Analyzing your market

Analyzing a market means estimating how many potential customers you might be able to sell your products and services to. When analyzing any market, you want to group customers into four types. First are the customers that already buy from you. In fact, not only do they buy from you, they buy exclusively from you, and never from a competitor. The second group is similar to the first group in that they currently buy your products and services. The difference is these customers also buy products from your competitors.

Why? That's because for some categories of products, customers want choices. The clothing market is a good example. You almost certainly buy your clothes from many different manufacturers of clothes. The market for food is another example. The third group of customers are those that buy solely from your competitors, and never from you. At least not yet. And finally, the fourth group of customers are those that don't buy your type of product from anyone. We call them non-category users.

These potential customers are important, because acquiring them gives you a new source of revenue. Instead of taking market share from a competitor, getting these customers helps you increase the overall size of the market. Now, when we estimate the potential number of customers, that we might be able to capture for each of these four types. We do this so we can decide where we want to concentrate our marketing strategy. In marketing, it's the old adage, fish where the fish are.

It's a two step process. First, we estimate the total number of customers, then we make assumptions of what percentage we might convert to our brand. Let's do an example. Let's assume you are a maker of fine men's wallets. Let's also define a potential customer as men between the ages of 15 and 65 who will purchase a wallet within the next year. Let's assume men replace their wallet every five years. That means 20% of the overall market, will get a new wallet each year.

For group one, I use hypothetical numbers and say that, in the US market, our company has 25,000 loyal customers. You could get this sales data from retailers like Amazon, and your department stores. Next, let's look at group two, the so-called multi-brand customer. We call them that because the same products from multiple sources. In our wallet example, I don't know anyone that carries two wallets, so this market is virtually zero.

In group three are the customers who carry a wallet from competitors. In the US, there are about a hundred million men between the ages of 15 and 65. Let's keep this simple, and assume all of them carry a wallet. Finally, in group four, are the non-consumers of wallets. Given the assumption we just made before, i'll put zero here too. Now we need to estimate how many we might be able to get a sale from. Our company has 25,000 current customers, and one-fifth of them will be replacing their wallet this year.

So I multiply total customers times the conversion rate of 20%. That's 5,000 we already have who might be replacing their wallet this year. But in group 4, about 20 million of them will get a new wallet this year. So that's a pretty big market. Given this analysis, it's very clear that we would want to focus our marketing strategy on switching men from the competition over to our brand. If we can capture just 1% of that market, that's a potential for 200,000 new customers.

Once you're done with the market analysis, you've completed the analysis phase of the marketing planning process. It's time now to start crafting strategy.