Market analysis: A comprehensive guide with an example

When founding a new business or further developing an established one, a thorough market analysis is decisive for success. Various factors play a key role: from assessing market size and trends to analyzing the target audience and the competitive landscape. But internal factors are not the only thing that matters. The market environment and related industries that influence the market must also be considered.

In this article we will go into exactly how a market analysis can support decision-making, help you create sales and revenue forecasts, and avoid risks. Stay tuned, because we will walk you through all the key aspects and share practical tips to keep your business successfully on course. Ready to conquer the world of market analysis? Then let's get started right away!

What is a market analysis?

A. Definition and purpose

If you are founding a company or are already established and want to rethink your strategy, market analysis will be a familiar term. A market analysis is a structured process that evaluates the attractiveness and dynamics of a market at a specific point in time within a particular industry.

B. When is a market analysis essential?

There are specific situations in which a market analysis is particularly important, such as when founding a company and preparing a business plan. Furthermore, a market analysis is essential before entering a new market or launching a new product or service.

The purpose is simple: you want to gather key information about the market so you can make well-founded business decisions and gain a competitive advantage.

C. What is the difference between market analysis and market observation?

A market analysis is conducted at a specific point in time and provides a snapshot of the concrete market. To act successfully on an ongoing basis, however, it is important to keep an eye on market changes at all times. This continuous process of monitoring the market to gather information is called market observation.

In short, the market analysis is a snapshot, whereas market observation is a continuous process of gathering information about the market.

D. Goals and benefits of a market analysis for you

You may ask yourself why a market analysis is so critical. It is essential for data-driven decisions in your business and provides a wide range of information:

• It enables you to create realistic sales and revenue forecasts.
• It identifies the barriers to entry in the market.
• It shows the market potential of the market you want to enter and whether it is growing or shrinking.
• It identifies the strengths and weaknesses of competitors and helps you define your own unique selling points.
• It offers insights into supplier offerings as well as external factors such as inflation and new technologies, and their impact on your business.
• It helps you develop tailored marketing and sales strategies that are precisely aligned with the needs and preferences of your target audience.

In summary, a market analysis allows you to identify opportunities and risks for your business that you might otherwise miss, and to act accordingly and in good time.

If you want to remain flexible and strengthen your competitive position, it is important to analyze the market continuously and keep an eye on changing conditions.

Structure of the market analysis – conducting a market analysis step by step

Now that you are already familiar with the term and have a good idea of the importance of a market analysis, we can get down to practical work. Let's start with the procedure for conducting a market analysis.

Description of the target market

The market analysis starts with a thorough market description. Using the example of a company that offers outdoor apparel, we explain how to proceed and which questions you should ask in order to describe the market comprehensively and clearly define and delineate your target group.

1. Which industry and which product category should be examined? In our example, the industry is outdoor apparel and the product category is jackets, pants, shirts, etc. for outdoor activities.
2. Which geographic region or countries does your analysis refer to? Our company focuses on the DACH region (Germany, Austria and Switzerland).
3. Who are your main target groups and what are their needs? Our main target groups could be outdoor enthusiasts, including hikers, mountaineers, campers and nature lovers of all ages. They need high-quality, durable and weatherproof clothing that offers comfort and functionality for their outdoor activities.
4. Which competitors already operate in this market? Competitors could include established outdoor apparel brands such as The North Face, Patagonia and Columbia Sportswear.
5. How large is the outdoor apparel market? The market could be substantial worldwide and show different growth rates depending on the region. The total revenue of the outdoor apparel market in the DACH region is estimated at approximately 2.5 billion euros per year.
6. Which trends shape the market? Current trends could include a stronger focus on sustainability, technical innovations and the integration of lifestyle into outdoor apparel. In recent years, the market has shown steady growth, especially in the cycling and outdoor segment.
7. Are there seasonal fluctuations in the sale of outdoor apparel? Yes, demand for winter gear could be higher in winter, while in summer lighter clothing and equipment are in greater demand.
8. What does the distribution landscape look like? Outdoor clothing could be sold via brick-and-mortar retail stores as well as online platforms, with specialized outdoor stores, sports stores and e-commerce platforms being important distribution channels.
9. Which time period should be considered – the present, the past, the future? For our market analysis we will examine the current market situation and, based on the data collected, prepare a forecast for market developments over the next 3 to 5 years.

An accurate description of your target market is important so that you collect the right information in the next steps of the market analysis. This allows you to make informed decisions for your business – for example, whether your product really attracts interest in your target market.

Market size, market volume and market potential

A central task in market analysis is to determine the size and potential of the relevant market. For this, three important key figures must be considered: market size, market volume and market potential.

Market size

The market size describes the total revenue of all market participants in a given market. For our example of outdoor apparel in Germany, Austria and Switzerland, the market size could be around 2.5 billion euros in total revenue per year.

Market volume

The market volume, on the other hand, indicates how many units of a specific product or service are actually sold in a market and thus describes the sales volume. The market volume is calculated using the formula: market volume = number of customers x average quantity per customer.

Market potential

The market potential describes the theoretically maximum possible sales volume that a product or service can reach in a defined market and time period.

For the outdoor apparel market, for example, the market potential could be 3.5 billion euros. The market potential is calculated using the formula:

Market potential = number of potential buyers x quantity per buyer x price.

The market potential is not static but changes over the product life cycle. In the introduction phase it is often largest, since the market is not yet saturated. In the growth and maturity phases it then approaches the actual market volume.

To calculate market saturation, the ratio of market volume to market potential is considered:

Market saturation level = market volume / market potential x 100.

The closer the value gets to 100%, the more saturated the market. These key figures give you as a company important insights into the current state and growth potential of the market. They help you to realistically assess how much your product can sell and whether it makes sense to enter this market.

Step 3: Competitor analysis

After analyzing the market and your target group, let's take a closer look at your competitors. This competitor analysis helps you find out who your direct competitors are and how you can differentiate yourself from them.

First, you should create a list of all companies that offer similar products or services in your desired market region. Then select three to five main competitors to examine more closely.

For competitor analysis, Michael E. Porter's Five Forces model is well suited. This model examines various factors that influence competitive dynamics in a market:

1. Existing competition: Who are the leading companies in your industry? How do their offerings differ from each other? What market share do they have?
2. Suppliers: How many potential suppliers are available to the companies? How could price increases by suppliers affect your cost structure?
3. Customers: How strong is demand for your product or service? How might customers react to price changes? Are they satisfied with the existing offerings?
4. New competitors: How high are the barriers to entry in the market? Is there a risk that new competitors will enter the market and threaten your position?
5. Substitute products: Are there alternative products or services that your customers might consider as an alternative to your offering? How could these affect demand for your product?

Here is a possible insight into the competitive analysis for our outdoor apparel business:

1. Rivalry among existing competitors:

The outdoor apparel market is characterized by intense competition, as many established brands such as Mammut, Adidas and Nike are present. Strong competition for market share prevails, focused mainly on pricing and marketing activities. Differentiation is created through product innovation, brand image and customer loyalty.

2. Bargaining power of suppliers:

There are many suppliers of materials and production capacity in the market. The bargaining power of suppliers is low as long as there are no shortages or monopolies.

3. Bargaining power of buyers:

Wholesale and retail customers have relatively high bargaining power due to high price transparency. For end customers, individual bargaining power is low. Customer loyalty through brands and product quality plays a decisive role.

4. Threat of new competitors:

Entering the market requires considerable capital expenditure for production, marketing and the establishment of distribution channels, which creates relatively high barriers to entry. Existing brands have advantages through customer loyalty and economies of scale, but opportunities may arise for niche providers or innovative business models.

5. Threat of substitute products:

Outdoor apparel has no direct substitute products, but there is a substitution threat from alternative leisure activities. Technological innovations such as functional textiles can shorten product life cycles.

In summary, the outdoor apparel market is very competitive, with strong brands as the main competitors. Differentiation through product innovation, brand image and customer loyalty is the key to success. The threat from new competitors is moderate; substitute products play a subordinate role. The bargaining power of buyers is relatively high.

Distribution analysis

The distribution analysis examines how products and services reach customers by identifying various distribution channels and methods and evaluating their advantages and disadvantages. From this, you ultimately derive an optimal, integrated distribution strategy. This could mean, for example, expanding your online sales to reach a wider audience, or entering into strategic partnerships with retailers to place your products in their stores.

In the case of our outdoor apparel business, the distribution analysis could look like this:

Direct sales

• Own retail stores in city centers or shopping malls
• Online shop for direct sales to end customers
• Advantages: High margin, direct customer contact
• Disadvantages: Higher costs, limited reach

Wholesale

• Sales to specialized sports retailers and department stores
• Wholesale partners handle logistics and retail distribution
• Advantage: Wide coverage, lower costs
• Disadvantage: Lower margins, less customer contact

Seasonal pop-up stores

• Temporary points of sale in locations with high customer density (e.g. ski areas)
• Direct customer contact, increasing brand awareness
• Disadvantages: Seasonal focus required

Online marketplaces

• Sales via platforms such as Amazon, eBay, etc.
• Advantages: High reach and visibility
• Disadvantages: Lower margins due to commissions

Analysis of the market environment

When analyzing the market environment, it is important not only to consider the market itself but also to take into account the external factors that can influence it. Legal, technological, economic and social trends play a decisive role here.

1. Legal trends: Examine the legal framework conditions that are relevant to your business and industry. These can be laws, regulations or guidelines that may affect the production, distribution or use of your products or services.
2. Technological trends: Take into account technological developments that could influence the market. This includes, for example, advances in artificial intelligence, materials technology, production processes or distribution channels.
3. Economic trends: Analyze economic factors such as business cycles, inflation or unemployment rates that may affect demand in your industry.
4. Social trends: Pay attention to social changes and trends that can influence consumer behavior. These can include changes in lifestyle, environmental awareness or fashion trends. By understanding these social trends, you can better align your offering with the needs and preferences of your target groups.

Through a comprehensive analysis of the market environment, you can identify risks early, seize opportunities and develop a strategic direction for your business.

Market forecast and positioning

Based on your research and analysis, you should now create a well-founded forecast for market development in your segment. Here you should consider the overall potential of the market and determine whether demand is growing continuously, is already saturated or is developing in other directions. Ask yourself what potential the market offers for your offering and your business idea.

Then consider how best to position your business in this market environment. Define your unique selling propositions and develop a clear brand message. Decide whether you want to specialize, for example, in functionality, sustainability, a favorable price-performance ratio or a particular activity segment. Identify attractive niches or customer segments to focus on.

Set clear, measurable goals for your business based on the market forecast and your chosen positioning. These goals could include a specific revenue, market share or, for existing businesses, customer growth rates. They serve as a benchmark for measuring the success of your strategies.

Then estimate your future market share based on market conditions and your planned distribution activities. Take into account internal and external growth opportunities or obstacles that may arise from the market environment.

By making strategic use of the results of your market analysis, you can maximize your chances of successful market positioning and increase your market share over the long term.

With regard to our outdoor apparel business, given the strong competition from major brands, a niche strategy is recommended at first. A reasonable positioning could be to specialize in high-quality, sustainably produced outdoor apparel for demanding hikers and mountaineers in the premium segment. The focus should be on functionality, durability and environmentally friendly materials and processes. Through a clear sustainability orientation and a focus on the core target group, a convincing brand identity can be built.

If implemented consistently, a market share of 3-5% in the premium segment for hiking apparel appears realistic in the medium term. In the long term, with successful expansion into additional outdoor segments, a total market share of 8-10% could be possible.

Market analysis methods

There are various market analysis methods that companies can use to gain a comprehensive understanding of the market and its dynamics. Some of the most common market analysis methods include:

1. Primary research: In primary research, you collect data directly from the target group or other relevant stakeholders yourself. In this way, new data that has not yet been captured is gathered. This can be done through surveys, interviews, focus groups or observations.
2. Secondary research: In contrast to primary research, where new data is collected, secondary research is based on existing data sources such as market studies, public statistics, trade journals, industry reports and company websites.
3. SWOT analysis: SWOT analysis (strengths, weaknesses, opportunities, threats) is a strategic analysis method in which the internal strengths and weaknesses of a company as well as external opportunities and threats in the market are identified.
4. Market segmentation: This method involves dividing the overall market into smaller, homogeneous segments based on common characteristics such as demographic data, behaviors or needs.

The choice of suitable market analysis methods depends on the specific goals, resources and requirements of the company. Often several methods are combined in order to obtain a comprehensive picture of the market and to make informed decisions.

Sources for a thorough market analysis

To conduct a thorough market analysis, you can use various sources of information. The more sources you combine, the more comprehensive and well-founded your insights will be. In addition to your own market research, you can use the following common sources:

• Industry reports: You can find detailed industry reports from associations such as the Federation of German Industries (BDI) or the Central Association of German Crafts (ZDH).
• Public statistics: The Federal Statistical Office and the statistical offices of the federal states provide extensive data on population, economy and society.
• Online databases: Portals such as Statista or Euromonitor collect market data from various sources and present it clearly.
• Company reports: The annual reports and presentations of listed companies provide insights into market shares, competitive situations and the strategies of market participants.
• Google Trends: With this tool from Google, you can analyze the search volume for specific terms and draw conclusions about consumer interests.
• Market research companies: Specialists such as GfK, Nielsen or Ipsos offer in-depth studies and tailor-made market analyses, which are generally subject to a fee.

Some of these sources are freely accessible, while others, especially from commercial providers, are subject to a fee. The choice depends on your budget and your specific requirements.