own research purpose in focus. This way, you can collect the data you need for your market analysis. In contrast to this, secondary research uses existing data records from previous surveys. This can be collected both internally and externally. By opting for secondary research you can save both time and money because you don’t have to conduct costly interviews and evaluation. Sources for representative data are, for example, Office for National Statistics (ONS), professional bodies, industry reports, government publications, trade journals, and company annual reports.

Beyond the traditional division into primary and secondary research—where either new data is collected or existing data is used—modern approaches are becoming increasingly important. Methods such as Big Data, AI-powered analytical tools, and social listening enable real-time analysis of market developments and customer behaviour.

What is the purpose of a market analysis?

If you want to succeed with your business idea, conducting a market analysis is essential. A well-founded market analysis forms the basis for developing a marketing strategy and concrete marketing measures.

Additional reasons why a market analysis is worthwhile for you:

• A market analysis allows you to support your business idea with numbers, data, and facts, making it more convincing in your business plan.
• You can identify market potential early and avoid poor decisions.
• You may uncover existing knowledge gaps and address them in time.
• A market analysis helps you understand which competing products already exist in the market.
• It enables you to identify market entry barriers and assess market attractiveness.

How to do a market analysis step by step

An effective market analysis will include an accurate description of the target market and thorough market research. It conveys a holistic picture of a specific market. A market analysis consists of five different areas in which information is collected and analysed.

Define your market

At the beginning, define your market and differentiate it from other markets. Depending on the product or service, your market can be defined using various criteria. In order to carry out segment-specific analyses, the target market must be divided into different segments based on certain characteristics. Such characteristics can be socio-demographic (age, sex, income) or regional (states, cities).

The following questions should be answered in the market description:

• Which target group is your product or service aimed at?
• What age group is your product intended for?
• What is the average income of your target audience?
• Where do the key players in your market live?

Gather as much specific information as possible about your target audience:

• Does your target group prefer chocolate mocha or black coffee?
• How fast-paced is your target group? Do they take 20 or 30 minutes to enjoy their coffee?

How attractive is the market? Market size and market development

When determining the size of your market you should use data that is as accurate and up-to-date as possible. This part of the market analysis is about determining and evaluating the actual turnover or sales volume of a product or service in a specific market. Based on these figures you can make forecasts about the market development and derive the attractiveness of the market from this. The market development includes market growth and growth rates.

What are suitable sources for procuring information?

The following administrative bodies and internet sites provide free input for your market analysis:

• Gov.uk – The official UK government website offers reliable statistics and reports on topics such as business, economy, education, immigration, and more.
• Office for National Statistics (ONS) – Provides free access to national statistics, covering business, the economy, employment, demographics, and other key topics.
• Companies House – Allows access to company financial reports, registration details, and business insights, useful for competitor research.
• UK Data Service – Offers a wide range of economic and social research datasets, freely available for analysis.
• British Library Business & IP Centre – Provides access to market research reports, business resources, and industry databases.
• Federation of Small Businesses (FSB) – Publishes insights into small business trends, industry conditions, and economic factors.
• Department for Business and Trade (DBT) – Offers reports on trade, investment, and sector-specific industry analysis.
• Statista – An online platform for market data, industry studies, and business insights.

What are the market characteristics? Competitive analysis

The competitive analysis considers individual factors that are important for a market. Here, the essential characteristics of a market are analysed and described. The Five Forces Framework is an established tool for analysing competition, especially in the consulting industry. The management theorist, Michael E. Porter, shows which factors are important for the analysis of both the market and the competition:

1. Bargaining power of customers: How do customers react to price increases or decreases? How important is your product or service for your target group?
2. Bargaining power of suppliers: Suppliers have a particularly high bargaining power if the number of suppliers is limited. How can you react to price increases if necessary?
3. Threat of substitute products and markets: Are there alternatives to your product or service? Could emerging innovation jeopardise the distribution of your product or service?
4. New competitors and market entry barriers: If a market is particularly attractive, it is sure to attract new competitors. How high are the market entry barriers for potential competition? For example, high investment costs for a product or service can be a barrier to market entry. Access to a market is also made more difficult if high marketing costs are necessary to achieve a certain level of awareness, or if resources are difficult to access due to exclusive suppliers, or if a shop is in an awkward location.
5. Competitors in the market: How high is the competition? Who dominates the market? Which competitors are ahead and why?

In the competitive analysis you should get to know not only your customers, but also your competitors and possible competitive advantages:

• How quickly should you enter the market?
• What are the dangers of entering the market?
• Who offers a similar range of products and how many competitors are there?
• What do your competitors do well and what can you do better?
• How similar is your target market to that of your competitor?

Analysis of the customer industry

The analysis of the customer industry identifies the industries that achieve the highest sales or turnover. In doing so, you should again refer to your defined market. You can then analyse the structure and attractiveness of the industries with regard to the various sales aspects. As a result of your analysis you can identify the target groups and their various industries and you can determine customer requirements and customer behaviour. Based on the results, you can, for example, develop suitable marketing strategies for your business.

The following questions should be answered:

• How high are the revenues generated in the particular industry?
• Which company is the market leader?
• What are the current trends in the industry?
• Which innovations have been able to advance the industry?

Potential analysis of the target market i.e. how will the market develop in the future?

A market analysis does not only reveal the past and current state of a market, but also the trend of its future development. For this purpose, the potential analysis highlights potential employees, market entry barriers, success factors, as well as current developments and trends. A forecast of the market development is particularly important for your sales planning and for possible investors.

What is the difference? Market analysis vs market research

Market research refers to the systematic investigation of a specific market. It provides information that helps you select the appropriate marketing tools. In contrast, market analysis focuses on a point-in-time examination of a particular market. The goal of market analysis is to identify the key characteristics of a market and determine its structure at a given moment.

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