A market analysis involves primary and secondary research methods that reveal where a firm and its products stand relative to its competition. The market analysis section of a firm's business plan incorporates market size, growth rate, profitability, cost structure and distribution channels.
A market analysis includes a summary of the company's identity -- including its mission and objectives -- and its existing market position. An analysis regarding the firm's strengths, weaknesses, opportunities and threats (called SWOT analysis) reveals how the firm is perceived internally and externally. Its purpose is to highlight the advantages and disadvantages that the firm possesses. The opportunities and threats sections examine direct and indirect competitors' products, marketing activities and brand positioning.
A market analysis divides the potential consumer base into segments. It identifies the target market according to demographics and psychographics. Demographics are common attributes that the group of potential consumers in the target market share. These attributes can include income level, formal education level, geographic location and marital status. Psychographics are shared lifestyle and self-concept preferences such as maintaining a high level of physical fitness, traveling to foreign countries or having the need to achieve a high socioeconomic status.
Regardless of whether a company is relaunching, rebranding or introducing a product, a market analysis includes an investigation of how the target market perceives that product. The analysis dissects product features and benefits and matches them up with a potential need that exists within the mind of the targeted consumer. Companies analyze potential package design, distribution strategies, advertising and media placement, slogans, product attributes, pricing and consumer buying patterns. Companies may conduct surveys and focus groups to gauge potential interest in a product and uncover consumer preferences.
The main advantage of a market analysis is that it helps a firm save itself from potential loss. If a firm blindly introduces a product into the market without knowing who might buy it or why, then the product isn't likely to find success. A market analysis reveals to the firm what it must change to meet the market's needs more profitably. It identifies how the firm can reach its potential consumers and appeal to their needs. Conducting a market analysis also helps firms identify when to discontinue products.