In this section, indicate market size, segments, trends, competition and user/customer profiles. Also, assess market shares and present medium-term projections for relevant segments.
In most cases, it is very desirable that all detailed market research (field and/or desk) and analysis be completed before this section is written. If research reports are available refer to their detail in appendices or include them as annexes.
This is a very difficult section to prepare especially for start-ups or established businesses diversifying in new (to them) markets. These difficulties will be compounded, due to an absence of any reliable data or evidence of likely demand, for businesses entering completely new markets or launching radically new offerings. Nonetheless, this section is critical as it underwrites the business plan and demonstrates that the promoters have done their homework and know their marketplaces (at least as well as the incumbent players or other new entrants). If this section is unclear, vague or superficial, it begs the question as to whether there might be any real, sustainable demand for the proposed offerings.
If several disparate markets are being targeted, subdivide each of the subsections within this main section to cover these markets as illustrated in 6.1 General Background below. Alternatively, set the first subsection to refer to “6.1. Market Aaaa” and then use sub-subsections to cover key issues like:
Repeat this for “6.2. Market Bbbbb” etc. and add a final main section as “6.X Overall Review” that summarizes the individual market reviews.
When you have completed this section, you should revisit 3. Strategic Overview and critically examine and challenge its contents based on the results of your market research.
6.1. General Background
Use this subsection to set the scene for more detailed analyses. For example, review the history of the market and highlight the key changes and trends. Feel free to quote external market research reports to help explain the general attractiveness of the marketplace.
In this subsection, move from the very general to the very particular and distinguish between total, available and served markets. Here is an example of what we mean by this:
If multiple markets are being targeted, use separate sub-subsections for each:
View a statement along these lines as the starting point for the following subsections that explore in detail the market segments to be specifically targeted by the business. Under no circumstances, skip this work by simply stating that your business intends to secure 10% of the target market!!
6.2. Sizes, Segments & Trends
Describe the specific markets where the business operates and/or plans to enter. Explain how they have evolved and how they are segmented. Explain any historic shifts in consumer, product and technology trends and review any regulatory or structural restrictions on trade.
Claiming to have a unique offering is not an excuse for not doing a market assessment based on comparable indirect offerings. If target markets cannot be assessed then it is improbable that they can be sold into.
Use simple tables and charts to illustrate key points and to analyze structures and trends. Place detailed analyses in an appendix.
Here is an example of a simple table reviewing the size of key segments within an established market during the last four years:
Highlight the segments you are targeting and drill down into them as illustrated in this chart which breaks the total market into excluded, unserved and served low- and high-priced segments. Discuss channels of distribution, promotional methods and marketing expenditure levels within the served segments.
In some cases, it will be very difficult to analyze or segment a market because it is new or poorly researched. In these circumstances review proxy or adjacent markets to gain insights in demand for similar offerings or related solutions and use the results to make inferences about the target markets.
Another method that could be used for business-to-business offerings would be to identify or quantify key prospective purchasers within the target market, estimate the theoretical value of their purchases and then scale this back to take account of the early purchasers and so on. Here is how this might be approached:
Whilst this assessment is very speculative, a major benefit of having a limited number of prospects is that they can be individually identified for marketing purposes.
This "bottom-up" approach could also be used to help determine the size of a market within a heavily trafficked market segment. For example, if planning to open a restaurant within an established major shopping center, it should be possible (by simple observation) to assess the number of existing outlets, their table numbers, utilization rates, menu prices and favorites and thereby determine the size and segmentation of this local market, in value and volume terms.
In other circumstances, the market may be so big or broad that measurement might appear pointless, for example, the world market for video downloads or the US market for medical drugs targeting specific diseases. Here are two approaches that could assist:
Never ever base your market assessment on superficial generalizations like "According to well-known research firms, our market is growing at 100% a year and will reach $10 zillion by 20XX".
6.3. Review of Competition
Introduce the main competitors (or near-competitors if targeting a completely new market area) and profile them – highlight their evolution, scale and activities, and market shares. Briefly assess their SWOTs.
Show how their market shares have evolved and indicate their current standing in the market.
Discuss pricing and non-price issues.
Describe the channels of distribution and promotional methods used by competitors, and indicate typical promotional expenditure levels.
Place detailed information in appendices.
Profile customers/users and explain how/why/when/where they buy.
Segment possible customers/users based on their demographics/needs. Review their buying habits and consider the impact of broad economic issues (past and future) on the frequency and value of purchases.
Discuss price, quality, promotional, distribution channel issues etc. and how competitors' offerings are positioned and perceived from a customer/user perspective.
Quantify numbers of prospective customers/users and assess their consumption/ purchase rates (e.g. amount/year, amount/purchase, purchases/year and so on). Indicate how customer/user patterns could change in the future. This should link back to 6.2. Sizes, Segments & Trends above.
Present the key findings of any consumer/user research that has been conducted.
Note: Use the foregoing assessments to help clarify and further refine the market segments your business will be targeting. For example, if your business is only targeting the premium end of the market you should sub-divide market segments to take account of this. Likewise, if you are only selling through specialist outlets. Think of this process as being similar to peeling an onion - the more layers you remove, the closer you get to the heart of the matter!
6.5. Medium-Term Projections
Use simple tables to show how market sizes, segments and shares are likely to move in the future after your entry/growth. For completeness, incorporate anticipated high-level sales projections for your business in these tables even though these will not have been derived until 7. Marketing Strategies, Sales Plans & Projections.
Summarize briefly the main economic factors and variables underpinning your market projections. Explain any assumptions about possible shifts in economic, consumer, product and technology trends.
Here is an example of a simple table projecting the size of key segments within an overall market. This table might have been derived from backup tables projecting numbers of customers/users within each segment along with consumption rates and unit prices for each segment.
Take the segments you are targeting and, if practicable, drill down into them to arrive at even more specific market projections as illustrated in this chart:
Finally, consider providing alternative projections based on "best" and "worst" case scenarios that might reflect alternative assessments of future economic and competitive conditions. Confine these projections to very simple tables and brief explanations as to how and why they were derived.
Place detailed analyses in an appendix.
6.6. Review of Market Potential
This section is important especially if you are targeting multiple markets as you can use it to summarize findings and projections for the individual markets. Even if only targeting a single market, you could use it to summarize why the proposed target market is attractive to your business.