In-depth knowledge of the market and competitive landscape is critical to the success of your company. As outlined in the Product / Service chapter, customers will only buy your product or service if they anticipate a specific benefit from it. Since you are generally not the only player in a market, your specific customer benefit is always dependent on the offerings of your competitors as well.

For you and your competitors, it is therefore crucial to understand how the target market as a whole is developing and what influencing factors it is subject to. You should take these factors into account, as they can give rise to opportunities as well as risks for your business. In your market analysis, you take a close look at the market, customers, and competitors for your product or service. At the same time, the market analysis helps you estimate the market potential for your venture and determine where and how you want to position your company in the market.

Description of the Overall Market

First, assign your product or service to an overall market (an industry, e.g., software, laser technology, medical technology, hospitality, wellness, trade fairs, etc.). Consider which products or services your offering could be replaced by. Once you have defined these so-called substitute products, you are well on your way to defining your market.

Describe the size of the defined overall market (e.g., unit sales or revenue), along with projected growth and other relevant trends. Also examine external factors that could alter the overall market or industry (including competitors) over the medium term, and highlight the relevance of these factors to your company. Beyond macroeconomic, sociodemographic, and technological developments, this also includes political and legal frameworks.

Market Segmentation and Market Potential

One of the most critical metrics in a business plan is the market potential. Market potential represents the maximum possible sales volume of a market for a specific product or service. You determine the market potential for your product or service based on your designated target group(s) - in other words, for a specific subset of the overall market described above (a specific market segment).

The general market assessment is therefore followed by market segmentation - that is, the identification of your target groups. To do this, it is advisable to first group potential customers in the target market into customer segments (market segments) using appropriate criteria, enabling you to estimate current and future sales volumes for these segments.

Segmenting the market also allows you to tailor your offering to these customers in a targeted and efficient manner. You are free to choose the segmentation criteria; however, you should ensure that the number and purchasing behavior of customers in each segment can be reliably determined, and that customers within a segment can all be addressed with the same sales and marketing strategy.

Potential Criteria for Segmenting Consumer Goods Markets (B2C)

• Geographical criteria: countries, regions, cities, districts, etc.
• Demographic criteria: age, gender, income, occupation, education level, etc.
• Psychographic criteria: values/attitudes, leisure activities, media consumption habits, lifestyle
• Purchasing behavior: brand preferences, price sensitivity, centralized vs. decentralized purchasing, etc.
• Usage behavior: frequency of product usage, application of the product, etc.

Potential Criteria for Segmenting Capital Goods / B2B Markets

• Demographic criteria: company size, industry, location
• Operational criteria: technologies and standards applied
• Purchasing behavior: centralized vs. decentralized purchasing, purchasing criteria, supplier contracts, decision-making structures, order volumes, etc.
• Usage behavior: frequency of usage/ordering, service and maintenance requirements, etc.

Competitors

Finally, examine the most important competitors who offer or could potentially offer comparable products or services in the market segments relevant to you. Pay particular attention to unit sales, revenues, pricing, growth, market share, location, distribution channels, service, and brand image. Compare the strengths and weaknesses of your key competitors against your own profile. Presenting this in a table allows you to communicate clearly and concisely to readers the strengths and weaknesses of your own offering relative to the competition. Outline measures to address any potential weaknesses and consider how sustainable the competitive advantage you have described will be. When analyzing the competitive landscape, also take indirect competitors into account.

Additionally, consider the extent to which barriers exist in your target market that make it difficult for new entrants to gain a foothold (high investment costs, state monopolies, high disposal costs, existing patent protection, knowledge advantages, cost advantages through economies of scale, etc.) and how you intend to overcome them. Also factor in potential reactions from competitors upon your market entry and plan appropriate strategies to be prepared for these scenarios.

Sources of Information

The content and scope of market analyses are always a matter of available information. Investors expect that commonly available information is obtained and evaluated. This also includes information gathered through surveys of potential customers - creativity may well be required at certain points. Make use of all available information sources. No investor, however, expects you to commission expensive market research studies.

One should be cautious about claiming that no market data exists. Investors are well aware of what data can be obtained. Useful sources of information for research include the Federal and State Statistical Offices, chambers of commerce and industry associations, as well as banks and insurance companies. Business databases, trade journals, and company brochures provide specialist information from the respective industry. Particularly efficient are conversations with customers and competitors, especially at trade fairs and industry events.

Guiding Questions

Description of the Overall Market

• In which overall market / industry does your company operate?
• How has the industry developed in the past, and what does the current situation look like?
• Which trends or forecasts are important to you?
• How large is the overall market / industry as a whole (unit sales / revenue)?
• Which external factors influence the industry (political, legal, technological, etc.)?
• To what extent do these affect your company?
• What success factors characterize the industry?
• What role do innovation and technological progress play?
• What role do sustainability aspects play in the market for your company?
• What opportunities and risks arise for your company from sustainability trends in the respective industry?

Market Segmentation and Market Potential

• According to which criteria can the industry in which you intend to operate be segmented?
• Which sub-markets (market segments) emerge from this?
• What characterizes your specific sub-market (market segment)?
• How large is the number of potential customers, and what are the projected unit sales in your segment (market potential)?
• What buying motives and habits do the target group(s) (potential customers) have in your sub-market (market segment)?
• What expectations does your target group have regarding the sustainability of the product / service and the company?

Competitors

• Who are the most important competitors?
• Which target group(s) (potential customers) do your competitors address?
• What market shares do your competitors hold (as far as known)?
• What strengths and weaknesses do your competitors possess (image, service, innovation, location, etc.)?
• Are new product developments to be expected from competitors?
• Are customers bound to competitors (high switching costs / brand loyalty)?
• What substitute products / services exist for your product / service on the market?
• How sustainable will your competitive advantage be over time?
• How will competitors react to your market entry?
• What barriers to market entry exist, and in what ways could they be overcome?
• Can you gain a competitive advantage by incorporating sustainability aspects?

Sources of Information

• Are your estimates logically comprehensible and well-founded?
• Which sources support your estimates and projections?