Ultimate Guide to Market Situation Analysis
If you are familiar with business plans and marketing plans, then a market situation analysis is no longer new to you. Whether it is a standalone marketing plan, or a marketing plan within a larger, more encompassing business plan, expect to find a market situation analysis section in there.
This is one section in a business plan that must not be ignored or taken lightly, which is why businesses are even hiring professional marketing analysts to be in charge of its preparation.
This guide will 1) introduce you to market situation analysis including 4C’s and 2) walk you through the content of a market situation analysis.
INTRODUCTION TO MARKET SITUATION ANALYSIS
From the phrase alone, we can pretty much deduce what a “market situation analysis” is. It involves evaluation of the situation and trends in a specific market. If you are in the process of business planning to launch a new product in a specific market, you need to evaluate the situation in that market.
The purpose of this is clear: to help the business determine the areas where marketing efforts are most needed, and to enable you to make your business plans and implement them accordingly.
Marketing plans, campaigns and strategies are developed after much research and analysis, and that is where the market situation analysis comes in handy. This will serve as a guide for the marketing team and management to make decisions regarding the marketing route that the business will take.
Many look at market situation analysis as a simple activity. Others refer to the specific section in a marketing or business plan. On the other hand, there are those who describe it as a process. All these perspectives are correct.
4 Cs of Market Situation Analysis
Several pieces of literature refer to situation analysis as the analysis of the “Four Cs”, referring to the four major elements that are to be studied or evaluated.
- Company – This is an analysis of the internal workings of the business or company, such as its goals and objectives, be they short-term or long-term. It also takes a look at the organizational and corporate culture in place, the company’s strengths and weaknesses, and its share in the market.
- Customer – This time, attention is focused on the customer, so this will look into customer demographics, such as type, number, age, and so on. It will take an even deeper look, taking into account the value drivers that make the customers act in a certain way. The analysis will also take a look at the decision processes of customers.
- Competitor – Since competition is another important aspect of a business, there is also a need to include them in the market situation analysis. The analysis will take a look at the market position of the company and its shares, as compared to that of the competitors. It will also have to identify the strengths and weaknesses of the competitors.
- Collaborators – Aside from the business and its competitors, there are other parties that also play a crucial, though indirect, role in the business operations. They are the collaborators, and they include other players such as distributors, suppliers, consultants, subsidiaries and joint ventures, to name a few.
Market Situation Analysis in the Business Plan
This section in the business plan contains all the information, and analysis thereof, regarding the market that the business finds itself in. In short, it describes the current status or state of the target market.
Therefore, you will find information derived from research and analysis on your business’ target market, its customers, its competitors, and the business challenges that it faces. In addition, it also contains a SWOT analysis of your business, detailing its strengths, weaknesses, opportunities and the threats that it faces.
This is how to perform a SWOT analysis for your business.
Keep in mind that all the information and data to be included in the Market Situation Analysis should be based on cold, hard, verifiable facts. Hunches, speculations and guesses – no matter how much you claim that they are educated or provided by experts – should not make their way on the market situation analysis, unless you include a disclaimer stating that fact.
Remember that your management and marketing team – and other users – will be relying on the contents of your Market Situation Plan for their own decision-making. Giving them information that is wrong or unreliable will only lead to more problems.
CONTENTS OF THE MARKET SITUATION ANALYSIS
Let us take a look at the items that should be included in the Market Situation Analysis section of your plan.
Analysis of the Current Product or Service
The first question to be answered is “what are the business’ products or services?” or, if applicable, “what are the product lines or service lines that the business currently offers?”
The points that you should touch on regarding your product include the following:
- Description and details of your current products/services or product lines and service lines, whichever is applicable. Zero in on the product attributes, such as its main features and specifications.
- The price point of your product relative to that of your competitors. What pricing strategy did you adopt? If you used different pricing in various distribution levels, such as having a different price for wholesale buyers, retail buyers, and distributors, you also have to evaluate these points. If you also offer discounts and incentives, you also have to talk about them.
- The market share of your products or services. Think of the market as a pie; how much of that pie is occupied by your product or service? You should be able to make estimates of the market size so this will enable you to make estimates of growth rates in the future.
- The promotional strategies for your products or services:
- The advertising and sales promotion techniques you implement for your products. Do you rely on print and media, or do you also actively make use of online or internet advertising?
- The position of your product in the market. In short, how did you position your product in the marketplace? Is it the one having the highest quality? Is it the one with the best return on investment? Is it the one with the lowest price?
- Differentiations of your product or service. How do you distinguish your product or service from other similar products or services in the market?
- The personal selling and public relations that your company uses in order to increase public awareness of your product or services.
- The places or sources where you purchase your products or, in case of a manufacturing concern, its raw materials. You should also include the alternative sources of these parts or components.
- The places or outlets where your products are available for sale, or where your services may be sought. This is a detailed look at how the product is delivered to the market and to the end users, or how it is made accessible to them.
- The support services that you currently offer to your distributors and end users. This covers the services that you provide before and during the sale. Do you also offer after-sales services? Then you should include that in your situational analysis as well.
What if the purpose of the market situation analysis is to launch a new product? Is there still a need to evaluate the current products? This will be up to your judgment. The most obvious answer would be NO, since you are launching a new product that is different from your current products.
However, if you can make a connection between your current products and the product that you will potentially launch, then you can touch on it briefly.
The same is true if you are still starting a business and there are currently no products or services being offered.
Analysis of the Current Target Market
The most obvious question is probably “what geographic area will the company do business in, or sell its products and services?” That is correct, but that is also not all there is to it. You have to identify your target market, particularly in terms of population and demographics.
This is a more extensive customer-focused aspect, because you will be looking at your target audience as a whole. The inclusions are:
- Strategy used to reach the customers in the target market. Are you using the mass market approach, where your goal is to sell to a large and often very broad market? Or do you take the segmentation approach, targeting selective areas or niches one by one?
- Psychographic or demographic profile of the target market. You will take into consideration the age, gender, income brackets, education and occupation of the customers in your target market. You should also look deeper, taking into account their lifestyle, attitudes, preferences, and purchasing or shopping decisions.
- The purchasing process used by the target market, focusing on how they make their decisions and how they go about the entire purchasing process. They are also bound to have several sources of information for their decision-making, so you also have to identify what these sources are. You have to fully understand what influences them to decide whether to buy or not to buy. There are subconscious factors and conscious factors that influence this decision. You need to be aware of all of them.
Analysis of the Current Customer
In some instances, people preparing this section of a marketing plan include the analysis of the customers with that of the target market. But it won’t be a bad idea to make a separate evaluation. This is where you will describe the characteristics of the customers in your target market.
- Their needs. More specifically, what are the benefits that they are looking for in the market, and are your products or services able to provide those benefits?
- Their usage of the product. You’ll have to relate the product or service with the customer. Identify the customer that uses the product or service, and ascertain their reasons for using these products and service. When do they use it, and how do they use it?
- Their perception of your product or service, and of your brand as a whole, and their overall attitudes. This is one way to test whether the current positioning of your product or service actually works.
Analysis of the Current Competition
Do you know who your competitors in the market are? If you do, have you taken the time to determine your market share with respect to their market share? It is not enough that you know that you have competitors A and B. You also have to see how you are faring against them.
When evaluating your competitors, pay close attention to the following:
- The target markets currently being served by the competitors
- The products or services from the competitors that are directly (or even indirectly) competing with yours
- The pricing strategies of the competitors
- The promotional program and strategies of the competitors
- Additional services offered by the competitors before, during and after sale of products and services
- Their strengths and weaknesses
If you notice, they mirror the items that you also have to evaluate internally, within your own business. That is because you want to compare your own operations with that of your competitors.
When analyzing the competitive situation that your business is in, you also have to widen your scope, looking at the big picture and taking note of the current competitive trends, as well as the trends that are foreseen to prevail in the future. These trends will affect the competitive landscape of your business.
Analysis of the Current Distributor Network
When you evaluated the current products or services, you have touched on how you made them accessible to the end users. However, if you have an extensive distributor network, you might want to create a separate section for it. (Of course, if the company does not make use of distributors, this part could be skipped.)
Emphasis should be put on the distribution channels used to bring the product or service to the market, including the modes of shipping and handling and the process implemented for processing orders and shipping them out. It is also recommended to include an analysis on the major benefits that are received by the distributors as well as the company itself.
Preparers of marketing plans suggest that the following be included in the evaluation of distributor networks.
- Distribution channels or supply chain used to deliver the product to the final users. Does the company perform direct selling, or do they purely sell their product or services through a third-party distributor? If both channels are used, what is the ratio of usage?
- The needs of the distributors that are satisfied by their relationship with the company. How does your product or service help their business? What are the benefits that they get from being part of your distribution network?
- Demographic profile of the network. This is in cases where the company has more than a few distributors. Identify the types and sizes of distributors, and the markets served as well as geographic areas, if applicable.
This is a closer look at the current financial condition of your company. Basically, you will be dealing with numbers and wading through the various financial reports pertaining to the operations of the company.
Points that require the most attention during analysis are:
- Current Sales: You will pay attention to the various levels: industry level, product category level, segment level, and geographical level, whichever is applicable. If your market also spans several geographical regions, you may also evaluate the level of sales per region. Afterwards, you should also compare your sales figures to those of your competitors.
- Profitability: Profitability means looking at the bottom line. However, there more considerations than just the Net Income or Net Profit figure. You also have to take into consideration the revenues or receipts and the expenses or costs that reduce them.
- Growth: Using financial information and ratios derived from the reports and statements, you may also deepen your analysis by looking into the growth potential of the company, and compare how it will fare with the competition and in the industry as a whole.
Other External Forces
There are simply some other factors or forces that affect the performance of a business that, no matter what the business does, are completely out of their control. These also need to be included in the evaluation.
Areas to be considered include:
- Social and cultural forces. This is especially true if you are operating in various markets, since there are bound to be social and cultural differences that would affect how you do business.
- Economic forces. Economic and market stability is generally uncontrollable by the company so, in a sense, all businesses are under the mercy of movements in the economy.
- Technological forces. At the fast rate of technological advances and innovations, businesses are forced to keep up if they aim to be constantly competitive.
- Legal forces. Businesses are subject to certain legal and regulatory restrictions and they must adhere to them. These should also be noted in the market situation analysis considering that they will also affect how the business should draw up its marketing and business plan.
- Political forces. Multinational companies with segments in various countries find themselves having to deal with political forces in those countries. Situations like these should also be included in the analysis, considering their impact on the company as a whole.
There is no definite format on how the Market Situation Analysis should be written. It could be as short as a few pages, or as many as a bundle of them. The important thing is that the most relevant and important points are documented, and that the resulting Market Situation Analysis is reliable for decision makers.
Too often, managers invest anywhere from tens of thousands to tens (or even hundreds) of millions of …