Now we’re going to talk about analysing the market.
There are four key questions to ask during this stage. They are:
- Who is the product or service intended for?
- Who is going to be buying it?
- How big is the market?
- Is it an emerging or existing market?
The first two questions are not necessarily one and the same, although they might sound like it.
The intended target market will be set out in a company or startup’s business plan, along with how they plan to reach it. It will include extensive facts and figures about demographics and buyer personas.
Hopefully, this will be aligned with the people who actually buy it. If it does, the company has clearly done extensive market research and derived accurate conclusions about market demand. The offering hitting its intended goal will depend on a range of factors, including: effectiveness of branding, execution of marketing, success of the sales team, pricing, and more ineffable factors like whether the brand resonates with people.
Let’s look at Peloton as an example, a stock-market smash that will be launching in Australia later in 2021. A Peloton bike will cost AUD $2,895. This means the product isn’t just intended for fitness enthusiasts. It’s intended for fitness enthusiasts with particular lifestyles and aspirations.
How big is the target market?
Here we’re looking not just at the market as a whole, but crucially, the addressable and achievable markets.
Let’s go back to the Peloton example. Its price point takes the size of the addressable market down a few notches, because not many people will be able to afford it. Of that market, only a portion of that will be achievable. Although the wider fitness market is thriving, and home workouts have become a much more significant part of peoples’ fitness regimes, Peloton is addressing a specific niche within that market. Within that niche, there will be customers inevitably lost to other factors - primarily, competitors.
Looking at the addressable and achievable markets rather than just the market as a whole will help you look at markets through a more realistic lens.
Is it an emerging or existing market?
Emerging markets consist of brand new products or product types. A company doing something for the first time is naturally going to have market dominance. Its challenges will come when others start to imitate their product, but a head-start is still extremely valuable, especially if patents or intellectual property are involved.
A company entering an existing market will have much to prove. They’ll need to find ways to do things better, faster and/or cheaper than their competitors. The advantage is there are fewer market risks, because the need for their solution is already being proven.