Market Analysis Law and Legal Definition
"Market analysis" is sometimes used to describe what is more broadly termed "market research" and sometimes with an emphasis on "analysis." "Market research," in a broad context, is described under that heading elsewhere in this volume. Here the emphasis will be on analytical techniques. In such a context two elements of the research are pictured side by side. On one side are all kinds of data and other information collected during the first part of the investigation. On the other are mental and mechanical tools ready to make sense out of the data. These two aspects, of course, are in practice intimately linked. Market research is almost always undertaken for a good reason. It is triggered by some event and the research is meant to accomplish some purpose.
The event itself might be the start-up of a picture-framing shop (cutely named "You're Framed") by a couple experienced in the business. One of them is a photographer. During preliminary discussions with potential investors, it became obvious that the company needed a business plan; the plan needs a market assessment. Alternatively, perhaps, a small mechanical service firm ("J&J Machining") wishes to buy a milling center to be used on behalf of a single customer in the gas compressor business. The loan package requires a business assessment of the compressor market.
These two different contexts will require quite different analytical approaches. The data collected for You're Framed involves the location of all framing shops in a cluster of five suburbs divided from a larger urban mass by a freeway. The couple have also gathered census data which show the income levels in their market area by census tract. They have three different potential locations identified for their own store. Both have surveyed a neighborhood of similar size to theirs "across the freeway," have similar income data, and an inventory of frame shops over there. Finally, the photographer has visited all of the competing frame shops and developed estimates of their floor space. The other member has some good estimates on the sales of three shops, one in which she has actually worked.
The analytical approach in this case will involve estimating total volume in the chosen suburban area by calculating ratios of income per square footage for the three known stores and applying this ratio to all the stores. The same is next done for the neighborhood across the way. In both cases, frame-shop sales will be correlated to income and population in both areas. Data then show that the chosen cluster is under-served in comparison with the other neighborhood, indicating a good opportunity. Next, analysis will become geographical, each competing store being plotted on a map. Based on this plot and an analysis of traffic patterns, the couple identify the ideal location for their shop and estimate the drive- and walk-by traffic. Finally, the analysis will pinpoint the fact that the photographer, being the only professional portrait and wedding photographer in the cluster, can generate walk-in traffic to the frame shop by moving his studio to the new location, giving You're Framed a unique profile, drawing power, and synergies in marketing.
J&J's market analysis is motivated very differently. They have to prove to the bank that their gas compressor client will be in good shape for some years to come—time enough to repay the milling center loan. The client's future in turn will depend on the future of natural gas transmission in the U.S. The data collected for this purpose include a great deal of information on the compressor company (publicly traded) and two of its competitors, energy statistics with emphasis on natural gas, and data on gas pipeline capacities, expansions, and maintenance histories. J&J also has some data and some looser estimates of parts pricing by its own competitors using similar milling centers.
Here the analysis will center on the compressor company. Using market share data it is shown to be the second largest producer of such machinery but growing more rapidly than its senior competitor particularly in the export market supplying expanding Russian pipeline capacity. The future of nature gas consumption is analyzed next and shown to be promising—because gas reserves are projected to last at least a decade longer than oil reserves. J&J's own history with the compressor company is excellent, its pricing competitive with that of others—and likely to be more competitive with the new milling center.
Notice that here two small businesses both engaged in analytical activities. But in one case local data only were employed whereas in the other not only national but international trends were drawn into the analysis. Both, however, addressed a fundamental point. In the first case this was the viability of the entire business, in the other the low risk of lending money on a single project. Neither analysis, of course, is quite complete but intended merely to illustrate some points.
Good analysis requires certain elements:
- Data presented must be complete; if pricing is mentioned, costs must be mentioned as well.
- Data must have context; a product may be growing at 20 percent a year, but that is not terribly impressive if the class of products of which it is a part is growing at 28 percent.
- Data must be relevant to the issue under discussion and in the same ballpark; a web site with animated cartoon figures cannot be justified by statistics of the popularity of video games—unless some video-game characters appear in the animation.
- Negative data should be presented alongside positive findings; if sales are soaring but margins are hair-thin, the latter must be mentioned.
- Projections must be justified; if they are not extensions of established trend lines, the reasons for deviations must be documented.
- Sources of data must be fully explained with appropriate weights; three favorable comments by travelling salespeople are not a "survey."
- The mathematical basis of the analysis should be transparent; in practice this means that tabular data should be presented alongside graphics and sufficient detail should be provided to the user so that he or she can trace the logic; this includes explicitly stating the methodology used, e.g., regression analysis or compounded growth calculation.
- Data should be graphed on a log scale so that growth curves can be compared from one chart to the next regardless of the magnitudes presented.
- Finally, conclusions based on judgmental factors need sufficient documentation so that the user can judge for him- or herself how much weight to give them.
SEE ALSO Advertising Strategy; Market Research
Alfano, Hayden. "Know Thy Market: A step-by-step crash course in market analysis." Remodeling. January 2006.
Clegg, Alicia. "Market Research: Through the looking glass." Marketing Week. 16 March 2006.
"How to Choose a Niche?" Accounting Technology. March 2006.
Rymer, John. "How Well Do You Know Your Competitor?." Professional Builder. 1 October 2005.
Vincour, M. Richard. "When Your Customer Speaks, Listen." American Printer. 1 April 2006.
Zarembski, Mike. "Tech Talk: The Trend(line) is Your Friend!." Futures. March 2006.
Legal Definition list
Related Legal Terms
- Above the Market
- Acceptable Quality Level [Agricultural Marketing Service]
- Acceptance [Agricultural Marketing Service]
- Accrued Market Discount
- Adoption and Foster Care Analysis and Reporting System (AFCARS)
- After Hours Market
- After-Market Converted Vehicle
- Aftermarket Conversion System