As a key component of overall business growth, companies often consider selling their products or services into a new market. The market can be defined by geography, demographics, or other factors. Early in the process, a decision must be made about the extent of market research that should be done to support the move. Frequently, the de facto answer is “none” as companies proceed into a new market opportunity based on anecdotal evidence from their sales force or even a casual conversation between executives at a trade show.

In the world of research, market analysis is a systematic review of a defined market that helps a company determine if and how to begin selling products or services into that market.

Priority Metrics Group (PMG) has been conducting and developing market analyses for over 25 years. During that time, we have developed several important guidelines that may be helpful to companies considering such an investment.

1) Define the market. This is a critical step that is often overlooked. A market definition may be geographic (e.g., state, region, country, continent), demographic (e.g., age, gender, occupation), firmographic (e.g.,SIC or NAICS codes, revenue or employee size, method of distribution), or other.  A market analysis includes an estimate of size and growth, which is meaningless without a solid definition of what is included and excluded within the market definition.

2) Choose your statistical battles. It is easy to get caught up in trying to improve the accuracy of estimates when the higher level of accuracy will not result in a better managerial decision. For example, PMG once completed a market analysis in a niche segment of the insulation industry. One of the key outcomes of the project was market sizing and share estimates for each of the major players in the market. Our estimates resulted in a sales figure of $71 million for one of the leaders in the market. The executive sponsor of the project knew that the actual revenue for this company was $73 million. He was concerned that if other estimates in the report were off by a similar amount, it would render the entire report useless. We discussed the potential change in his decision making if the numbers in the report were all off by a similar amount (< 3%), and he fairly quickly realized that his decision would not change at all.

3) Come back with a full bucket. A business associate was fond of saying, “If you’re going to the well, come back with a full bucket.” That is certainly a true axiom relative to market analysis. Even after a decision is made to enter a new market, it may take 5 or even 10 years for a company to really understand the dynamics and profit potential of the market. So, the questions that drove the market analysis originally will almost certainly expand over time. The implication is to focus on key issues and questions, but do not exclude other information that may not seem directly relevant at the time. Such information may be included in an appendix to the main report.

4) Use a third party. While it is tempting to use internal resources to save money and to gain a perceived edge in product or technical knowledge, there are several important drawbacks to using employees to conduct a market analysis. First, it is difficult for them to remain objective because they report to someone that has an opinion about whether or not to move forward. Second, they have other duties that may prevent either timely completion of the project or, if they are held to a strict schedule, a full exploration of alternatives. Third, this is not necessarily their expertise. An outside resource can be utilized that has completed market analyses in many different industries and under many different market conditions. They know how to obtain and report accurate information.