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Market Analysis, Explained

What is market analysis, and why does your company need it?

Not too long ago, Nokia was a household name. The technology company produced everything from wifi routers to smartphones, and cornered an emerging market. In 2007 Nokia’s smartphone share was an impressive 49.4 percent, but by 2013 it had diminished to just 3%.

Microsoft acquired Nokia in 2013, attempting to resurrect the company. It was a partnership doomed to fail for several reasons.

  1. Apple and Android were dominating the smartphone market.
  2. Customers for phones were relatively loyal to a brand.
  3. The market was fast-moving, leaving little room to create a new 'niche.'

Recently, Nokia has decided to shift their focus from the smartphone market to the rollout of 5G networks, a move that seems to have paid off.

Nokia’s collapse and resurrection highlights the importance of market analysis as a predictor and factor in a company’s success or failure.

What is Market Analysis?

Market analysis uses both quantitative and qualitative data to gather information about the market in your industry.

Market analyses consist of many factors, including:

  • Competition
  • Demand
  • Target Market
  • Pricing

Competition

The Pareto Principle dictates that 80% of your business comes from 20% of customers. Entering an oversaturated market will make it difficult to gain a client base.

Startu-ps are already behind in the market. Other companies have loyal customers, consistent marketing plans, and developed data to rely on past and future decisions.

The probability of selling to an existing customer is 60-70%, the prospect of selling to a new customer is just 5-20%. Gaining new customers is easier in less crowded markets, but most importantly, there must be enough existing demand for a product. If all the demand is fulfilled by existing companies, then a new company may encounter significant difficulties.

Demand

Market analysis to calculate demand needs to account for much more than just supply. Not only can it help a company create accurate demand forecasts, but it can also influence pricing.

A demand curve is a relationship between demand and the price of an object. As demand goes up, so will the price. As demand goes down, the price will follow.

To accurately price your products, you must be able to calculate the demand for your service. Without proper financial analysis, a mispriced item could lead to a lack of business or a loss of potential income.

Target Market

Knowing your target market will help:

  • Shape your marketing
  • Lower your churn rate
  • To differentiate a company from competitors

Marketing to a target market is essential. For example, If your market is younger, social media marketing is highly effective. Finding your target demographic is also crucial in assessing which demographic is most at risk for churn. Millennials also are more likely to switch brands, making retaining their business a key focus in a successful marketing campaign.

Even in an oversaturated market, a company can differentiate itself by appealing to a different market. Market analysis is vital in finding a niche for your product.

Competition

Assessing competition through market analysis is equally important to both a new company and an established one. Markets are in a perpetual state of change. New companies can appear at any point, and whatever price point is considered competitive at one moment may change.

To fully understand your competition, a company must perform market analysis to assess its strengths and weaknesses.

  • Is your company performing better or worse than other companies in the same industry?
  • Is your company's churn rate better or worse than other companies in the same industry? If you’re losing more customers than other company’s, there may be a simple issue to address. For example, market analysis for churn rate may show you that your churn rate is high due to higher prices than a competitor.
  • Is your company's growth rate strong compared to other companies in the same industry? If other company’s in your industry are growing at a faster rate, this could affect your company in the future.
  • Is your company's pricing competitive with other companies in the same industry?

Pricing

A product's price will influence a customer's decision to buy a product. As seen in the demand curve, price and demand go hand and hand.

Market analysis will give you several key factors to help price your product.

Causal can map out scenarios to help a company determine how a price will influence other factors in a company. By analyzing the market for competitive pricing, and using Causal to determine the best pricing for your product, a company can make the most informed decision to price their products for the maximum profit.

Causal's built-in scenario-planning tool makes it easy to understand the effects that a change in pricing can have on the rest of your business metrics.

Why it Matters

To avoid Nokia syndrome, it's vital to assess a market. For existing companies, having your thumb on it’s pulse can make sure your product stays innovative and accurately priced.

For Startups

Market analysis can be a predictor of success or a warning of failure for any startup.

Startups generally have a limited budget. Market analysis can help determine whether a startup will run out of funds by looking at the costs and pricing of other companies in a similar industry.

Causal's Startup Suite/Runway tool allows a company to put in these figures and determine whether their startup will run out of money and the relevant timeline or 'runway' a startup has.

Conducting Market Analysis using Causal

Causal can make market analysis easy and accessible with clear graphics, flexible modelling for every situation, and interactive dashboards.

Market analysis must be functional, accurate and accessible. In a market that's constantly fluctuating, there isn't one sole scenario. Causal considers the variables crucial to a business's success so you’re ready for every scenario.

Causal can also help you come up with an accurate marketing plan and assess your existing campaigns. Causal can track your campaigns, and build dynamically updating forecasts, so you don’t have to.

Whether you’re a startup or a full-fledged company, Causal will make market analysis easy so your company can remain innovative and profitable.

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