Market Analysis

Updated on April 4, 2024
Article byJyotsna Suthar
Edited byJyotsna Suthar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Market Analysis?

Market analysis is a comprehensive study of a specific market within an industry, including an examination of its various components, such as market size, key success factors, distribution channels, target audience, profitability and growth rate, and market trends. The aim of market analysis is to evaluate and understand market conditions, trends, and competition to make informed business decisions.

Market Analysis

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The market analysis aims to provide an overview of the market’s characteristics and emerging future trends and help businesses make informed decisions, identify opportunities, and develop strategies to achieve their goals and objectives. It is also a tool for analyzing key competitors in the industry and provides an overall view of the market environment. 

Key Takeaways

  • Market analysis is a comprehensive examination of the market and its components globally or in a specific region. 
  • Its main objective is understanding the market’s opportunities, strengths, weaknesses, and consumer behavior patterns.
  • The key components include market size, distribution channels, profitability, growth rate, key success factors, target audience, and market trends. These components help businesses to gain insights into the market and make informed decisions.
  • It can be conducted using various methods, including surveys, field trials, focus groups, observations, personal interviews, and secondary research. 

Market Analysis Explained

Market analysis is an analytical study where companies analyze a specific market. It provides an overview of the market’s characteristics and emerging future trends. As a result, companies can examine each aspect of the market, including market size, key success factors, distribution channels, target audience, profitability, growth rate, and market trends. For instance, a stock market trader would conduct a stock market analysis among various markets.

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Components

Market analysis is an important aspect for businesses to understand their industry’s current and future state. So let’s look at some of its key components:

  • Market Size: Market size refers to the total sales generated in a specific period and provides insight into the current sales volume and future sales projections. Market size is influenced by market demand, and businesses can gather information on market size through surveys, government data, trade publications, and financial reports.
  • Key Success Factors: Understanding the key success factors in the market is crucial for businesses to remain competitive. These factors include marketing and operational strategies, resource allocation, management, and employees. By evaluating these factors, businesses can identify areas for improvement and achieve their goals and objectives.
  • Distribution Channels: Distribution channels play a crucial role in the market analysis as they determine the path to the customer. Through market analysis, businesses can identify new customers and opportunities to expand their user base by evaluating the relationship between the business and existing customers.
  • Target Audience: Market analysis allows businesses to segment their target audience from the larger market and cater to their specific needs, increasing brand loyalty.
  • Profitability and Growth Rate: Predicting future profits is one of the main objectives of market analysis. Businesses can project the market size and future cash flows by estimating the potential user base. Additionally, financial ratios can be used to estimate the growth rate.
  • Market Trends: Understanding current and future trends is a key component of market analysis. Market trends have the potential to attract new customers and should be closely monitored.

Methods

Let us look at the methods and tools used for a market analysis for a better understanding:

  • Surveys: Surveys are widely used tools for market analysis. Companies can send questions to their target audience through various methods, such as email, in-person, mail, online, and telephone surveys, to gather information about their tastes, preferences, and opinions.
  • Focus Groups: Focus groups are a method of gathering a small group of individuals to discuss a product or service, providing companies with a broader perspective of their target audience’s views and opinions. However, focus groups can be limited in size and more expensive than other methods.
  • Field Trials: Field trials are tests where a company takes a group of products and tests them in selected areas to observe consumers’ reactions and understand market behavior towards their products. Field trials can be highly expensive compared to other market analysis tools.
  • Personal Interviews: Involve one-on-one interactions with individuals to gather information about their preferences and opinions. Companies can conduct personal interviews in a specific region to identify behavioral patterns toward a product.
  • Observations: Observations are a cost-effective method of market analysis, where companies can manually observe the market and audience to understand their tastes and preferences. However, this method is limited in providing quantitative data and may need to be combined with other methods to get a complete market picture.
  • Social Media: Social media platforms, such as Instagram, provide companies with opportunities to engage with their target audience through polls, insights, and questions, offering a broad perspective on customers’ preferences and opinions.

Examples

Let us look at the examples of market analysis to comprehend the concept better:

Example #1

Suppose ice cream maker Ben and Jerry’s is thinking of launching a new range of flavored ice creams. However, they doubt its popularity. Therefore, the management decides to conduct a market analysis to understand the possible future trends. 

They prepare a list of questions and conduct surveys and field groups. Besides, the management prepared a report on the same. From the findings, they interpreted that out of 10,000 respondents, 50% liked the first flavor, 30% favored the third flavor, and 20% on the rest.

As a result, they could easily interpret the findings and curate their new products in the market. Thus, from the majority of votes, they launched a flavor that is a mixture of cookie dough, chocolate, vanilla, and fudge brownie.  

Example #2

The data from “Green Building Materials Market by Product Type (Exterior Products, Interior Products, Building Systems, Solar Products, and Others) and Application (Residential Buildings and Non-Residential Buildings): Global Opportunity Analysis and Industry Forecast, 2021-2030” highlights various drivers of green building materials market, such as growing concerns over the environment and energy conservation and increasing awareness of the benefits of green building materials.

It also provides insights into the market growth potential by analyzing product types and applications. Additionally, the report includes an examination of the competitive landscape and regional market trends, as well as a comprehensive analysis of key players in the market. Overall, the report provides valuable insights for individuals and stakeholders looking to invest in the Green Building Materials Market.

Importance

Let us look at the importance of market analysis in the decision-making process:

  • Understanding Customers: It helps understand target customers’ tastes and preferences for better marketing campaigns and future market predictions.
  • Tracking Competition: Competitive analysis tracks competitors and helps identify weaknesses for strategy development.
  • Testing Products: It provides demographic and product insights through surveys, polls, etc., to predict product popularity before launch.
  • Predicting Future: It predicts opportunities and threats for informed decision-making and proactive measures.

Market Analysis vs Market Research vs Industry Analysis 

The three terms, market analysis, market research, and industry analysis, are related but differ in focus and scope. Market research focuses on a specific market segment and its customers, while market analysis studies the entire market. Industry analysis examines the whole industry, including its components and players, and can be conducted globally or within a specific region.

 BasisMarket AnalysisMarket ResearchIndustry Analysis
MeaningAn analytical study of the market and its components, focusing on the whole market within the industry.In-depth research of the target customers and specific markets.Analysis or study of the whole industry.
Conducted inThe analysis can be conducted globally or within a specific region.The research is conducted within a specific area.The analysis can be conducted either globally or within a region.
ExamplesGlobal, African, or Asian market.U.S. market, European, Russian, or Indian market.The food manufacturing industry, automotive, or textile industry.
Associated withBusiness StrategyMarketing StrategyCompetitive strategy

Frequently Asked Questions (FAQs)

What is financial market analysis?

The financial market analysis examines various aspects of a financial market, such as stocks, bonds, commodities, currencies, and other securities, to understand the market trends, identify potential investment opportunities, and make informed investment decisions.

What are the common stock market analysis tools?

Traders and investors commonly use stock market analysis tools to evaluate and make informed decisions about the stock market. These tools include technical analysis, fundamental analysis, economic indicators, stock screening tools, stock comparison tools, portfolio tracking and management tools, and news and data feed.

What is comparative market analysis in real estate?

A comparative market analysis (CMA) is a study conducted in real estate that compares a subject property to similar properties in the same area to determine its estimated market value. Real estate agents and brokers commonly use it to help their clients set a price for a property they are selling or to help them determine the value of a property they are considering purchasing.

This has been a guide to what is Market Analysis. We explain its examples, importance, components, & comparison with market research & industry analysis. You can learn more about it from the following articles –

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Comments

  1. chernet says

    excellent explanation keep it up

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