Analyzing Your Market Situation

The first section of a marketing plan provides a snapshot view of your marketing arena. It presents what you know about the size and growth trends of your market, what you face in terms of competition, and what critical issues will affect your ability to sell your products — for better or worse.

MBA-types call this overview a situation analysis because it analyzes the situation you face as you launch your marketing plan.

Getting a handle on your market

Anyone who reads your marketing plan — or the summary of it in your business plan — wants to know that your ideas are grounded in reality. So start with a fact-packed summary of the market your business serves, including who will buy your offering and whether the number of prospects are growing, holding steady, or shrinking. Make sure to cover the following points:

  • Your customer description: Define your customers in geographic terms (where they live), demographic terms (facts such as age, gender, race, education level, marital status, income level, and household size), and psychographic terms (lifestyle characteristics, including attitudes, beliefs, and behaviors that affect customer-purchasing patterns).
  • How customers divide into market segments: Market segments are comprised of unique groups of consumers that share similar characteristics. For example, women may buy from your company very differently than men do, and buyers from one geographic area may have different product interests than customers from another. Midweek customers may be decidedly different than weekend customers.
    Here are a few ways that companies may divide their consumers into market segments:

    • Companies selling to consumers may segment customers by gender, age, income, location, or buying pattern.

    • Business-to-business companies may segment clients by size or type of company, nature of client relationship (contract business versus one-time purchase, for example), or product interest.

    • Companies using a number of distribution channels (retail outlets, direct-mail catalogs, and e-commerce, for example) may find that customers arriving via each channel share similarities that make them very different — in terms of product interest and buying patterns — from customers that arrive via other channels.

  • The size of your market and the growth trends you see: Indicate size and growth information for your overall market and for the various market segments your company serves. For example, if teenagers represent a sizeable segment of your clientele, include facts about the size and growth trends of the teenage population in your market area.

Don't base your projections on a hunch. Cite experts, refer to census data, excerpt industry analyses, present findings compiled by media organizations that serve your customers, or show a recap of your sales history to prove market momentum. Offering proof for what you say about market size and growth is important because this proof is the claim on which you stake your marketing plan — and budget.

Assessing your competition

To grow your business, you need to gain market share (commonly known as your slice of the market pie) by drawing customers and purchases away from competing companies. In this portion of your marketing plan, you summarize what kind of competition your company faces, including

  • Direct competitors: These competitors are companies that your customers consider when they think about buying. Describe each one, along with what you know about the threats they pose to you.
  • Indirect or stealth competitors: These competitors are companies that go after your customers in different and unexpected ways. For example, cable television, satellite services, movie rentals, and low-priced DVD purchase offers are all indirect competitors to movie theaters.

Competition creates threats and provides opportunities, and how you handle both is a determining factor in the success of your company:

  • Competitive threats and opportunities: Examples of threats include new competitors, improved or expanded offerings from old competitors, and new options that let prospects fill the need that your product addresses in a whole new way — such as online buying, do-it-yourself solutions, or new technologies that replace the need for your offering altogether. Opportunities include changes that weaken your competitors or the closure of longtime competitors.
  • How you plan to protect against threats and capitalize on opportunities: Now you're conducting a strengths, weaknesses, opportunities, and threats (SWOT) analysis.

Forecasting your business climate

The final step in your situation analysis involves looking at how outside forces may affect your company's success. For example, changing economic conditions can crimp or expand your customers' abilities to purchase your product or service (like rising fuel costs for companies in the travel industry). Consider some other factors:

  • Increasing labor or supply costs that can impact your pricing
  • New rules or regulations
  • Emerging technologies that change how you or your competitors do business
  • Social trends or shifting consumer preferences
  • Scheduled construction that may affect your customers' ease of access
  • Regional or industry events or promotions that can impact visibility for and interest in your offerings

In your written business plan, include highlights of your situation analysis, touching on the following key points:

  • The market for your product or service, including facts about the number of prospective customers and whether that group is growing or shrinking
  • Market segments that provide the best opportunities for growth and why
  • Competitive threats and opportunities and how you plan to counter or take advantage of each
  • Market trends and business forces that will affect your company, along with your plans for overcoming threats and capitalizing on opportunities
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