How to Structure a Market Analysis (1 of 3 in a series)
Overview: This blog post content is part of recent document that is available on my website. For the full document, go to my website on the Tools and Techniques page: Market Analysis Framework
For most technology companies, a key internally-focused role of the marketing group is to perform market and competitor analyses. An important result of a market analysis is to determine market attractiveness, whether for the present or future market conditions.
Market attractiveness varies based on current and future internal and external factors. Internal factors include your organization's ability to execute across a variety of disciplines, including product development, sales and marketing, and personnel management issues. External factors include economic factors, competitors, region- and country-specific issues, vertical market/industry requirements, partnering and channel issues, and market maturity.
Entering a new market or expanding a product set into a new geography, country or vertical market is neither easy, nor inexpensive. This document outlines steps they to help analyze the attractiveness of new markets with a repeatable process that combines quantitative and qualitative content.
Attractiveness will vary over time, but the key elements to focus on regarding market attractiveness are as follows:
Definition and segmentation of the market (for example, for an enterprise market, segments include providers that target small, midsize and enterprise customers; regional, country and vertical markets)
Market size (total revenue, total units, total time connected to a hosted service, number of customers, number of potential users) and growth of overall market, individual segments and top players in each segment (including your company) to date and projected.
How distinct are these market segments? What are the barriers to entry for new players (including players from other segments) into your company's segment? What is the competitive landscape?
What are the profitability and profit margins of players in your company's segment? How sustainable are these profits?
What are the opportunities and threats in this market?
What are the barriers to future growth of this market?
A technology provider cannot stop after finding an attractive market. It must then objectively analyze its own capabilities and perform a gap analysis of market needs versus internal capabilities to determine if the market is one that is worth its time and investment to enter.
Best Practices
Analyzing a market is the third part of a three-step process:
Understand what the market is and what it represents
Segment the market to determine unique characteristics
Analyze the market to determine attractiveness.
Best practices key tasks include:
Step 1: Establish market analysis characteristics and evaluation criteria
Step 2: Develop a comparative model with decision criteria and weighting
Step 3: Conduct the initial market segmentation analysis and refine.
There are many methods for analyzing a market. A market analysis framework provides a way to structure a set of analysis characteristics. This set is provides an example; you may find other characteristics to use and other decision criteria to implement. The key is to develop a repeatable analysis framework that can be implemented and supported for market planning and product and service deployment.
The framework is aligned with the standard elements of a go-to-market strategy and planning analysis. The key elements focus on:
Markets — Size, growth rate, potential for sustainability and composition
Products — Level of uniqueness, ways to differentiate and competitive parity
Competition — How are vendors competing, will that change over time, is the market ready to consolidate
Customers — Is the focus on early adopters (Type A), followers (Type B) or technology laggards (Type C); how loyal are they; who is the key buyer; is more of a technology purchase or a "solution sell" approach needed
For example, if you are a software vendor or service provider, you may want to include a route to market of software delivery method as part of the market analysis. For software licensing, this would include such factors as perpetual license, term license, annual license that bundles maintenance and technical support, SaaS delivery (application service provider or multi-tenant approach), concurrent user or named user, advertising based, and other options.
Key market analysis characteristics are shown in the following table. You may want to include other variables as aligned with a specific geographic region, vertical market, customer access via direct sales or partnering options, requirement of local language versions, pricing and licensing (perpetual and term), delivery models (on premises, hosted, SaaS, cloud-based), user demographics, and many other variables.
Market Analysis Characteristics and Descriptions:
Market: How large is the market? Is there a true collection of buyers and sellers? Is it a loss leader? What is the longer-term profit potential?
Growth Rate and Predictability: How fast is the market growing (positive or negative)? Is it sustainable? What is the history? What is the longer-term profit potential?
Ease of Entry: Are barriers low? Are costs low? What are incentives to enter or leave
Market Composition: How fragmented and/or stable? Centralized on or dominated by a few key vendors? What is the level of product and vendor saturation?
Product Proliferation/Technology Convergence: Is it highly specialized? Is it rapidly expanding? Few or many distinct offerings? Best of breed? Convergence beginning? Transition to suites?
Intensity of Competition: Is there price competition? Are vendors entrenched? Is a shake-out inevitable? What is the threat of substitute products and services?
Merger and Acquisition Activity: Is there activity? Are new vendors entering? Is there a focus on product functionality gaps? New customer base? New geographies? Channels?
Customer Type and Loyalty: Classification of Type A (early adopters)? B (followers)? C (laggards)? Level of customer loyalty? Costs and benefits of switching?
Key Buyer: Is this a technology or solution sell? What is the business impact? What type of return on investment analysis is needed or required?
There may be other criteria that you want to include for a variable, such as the market size being a total potential market assessment (software products and professional services) as opposed to just one element (such as product revenue or units). You may also have other ways to classify customers, their type and their loyalty, as well as key buyers.
Please contact me if you have any questions or comments: thomasgeid@comcast.net