Market Evaluation and How to Conduct It: A Definitive Guide

Market Evaluation and How to Conduct It: A Definitive Guide
08 December, 2022 • ... • 2343 views
Natasha Zack
by Natasha Zack

So, you’ve got a brilliant business idea for a new product or service. But will it seem just as exciting to your prospective customers? Nearly a half of startups that failed did due to misunderstanding market demand.To assess your idea’s potential, you need to conduct market evaluation. Otherwise, you risk ending up wasting energy and resources on something that has zero potential for a successful take-off. 

In this detailed guide, we’ll explain what market evaluation is, who needs it and why, and provide a step-by-step instruction on how to handle it properly. Let’s dive right in.

What is market evaluation?

Market evaluation, or market analysis, is a research and assessment of a specific marketplace and the dynamics within it. This process includes the gathering of both quantitative and qualitative data: market size, statistical figures, average prices within the target market, the consumers’ buying behaviors, and more.  

This data is then used to draw conclusions and make predictions about the success and profitability of a business venture at a particular time and place. It can also be used to help companies define their niche within the market, differentiate from competitors, and devise a winning marketing and advertising strategy.  

Moreover, market evaluation also helps to identify threats, reduce risks, and assess the overall attractiveness of the industry and a particular market within it.  

Who needs it?

There are four main types of businesses who need market evaluation most:

  • New businesses (startups)
  • Businesses that are already operating and plan to expand into new markets
  • Companies looking to make a pivot toward a different market
  • Existing companies that are launching new products or services onto the markets they currently occupy 

In all of the above cases, market evaluation is typically an integral part of a business plan. Yet some companies run it on a regular basis (every year or several years) to ensure their business and marketing strategies always stay relevant. 

The benefits of conducting market evaluation

Market analysis can benefit your company in many ways, whether you are doing it for internal use or as part of a business plan to present to potential investors. 

Here are the major pros of conducting market evaluation:

  • Understanding the industry

Based on the data you’re going to gather during research, you’ll be able to evaluate market size, identify trends, spot opportunities, and avoid predictable threats. 

  • Reducing financial risks 

Venturing into a new market is like exploring an uncharted territory. There are many dangers out there, the biggest one being the loss of money. Market evaluation will help you make realistic sales projections, develop competitive pricing strategies, and make you less prone to financial catastrophes.

  • Persuading potential investors 

Investors are not going to back up your project if you don’t provide something more substantial than just an idea. A business plan that includes comprehensive market evaluation is the best way to convince big bosses and secure much-needed investments.  

  • Devising better marketing strategies

Knowing both your customers and competitors is the key to developing a winning marketing and advertising strategy. Market analysis will provide you with the necessary data and insights to engage with your target audience, nail product positioning, and outperform your rivals. 

  • Providing benchmarks for evaluation 

To assess your company’s performance in a new market, you’re going to need evaluation benchmarks. Market analysis will help you obtain statistical data and numbers from key competitors, enabling you to compare results and make more informed decisions.

How to do market evaluation: step-by-step guide + examples

So, how do you evaluate a market properly? The best way is to do it step-by-step —  especially if you’ve never done it before. We’ll guide you through the process and illustrate it with examples for better understanding.

Useful tip: It isn’t strictly necessary to follow the steps in the exact same order as presented below. For example, some people find it more comfortable to start with researching their target audience. You can start with any step you like — just be careful to not miss anything out.

Research the industry

If you decide to do things by the book, researching the industry you’re going to enter should be your first step. At this point, there’s no need to get into much detail — you just want a “bird’s eye view” to get a general picture.  

A good place to start would be answering the following questions: 

  • What is the market size? 

How many people are currently buying products and services in your target market and how much revenue do they generate?

  • What are the market trends and what opportunities do they present to your business?  

Is the market growing or stagnating? What is the projected growth rate? What products and services are in-demand now, and what does the future spell? At this stage, you can try to identify market gaps that your products or services can fill and make predictions about the opportunities that might emerge in the future. 

  • What are the external forces that affect the industry at large? 

Think of laws and regulations, major economic and social shifts, technological trends, and the like.  

To answer these questions, you can use statistical data from governmental organizations, consulting firms, professional associations, and business media. The general practice is to gather data related to a specific time period – typically, 3-5 years. 

Here’s how it works. Let’s imagine you want to open a coffee shop: Even if you know nothing about the industry at present, you can start by googling some basic facts. This will get you plenty of information to sink your teeth into. Just be careful to formulate your query accurately, pick the most reliable sources, and store all the search results in one document. Also, remember to check the primary sources — e.g., if there are statistical numbers in an article, make sure the data is official and up-to-date.

Google search results for “coffee shop industry 2022 usa”
Source: Google Search

Feel like you’ve collected enough data? Proceed to the next step. 

Analyze the competition

Now that you have an overview of the industry, it’s time to get more specific and zoom in on your competitors. A detailed analysis of your competitive environment will help you get a clearer understanding of where your company can fit in, define your and your competitors’ strong and weak points, and develop a viable marketing strategy.

pic

Depending on the goals of your research, you can use various tools, such as the SWOT matrix, Porter’s Five Forces framework, strategic group analysis, and more. 

Some of these tools — most notably, the SWOT matrix — can be utilized to analyze both your company and the rivaling firms. To learn more about this and other tools and how to use them, check out our article on competitive environment analysis. This analysis will help you get an idea of how you can differentiate your company’s products or services to make them stand out.

For example, the Food & Beverage Services industry in which coffee shops largely operate is a very competitive field — particularly, in big cities like New York or Los Angeles. In addition to major players like Starbucks, there are dozens of smaller companies sharing the marketplace. However, you can still attract customers and generate revenue with the right marketing strategy and unique selling proposition that will highlight your strengths and your rivals’ weaknesses.

Get to know your target audience

Knowing the industry and your potential rivals is important, but no business can thrive without thorough understanding of its target audience — i.e, the people it is going to serve. 

If you think you already know all about your prospective customers, yet you have no data to back up your guess, then beware: All seasoned marketers testify that the real target audience of a product or service is seldom similar to what we perceive it to be.  

Therefore, it is crucial to always test your hypotheses. Here’s what you can do: 

  • Analyze your competitors’ customers

If your business is a startup, you probably don’t have an audience yet. The best you can do then is take a closer look at your direct competitors’ target audience. While there’s no guarantee that the same people will be buying your product or service, it can be a good starting point for further research. 

  • Run a survey

Companies that already have a loyal customer base can leverage it via email campaigns with surveys. You can ask people who are already buying from you which of their needs your company doesn’t satisfy yet. It is also possible, though less common, to ask whether they would buy a particular product or service should you offer it anytime soon.

Email campaign survey
Source: Really Good Emails

This works particularly well in the education industry. For example, educational entrepreneurs often run surveys asking their audience to choose the topic that interests them most at the moment. Then, they produce products related to the topic that is most in-demand, use social media and email marketing to warm-up the audience before the launch, and offer the products to their existing customer base. Profit!

  • Leverage social media

Social media is a great place to glean insights about your customers. For a new business, it might be tricky, but brands who are already on the market can make the most of social media by analyzing their audiences across different channels, and running surveys.

Source: Twitter

When you have the data, you can use it to segment the audience (this will come in handy when you’ll be working on your marketing strategy) and describe every group in detail. 

For proper segmentation, use the following attributes: 

  • Demographics (age, gender, location, education, occupation, income, etc.)
  • Psychographics (values, goals, interests, etc.)
  • Buying behaviors (offline vs. offline, compulsive vs. planned, etc.) 
  • Needs and pain points 

You can also go the extra mile and create customer personas for every segment.

For example, Ellen is a 35-year-old family woman living in Texas. She has a college degree and works as a financial consultant. Her morning routine and commute are time-consuming, so she often skips breakfast at home. Ellen’s income is sufficient for her to have lunch at a cafe, but she isn’t satisfied with the quality of snacks and beverages that cafes near her office offer. So, she’s prepared to pay more for better quality and a nice, relaxing atmosphere.

Define your niche

The above example illustrates how you can, with all the information collected, define a specific niche for you to operate in. If Ellen from the example above is not satisfied with what your rivals offer, and you know there are many people like her, you can offer more expensive coffee and snacks that would taste better at a cafe that would feel like a home kitchen. Surely, students from a nearby college won’t likely become your customers — but you can’t have it all at once, right?  

It works similarly for any other industry: cosmetics companies can produce products for vegans or for teens with problem skin, educational institutions can offer flexible courses for parents with young kids, clothing brands can sell sportswear for teens and young adults, etc. 

However, being a niche brand comes with certain limitations — most notably, narrow target audience. So it would be wise to look for additional opportunities that could help you grow and expand.

That’s exactly what online schools do, for example. Those who used to focus on courses for children start offering programs for teens and adults, language schools add IT courses to their portfolio, and so on. Such diversification helps them overcome crises and continue operating even when the demand for their initial products starts thinning out.

Make financial projections

Last but not least, you need to count the costs and projected revenue in order to not go bankrupt. Investors love numbers too, so including this section into your business plan will ensure they will take you seriously. 

The main things you need to consider at this point are: 

  • How much do you need to invest in your business, product, or service up-front?
  • What is the cost price of the product or service compared to its market price? 
  • When do you plan to break even and start generating revenue? 
  • What is the projected market share your company plans to acquire within the defined time period? 
  • How profitable is your company going to be in general? 

Answering these questions in advance will ensure your company’s financial stability and profitability, help you secure investments, and avoid unnecessary stress. 

Useful tip: You can use data from open sources (case studies, mainly) to set evaluation benchmarks for your type of business because numbers can vary widely. For example, opening a beauty salon requires larger investments than an online dating app, and the break-even point will be reached later in the former case.

Wrapping up

Market evaluation is a complex and time-consuming process consisting of many steps. But the benefits it provides make it essential for all businesses planning to venture into new markets or launch new products and services. If conducted properly, market evaluation will help come up with the right marketing strategy, avoid financial catastrophes and, ultimately, perform successfully within the target market. 

08 December, 2022
Article by
Natasha Zack
I’m a professional journalist with 10+ years of experience. Throughout my career, I’ve worked with various kinds of media — print, online, broadcast. Currently, I write copy for brand media and teach English part-time. I also have my own edtech passion project dedicated to teaching English via Marvel Cinematic Universe.
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