Understanding Your Market

1. Overview

Your business does not operate in isolation. Knowing what’s going on in the world around you and in the market you operate in and figuring out how it may affect your business is vital. This section looks at what you need to know and provides a framework for how to access the information quickly and easily.

2. PEST(LE) Analysis

Knowing what’s going on in the world around you and in the market you operate in and figuring out how it may affect your business is vital. Doing a PEST analysis is a good way to make sure you cover all aspects.

PEST looks at Political, Economic, Social and Technological factors. PESTLE expands this to include Legal and Environment factors – use the expanded model if these areas are relevant for your business.

Using the PESTLE template

Go through each of the sections in the table and ask yourself if there is anything in this area that you should be aware of. This will vary for different types of business – in some cases, there may be nothing of significance, whilst other areas could be very important.

Political Economic

Government legislation: Wales, UK, European, international

Interest rates, exchange rates

Regulatory bodies/processes

Overseas economic position

Government policies

General taxation

Trading policies

 

Grant funding and assistance

 

 

Social Technological

Demographics (we’re an aging population)

Technology developments

Lifestyle

Communications

Buying patterns (Internet, out-of-town stores)

Energy requirements

Language preferences

Legislation

Fashion

Intellectual property

Advertising

Innovation

Ethical issues (green issues, anti-smoking etc)

 

 

Legal Environmental

Competition law

Global warming and climate change

Health and Safety

Waste issues

Employment law

Increased environmental awareness

Equality and Discrimination

Industry norms

Industry specific legislation

Pollution issues

Local variations

Sustainability

Possible/proposed changes to legislation

 

 

Use this PESTLE Analysis exercise (MS Word 15kb) to look at your business and identify the PEST(LE) factors that may have an impact on it.

3. What is the size of your market?

A key piece of information you need is the size of the market you are competing in. You want to establish if there is a gap in the market and if there will be enough demand to sustain your business.

Look at the value of the total market and also check out the size of the market locally. You may need to look at the number of units sold if you are selling products.

You should also find out:

  • how the market is structured
  • how many sectors are in the market
  • the size of each sector
  • how many businesses there are in each sector

For example, many markets segment into premium, mid-market and budget, or branded and non-branded items.

You may want to know how the market splits by distribution channel, for example, the share of market by major retailer could be important.

Total market spend is another useful guide in estimating the cost of participating in that market.

Sources of information

A number of published sources of information such as government statistics, trade association reports and commercial reports such as Keynote, Mintel and Euromonitor provide information for the total market. Check out your local Chamber of Commerce and Welsh Government statistics for information about the size of your local market. You may have to do some work yourself to establish, for example, how many florists there are in your area.

It can be difficult to be specific about the size of some markets. Use the figures available to estimate the potential number of customers in your sector. Remember, you want to establish that this is a viable market for you to enter.

Use this template to help you establish or estimate the size of your market (MS Word 14kb).

4. What trends could affect your business?

The world is moving fast and it’s important to identify the trends in your market, locally, nationally and globally.

These are factors beyond your control, but which can provide opportunities for you or may be potential threats.

Predicted changes in the economy can, for example, impact on the buying patterns in individual markets. Job losses or cuts in benefits may affect how people spend their money.

For example, a carpet retailer may see a drop in business, whilst a carpet cleaner may experience an increase as customers choose to clean rather than replace.

Trends can include shifts in social attitudes, seasonal variations or changing fashion.

No-one has a crystal ball to predict the future, but monitoring how the market is shifting can make you more prepared. Track figures for the last few months or years to identify major trends.

And be aware of comments in the news and trade publications.

Use this template to help you identify which trends could affect your business (MS Word 16kb).