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Guide to Writing a Business Plan – Part 3 – Market Analysis, Demand Analysis

October 11, 2011

In Part 3 of our 8-Part Guide to Writing a Business Plan we look at Market Analysis and Demand Analysis.

3. Market Analysis

In this chapter you will define:

  • The market
  • Geographical area
  • Consumer behaviour
  • Market segmentation

3.1 The market is the people or organisations that will participate in the buying and selling processes of the products or services or use these products or services.

3.2 The geographical area refers to a type or range of products in a defined geographical zone, for example, the car market in the USA or the cosmetic market in the UK.

3.3 Once you have defined the market and the geographical area you need to summarise the needs and behaviour of the consumers. Who are they? Why do they need the product or service?

3.4 Different groups of customers will have different requirements. The market for any product can be split into individual segments, where each segment describes customers with similar requirements, tastes, characteristics, interests, or lifestyles. Segmentation indicates gaps in the market and highlights requirements of different types of users, enabling products to be positioned to meet those needs.

TIPS

  • If you do not know your market, you can not create a viable plan, so do your homework.
  • Think about the behaviour and habits of each of the segments.
  • Identify consumer needs that the competition does not cater for, and make sure that these are highlighted clearly in the customer requirements.

4. Demand Analysis

In this section you are going to make a numerical evaluation of the market and the segments of the market that you have defined in the following areas:

  • Potential demand
  • Actual demand
  • Future demand
  • Evolution of demand

4.1 The potential demand is the maximum the consumers could buy in a determined period of time.

4.2 Actual demand is the demand for the product or service this year or the previous year if the data is not available. It is possible to obtain sales data on a national or regional level from many different sources. If there is no data available you need to make estimates using other methods.

4.3 To establish future demand, estimate the increase in demand for the next year as a percentage of actual demand. For example the market for video games will go up by 10% in the next year. You can also make estimate for the medium and long term, 3-5 years would give you information to provide for and create future strategies.

4.4 To see the potential evolution of demand make a graph of historical sales in your sector, using this you can see the market trends and define the phases of the product life cycle. Using the actual, potential and future demand figures and applying them to the market segments previously identified by geographical region, objectives can be created as detailed later.

TIPS

  • Do not commit the error of being over optimistic with demand forecasts.
  • Define the life cycle of your product or service, apply this to future demand.
  • The launch phase of many products is slow; sometimes it is better to enter a market after others when the demand has already been created.

Go to Part 4 – Environmental, Company and Competition Analysis

Go to the Guide to Writing a Business Plan Index