35% of startups fail because there’s no market need for what they’re selling, and 45% don’t make it past the first five years. Most of these failures trace back to one preventable mistake—skipping thorough market analysis.
Market analysis is the critical step that connects research to strategy in business planning. It’s what separates viable ventures from expensive lessons.
This guide covers what market analysis actually is, why it matters, how to execute it properly, how to write it for business plans, the benefits it delivers, the challenges you’ll face, and how real businesses put it to work.
Key Takeaways:
- Market analysis evaluates industry conditions, customer needs, and competitive forces to inform strategic decisions
- Proper analysis reduces risk by grounding strategy in reality rather than assumptions
- The process combines industry research, target market definition, competitive evaluation, and opportunity identification
- Internal analysis guides operations while investor-facing versions focus on key insights and visual clarity
What Is a Market Analysis?
Market analysis is the structured evaluation of an industry, customers, and competitors to inform business decisions. It combines qualitative insights with quantitative data to create a complete picture of where your business fits in the marketplace.
The benefits are straightforward: reduced risk through informed choices, strategic positioning backed by evidence, and credibility with investors who need proof you’ve done your homework. When you understand market dynamics, you’re not guessing—you’re planning.
Minimum Requirements
Every solid market analysis covers these basics:
Identify your target customers with precision. Who buys what you’re selling? Map their shopping behaviors and where they make purchases.
Determine the total market size and the potential revenue you can realistically capture. Assess appropriate price points and how you’ll position against alternatives. Analyze who you’re competing with and what advantages they hold.
Without these elements, you’re operating blind.
Why Market Changes Matter
Market analysis isn’t just for startups. Established businesses need it to adapt to shifting trends and evolving demand. Consumer preferences change, new competitors emerge, technology disrupts industries, and economic conditions fluctuate.
Take iHeartRaves during COVID-19. When in-person festivals shut down, they pivoted to virtual events and festival gear for at-home celebrations.
That shift required understanding how their market was changing and responding fast. Companies that monitor their markets stay relevant. Those that don’t become case studies in failure.
Purpose of Market Analysis
Market analysis provides the insight needed to validate your business vision and build investor confidence. It answers the fundamental question every entrepreneur must face: Can this business succeed in this market?
Evaluate Opportunity
Start by measuring your total addressable market. How big is the opportunity? What’s the growth trajectory? Is timing on your side or against you?
You need numbers that show whether the market can support your business and scale ambitions. A brilliant idea in a tiny market is still a tiny business. Understanding market size and growth potential determines if you’re building something sustainable or chasing diminishing returns.
Feasibility isn’t just about market size—it’s about whether you can actually enter and compete. Some markets have high barriers to entry. Others are wide open but brutally competitive.
Define Potential Customers
Move beyond demographics to actionable insights. Yes, you need to know age, income, education, and location. But that’s just the starting point.
Effective customer segmentation digs into psychographics—values, interests, and lifestyle choices. It examines behaviors: how people shop, what triggers purchases, which channels they prefer, and what problems they’re actively trying to solve.
Generic labels like “millennials” or “small business owners” won’t cut it. You need to understand the specific subset of those groups who have the problem you solve, the budget to pay for solutions, and the motivation to change their current approach.
When you can describe your ideal customer’s typical Tuesday and explain why they’d choose you over doing nothing, you’re getting somewhere.
Identify Competition
Competition analysis requires looking at three levels. Direct competitors offer similar products or services to the same customers. Indirect competitors solve the same problem differently. Tertiary competitors represent emerging alternatives or substitutes from adjacent industries.
For each category, evaluate its strengths, weaknesses, pricing strategies, and what makes it appealing to customers. What do they do well that you’ll need to match? Where do they fall short, creating openings for you?
A SWOT analysis—strengths, weaknesses, opportunities, threats—gives structure to competitive evaluation. Don’t just list competitors. Understand their strategies and how you’ll differentiate.
Detail Challenges and Risks
Investors respect entrepreneurs who acknowledge reality. Every market has operational challenges, regulatory hurdles, and inherent risks. Identifying them upfront demonstrates you’re prepared, not naive.
What could go wrong? How will you respond? What’s your contingency plan if your primary customer segment doesn’t respond as expected?
Thorough risk assessment doesn’t scare off investors. It reassures them you’ve thought beyond the best-case scenario.
How to Conduct a Market Analysis
A market analysis connects industry context, customer insights, and competitive intelligence to uncover opportunities and guide strategy. Done right, it transforms uncertainty into actionable plans.
1. Industry Overview
Understanding industry context means grasping the landscape your business will operate in. You need the big picture before zooming in on your specific opportunity.
Assessment Requirements
Research current market size in both units and dollar value. Track demand trends over the past 3-5 years. Identify growth rates and what’s driving them. Look for unmet needs that existing players aren’t addressing.
The global market research industry itself demonstrates this importance—it generated $140 billion in revenue in 2024, growing from $102 billion in 2021. That 37% growth reflects how seriously businesses take understanding their markets.
Data Sources
Start with free government resources. The US Census Bureau provides demographic data. The Bureau of Labor Statistics tracks industry trends, employment, and economic indicators. For deeper analysis, platforms like Statista, IBISWorld, and Gartner publish detailed industry reports.
Trade associations for your specific industry often release annual outlooks, consumer surveys, and benchmark data. Don’t overlook these—they’re goldmines of sector-specific intelligence.
Examples
Look at mobile phone market metrics: unit sales, average selling prices, market share by manufacturer, emerging features driving upgrades. Or restaurant industry trends: consumer spending patterns, delivery versus dine-in preferences, regional differences, impact of food costs on margins.
These specifics matter because they reveal where opportunities exist and where competition is fiercest.
2. Define Your Target Market
Target market analysis ensures your product or service actually aligns with customer needs. It’s where broad industry data gets personal.
Segmentation Factors
Demographics provide the basics: age ranges, gender distribution, income levels, education backgrounds. But demographics alone create incomplete pictures.
Psychographics reveal values, interests, lifestyle preferences, and priorities that drive decisions. Behaviors show shopping habits, technology usage, purchasing triggers, brand loyalty patterns. Location determines where you’ll focus marketing efforts and how you’ll handle distribution.
Watch for emerging trends. Consumer preferences shift. What worked last year might not work now. Staying current with behavior changes keeps your analysis relevant.
Methods
Primary research beats assumptions every time. Conduct surveys to gather quantitative data on preferences and behaviors. Run interviews for qualitative insights into motivations and pain points. Organize focus groups to observe how people discuss problems and solutions.
Supplement with secondary research. Social listening tools track what people say about your industry. SEO keyword research reveals what they’re searching for. Online reviews show what they love and hate about current options.
The key is quantifying everything possible. “Some customers prefer convenience” is useless. “67% rank convenience as their top priority” gives you something to work with.
Examples
Imagine researching a coffee subscription service. Surveys reveal 42% of daily coffee drinkers find grocery shopping inconvenient and 58% would pay premium prices for specialty beans delivered monthly. Further analysis determines optimal price points between $28-35 per shipment based on perceived value versus competition.
That’s actionable intelligence. It tells you there’s demand, what customers value, and how to price competitively.
3. Competitive Landscape
Understanding competition means identifying who you’re up against and what makes them successful or vulnerable. Now there three types of competitors:
- Direct competitors target the same customers with similar solutions. They’re your obvious rivals—the businesses customers will compare you against directly.
- Indirect competitors solve the same problem through different methods. If you’re selling meal kits, indirect competitors include grocery delivery services and restaurant takeout—alternatives that address the “what’s for dinner” question differently.
- Tertiary competitors represent emerging threats or substitutes from unexpected angles. These are harder to spot but potentially disruptive. Think about how ride-sharing apps disrupted taxi companies, rental car services, and even new car sales.
Analysis Components
For each competitor category, document their offerings, pricing structures, marketing approaches, distribution channels, and customer service quality. Assess their market share and growth trajectories.
Conduct a SWOT analysis for major competitors. Where are they strong? Where do they struggle? What opportunities might they be missing? What external threats could undermine their position?
Here’s a hypothetical example for a t-shirt business:
Strengths: Established brand recognition, efficient production, broad distribution
Weaknesses: Generic designs, slow to trend, limited customization
Opportunities: Sustainable materials, personalization technology, direct-to-consumer channels
Threats: Fast fashion competitors, rising cotton prices, changing consumer preferences
Differentiation Example
A clear positioning matters. You can’t be everything to everyone. Pick your unique angle and communicate it consistently.
Are you the fastest? The most affordable? The most sustainable? Choose what makes you different and build everything around that distinction.
4. Identify Gaps, Risks, and Opportunities
With industry, customer, and competitive intelligence gathered, now you synthesize insights to find white space.
Look for unmet needs. What are customers complaining about that no one’s fixing? Which segments are underserved? Where does friction exist in current purchasing or usage experiences?
Assess real risks. What regulatory barriers exist? What operational challenges will you face? How might market conditions shift? What happens if your primary assumption proves wrong?
Consider the plant-based menu trend. Traditional restaurants’ slow adoption left an opportunity for innovative concepts. That gap attracted new entrants who built entire brands around plant-based dining, capturing customers frustrated by limited options elsewhere.
Finding gaps requires looking at what exists and imagining what could exist. The space between those is your opportunity.
5. Pricing and Forecasting
Strategic pricing reflects your positioning and market realities. It’s not just about covering costs—it’s about signaling value and capturing willingness to pay.
Pricing Strategy
Cost-based pricing starts with your expenses and adds desired margin. Calculate your fixed costs, variable costs per unit, and desired profit percentage. This approach guarantees profitability but ignores what customers actually value and what competitors charge. Simple but often leaves money on the table.
Value-based pricing ties price to perceived customer value. If your solution saves customers $10,000 annually, pricing at $3,000 feels reasonable regardless of your costs. This approach requires deep customer understanding but typically generates higher margins.
Premium positioning justifies higher prices through superior quality, exclusive features, or exceptional service. This works when customers perceive genuine differentiation as worth paying for. Premium brands invest heavily in presentation, customer experience, and brand building to support elevated pricing.
Low-end positioning competes on price, requiring operational efficiency and volume to succeed profitably. You’re winning on convenience and value. Customers accept fewer features, simpler presentation, and basic service in exchange for savings.
Competitive pricing positions you relative to alternatives. Match competitors for similar offerings, undercut to gain share, or charge more while communicating added value. This requires monitoring competitor pricing actively and adjusting as market conditions shift.
Your messaging must align with pricing. Premium prices need premium presentation—refined branding, excellent customer service, and quality packaging. Budget prices need value-focused communication—emphasizing savings, efficiency, and smart choices.
Mismatches confuse customers and undermine positioning. Discount branding with premium prices feels exploitative. Luxury messaging with budget pricing feels inauthentic.
Forecasting
Project initial sales volume conservatively using industry benchmarks and realistic market penetration assumptions.
Avoid the “if we capture just 1% of this huge market” trap—investors see through it immediately. That math suggests you haven’t thought seriously about customer acquisition.
Instead, build bottom-up forecasts. How many potential customers exist in your target geography? What conversion rate can you realistically achieve given your marketing budget and sales capacity? How quickly can you scale production or service delivery without sacrificing quality?
Break forecasts into scenarios. Conservative assumes slower adoption and higher costs. Realistic reflects your best estimate based on research. Optimistic shows upside if conditions favor you. This range demonstrates you’ve considered multiple outcomes.
Consider your customer acquisition funnel. If you need 1,000 customers and your conversion rate is 5%, you need 20,000 qualified prospects. If your marketing reaches 100,000 people and 20% fit your target profile, that gives you exactly 20,000 prospects. Now you can calculate marketing costs per customer and determine if the economics work.
Factor in seasonality, ramp-up time, and operational constraints. Most businesses don’t hit full stride immediately. Your first months will be slower as you refine processes, build awareness, and establish credibility.
Track actual performance against forecasts religiously. Use tools like LivePlan to monitor variances and adjust strategy accordingly. Markets rarely unfold exactly as predicted.
When reality diverges from projections, analyze why. Did assumptions prove wrong? Did market conditions change? Did execution fall short? Understanding variances helps you course-correct faster.
Flexibility matters more than perfect predictions. No forecast survives first contact with the market perfectly. What matters is having a baseline to measure against and a willingness to adapt when data contradicts assumptions.
How to Write a Market Analysis Section for a Business Plan
Your market analysis research goes two directions: internal depth for decision-making and external clarity for stakeholders.
Internal vs. Investor-Facing Versions
Internal analysis should be comprehensive. Include all data, detailed methodology, alternative scenarios, and supporting documentation. This is your strategic foundation—the more thorough, the better.
Investor-facing sections need conciseness. Summarize key findings without drowning readers in data. Lead with insights, support with evidence, and use visuals liberally. Investors want confidence you understand your market, not exhaustive details.
Components
Every business plan market analysis should cover:
Industry description and outlook: Current state, size, growth trajectory, and future trends shaping the landscape.
Target market and segmentation: Who you’re serving, why they’ll buy, how large the addressable market is, and what makes your segments attractive.
Competitive analysis and differentiation: Who you’re competing with, their strengths and weaknesses, and your specific competitive advantages.
Pricing, forecasting, and potential challenges: How you’ll price, what revenue you project, and what risks could derail plans.
Tips
Charts and graphs communicate faster than paragraphs. Use visuals for market size, growth trends, competitive positioning, and customer segmentation.
Connect every finding to your business goals. Don’t just present data—explain what it means for your strategy. How does industry growth support your expansion plans? How does competitive weakness create your opening?
Reference free business plan templates for structure guidance. Seeing how others organize market analysis sections helps you craft yours effectively.
Benefits and Challenges of Market Analysis
Market analysis delivers concrete advantages but demands real investment. Understanding both sides helps you maximize return on effort.
Benefits
Build products customers want. When decisions stem from customer research rather than assumptions, you create things people actually need. That’s the difference between forcing market fit and finding it naturally.
Reduce risk through a grounded strategy. Every business carries risk. Market analysis doesn’t eliminate it—but it replaces blind bets with informed risks. You’ll still make tough calls, but with better odds.
Find your competitive edge. Gaps and differentiators only become visible through systematic analysis. Without it, you’re copying what already exists. With it, you discover white space worth claiming.
Make evidence-based decisions. Data beats opinions. When expansion, pricing, or positioning questions arise, analysis provides answers grounded in market reality rather than internal debates.
Gain investor and partner trust. Professional investors review dozens of pitches. Thorough market analysis immediately separates serious entrepreneurs from hopefuls. It demonstrates you’ve done the hard work and understand what you’re walking into.
Challenges
Current, reliable data can be hard to obtain. Some industries lack good public data. Some sources charge premium prices. Some statistics are outdated by the time you find them. You’ll need to vet sources carefully and sometimes pay for quality information.
Time and resource intensive. Proper market analysis takes weeks, not days. For time-strapped entrepreneurs, that investment feels painful. But rushed analysis creates expensive mistakes later.
Bias can creep in. Confirmation bias is real. You want your idea to work, so you unconsciously favor data supporting it. Guard against this by actively seeking contradictory information and challenging your assumptions.
Risk of tunnel vision. Deep focus on current competition and existing customers might blind you to emerging threats or adjacent opportunities. Maintain perspective on the bigger picture.
Analysis paralysis. Research can become procrastination. At some point, you know enough to move forward. Don’t let the desire for perfect information delay necessary action. Analysis should lead to decisions, not replace them.
How Businesses Use Market Analysis
Market analysis isn’t just a one-time planning exercise. Smart businesses use it continuously across operations.
Product Development
Before building features, research what customers actually want. Test concepts and prototypes with target users. Validate that your solution addresses real pain points in ways people will pay for.
Market analysis prevents building the wrong thing—saving enormous time and money.
Market Expansion
Thinking about new regions or customer segments? Assess feasibility before committing resources. What’s the market size? Who are local competitors? Do regulations differ? Will your value proposition resonate?
Consider a US retail business eyeing South Korea. Market analysis reveals different consumer preferences, established local competitors with strong loyalty, and regulatory requirements for foreign businesses. That intelligence shapes entry strategy or prompts reconsideration entirely.
Marketing and Positioning
Understanding your market means knowing how to reach it. Which channels do customers trust? What messaging resonates? What problems are they actively trying to solve?
This guides everything from ad creative to content strategy to partnership decisions. You’re not guessing what might work—you’re applying what research reveals does work.
Staying Ahead of Change
Markets evolve constantly. Regular analysis helps you anticipate trends rather than react to them. What are customers starting to care about? Where are competitors investing? What technologies are emerging?
Proactive businesses adapt before change forces their hand. Reactive businesses scramble to catch up.
Internal Decisions
Market intelligence should inform resource allocation, project prioritization, and hiring plans. When leadership debates strategic direction, market analysis grounds discussions in external reality rather than internal politics.
Building a culture where data drives decisions starts with accessible, current market intelligence.
Prepare Your Business with Market Analysis
Market analysis identifies blind spots before they become problems. It uncovers opportunities competitors miss. It anticipates competitive moves and positions you to respond effectively.
Without it, you’re hoping your gut instincts match market reality. With it, you’re building strategy on evidence.
Looking for practical examples of market analysis in action? Check out sample business plans across industries. Seeing how others structure their market analysis sections provides concrete templates you can adapt.
The investment in thorough market analysis pays dividends throughout your business journey. Start now, update regularly, and let market intelligence guide your most important decisions.
Frequently Asked Questions
What is market analysis?
Market analysis is the systematic evaluation of industry conditions, customer needs, and competitive forces to inform business strategy. It combines quantitative data on market size, growth rates, and customer demographics with qualitative insights into behaviors, preferences, and trends. The goal is understanding whether viable opportunity exists and how to position your business for success.
What is the purpose of market analysis?
Market analysis serves multiple purposes in business planning. It helps validate your business idea by confirming real demand exists. It reduces risk by grounding strategy in market reality rather than assumptions. It identifies your competitive advantages and weaknesses relative to alternatives. It guides critical decisions on pricing, positioning, and resource allocation. And it builds credibility with investors who need evidence you understand your market.
What are the steps to performing a market analysis?
First, research your industry to understand current conditions, size, growth trends, and future outlook. Second, define your target market through demographic, psychographic, behavioral, and geographic segmentation. Third, analyze competition across direct, indirect, and tertiary competitors—documenting their strategies, strengths, and vulnerabilities. Fourth, identify market gaps, unmet needs, and underserved segments representing opportunities. Fifth, develop pricing strategies and sales forecasts grounded in market data and realistic assumptions.
How often should businesses update their market analysis?
Established businesses should refresh market analysis annually at minimum, with more frequent updates for fast-changing industries. Startups need continuous market monitoring during early stages as they test assumptions and refine positioning. Major updates are essential before significant decisions like new product launches, market expansion, or strategic pivots. Between formal updates, maintain awareness of competitor moves, emerging trends, and shifting customer preferences through ongoing market monitoring.
What’s the difference between market analysis and competitive analysis?
Market analysis examines the entire market landscape—industry conditions, total market size, customer segments, trends, and all competitive forces. Competitive analysis focuses specifically on understanding rival businesses—their offerings, strategies, strengths, weaknesses, and market positioning. Competitive analysis is one component within the broader market analysis framework. You need both: market analysis for the big picture, competitive analysis for tactical intelligence on specific rivals.
