Market analysis is often treated as a box to check, but it’s a practical tool a business can use to make smarter decisions, build better products, and stay ahead of the competition. Though you don’t need to be a data scientist to do market analysis well, you do need to know what to look for, what it tells you, and how to apply your analysis. One of the top reasons startups fail is a lack of market need, and market analysis can help you avoid this mistake.

Below, we’ll explain how market analysis works and how to use it to supercharge your business strategy.

What’s in this article?

• What is market analysis, and how is it different from market research?
  
• What’s the purpose of market analysis in a business plan?
  
• How do you perform a market analysis?
  
• What are the benefits and challenges of market analysis?
  
• How do businesses use market analysis?
  

What is market analysis, and how is it different from market research?

Market analysis is about understanding the scope of the industry your business is entering. It’s how you evaluate the conditions of the market you operate in: who your customers are, what’s shaping their behavior, how competitors are positioned, how fast the space is growing, and what forces (e.g., economic, technological, regulatory) are at work. Market analysis answers questions such as:

• How big is this market, and is it expanding or contracting?

• Who are the key players, and what are they doing?

• What trends are reshaping the space?

• Where are the gaps, pressures, or opportunities?

This is where market analysis often gets confused with market research. They're related but different in scope:

• Market research focuses narrowly on your customers, including what they want, what they think, and what they’re willing to pay for. It’s specific and close-up, and it relies on surveys, interviews, polls, and behavior studies.

• Market analysis zooms out. It evaluates the whole market, including industry size, competitive dynamics, pricing norms, customer segments, and macro trends.

You should use both to maximize your effectiveness. Market research helps you figure out what to build, and market analysis helps you figure out where to build it, how to price it, whom you’re up against, and what the opportunity looks like long term.

For example, if you run a coffee subscription box service, market research might tell you that urban professionals prefer single-origin beans and are open to paying a premium for local roasts. Market analysis might show the specialty coffee market is growing 5% year over year, no competitors are focusing on locally sourced products, and shipping costs could eat into your margins unless you fine-tune.

In practice, market research often feeds into market analysis—it provides customer insights you can contextualize. But if all you do is research, you risk building a great product without a clear sense of market conditions. That’s how businesses build smart ideas but find themselves in the wrong place at the wrong time.

What’s the purpose of market analysis in a business plan?

A business plan is where you lay out your vision. Market analysis is how you prove that vision has real-world traction. It shows that you understand the environment you're stepping into, the people you're building for, and the forces that will inform your success or failure. Here’s a look at what market analysis can do for your business plan:

Evaluate the size and shape of your opportunity

Investors want to know you’re looking at a real, reachable market. This means backing up your plans with concrete data such as the total addressable market (TAM), which tells you how much the market is worth. You also need to track:

• Trends: Is the market growing or shrinking? Is it changing in ways that could favor your approach?

• Timing: Why now? What’s shifting that makes this the right moment to launch? Is it because of technology, customer behaviors, or regulation?

This framing makes backing your business feel like less of a leap of faith and more of a logical next step.

Define your potential customer base

You need to go beyond broad labels such as “millennials” or “tech-savvy customers.” A strong market analysis digs into the motivations, constraints, and behaviors of your target segment—the people whose decisions will determine your revenue. You might segment by:

• Demographics (e.g., age, income, job role)

• Psychographics (e.g., values, opinions, aspirations)

• Behavioral patterns (e.g., how they currently solve this problem, how they shop, what tradeoffs they make)

A high level of detail here shows you’ve done your homework and makes it easier to build the right product at the right price for the right people.

Identify your competition

A solid plan demonstrates you’ve evaluated your competitors. What customer segments are they focused on? What are they good at? Where are they vulnerable? This part of the analysis should include information about:

• Direct competitors: Those offering very similar products or services

• Indirect competitors: Alternatives your customers use to solve the same problem

• White space: Gaps in the market where needs aren’t being met

The goal is to clarify how you’ll be different based on what others are—and aren’t—doing. It shows you’ve thought critically about the competition, including how to coexist and outperform them.

Detail potential challenges and risks

Market analysis also shows that you’re realistic. It’s where you explain the structural or situational challenges that might affect your ability to launch, scale, or compete. These could include:

• Regulatory challenges (e.g., import restrictions, data laws)

• Operating hurdles (e.g., supply chain problems, distribution bottlenecks)

• Market resistance (e.g., customer loyalty to incumbents, low switching tolerance)

• Capital intensity (e.g., high up-front costs, long sales cycles)

Being honest about the challenges you face can strengthen your case because it shows you’re thinking ahead and building to be resilient.

How do you perform a market analysis?

Market analysis involves finding the connections between industry conditions, customer needs, and your business decisions. Here’s how to conduct an analysis:

Start with the industry

Look at the bigger picture. You need to be able to assess:

• Market size: How large is the total market, and what’s the revenue potential?

• Growth rate: Is the market expanding, contracting, or holding steady?

• Trends: What’s driving change? Is technology, customer behavior, or policy shifting?

• Stability: Is this a predictable industry or one that shifts quickly?

Sources such as industry reports, trade publications, government data, and analyst briefings can be helpful. You’re looking for directional insight into what’s happening, why it matters, and where things are headed.

Map the competitive landscape

Now, look at who else is serving this market. Break it down by direct competitors, indirect competitors, and emerging players. For every competing business, look at:

• What customer segments they serve

• What sets them apart from the crowd

• How they price, position, and distribute

• Where their customers are dissatisfied

Public reviews, product announcements, pricing pages, and social media can offer insight into where competitors are strong and where they’re not showing up.

Define your target customer

This part is easy to gloss over, but it’s important to get right. Clearly describe the specific group of people or businesses you want to have as customers. Narrow your focus on:

• Demographics

• Psychographics

• Buying behaviors

You’re not trying to reach everyone—you’re identifying the most relevant, reachable, and valuable segment of the market. Quantify this group if you can (e.g., “There are about 50,000 professionals in our target cities who fit this profile”).

The goal is to know your customer deeply enough that decisions about product, pricing, and messaging follow naturally.

Identify gaps and opportunities

Once you understand the landscape and the players, look for what’s missing. Make sure you ask:

• Where are customers consistently underserved?

• What frustrations keep surfacing in reviews or social posts?

• Are there needs that competitors haven’t fully solved or noticed?

• What external changes are creating openings?

The most valuable insights are often found by interrogating the assumptions customers accept as normal but wish could change. Those areas of weakness are where differentiation thrives.

Acknowledge barriers and risks

Every market has friction, so call it out. Thoroughly assess whether any of these are factors:

• Regulatory hurdles

• High capital needs or operational costs

• Supply chain issues

• Entrenched customer habits

• Brand loyalty to competitors

Forecast your slice of the market

Apply what you’ve learned to make forward-looking projections. Based on everything you’ve captured in your market analysis, explain:

• What portion of the market do you expect to capture?

• How many customers do you plan to attract, and at what price point?

• What would that translate to in revenue?

Be honest and precise. For example: “We estimate 2,500 paying customers by year three, based on an addressable market of 50,000 and a conservative 5% adoption rate.” You need thoughtful, evidence-based projections that show you’re well-acquainted with your market.

What are the benefits and challenges of market analysis?

Strong market analysis helps businesses make sharper decisions, avoid vulnerabilities, and move faster with more confidence. But there are limits, tradeoffs, and ways to get it wrong. Here are some benefits and challenges with this work.

Benefits

Build something people want

Analysis helps you ground your product decisions in real needs, not assumptions. You’re studying what customers already do, what frustrates them, and what they’re not getting from current options. That alignment between what you’re building and what the market wants is what drives product-market fit.

Reduce your risk

When you understand your market, you’re less likely to misprice, target the wrong customers, or launch at the wrong time. You know how big the opportunity is, how crowded the field is, and what obstacles are on the horizon. As a result, you have the necessary information to make smarter tradeoffs.

Find your edge

Market analysis forces you to study your competitors. That helps you answer these central questions:

• Where can you differentiate?

• What unmet need can you serve?

• What positioning will resonate with your target audience?

A strong market perspective often separates a successful product from an unsuccessful one.

Make better decisions

Insight from your analysis shapes everything: how you price, where you market, what you prioritize in your road map, and when to expand or pull back. The market analysis gives you a way to think through whether you’re targeting the right customer segment, whether you should shift channels or revise your messaging, or where you might be overspending for low impact. Market data makes these choices much easier.

Earn the trust of your investors, teams, and partners

If you’re fundraising or pitching internally, a sharp market analysis signals credibility. It shows you’ve gone deeper than the top line and your plans are grounded in actual market conditions.

Challenges

Good, current data is hard to find

One of the biggest issues with market analysis is data quality. Be careful to avoid using:

• Outdated sources

• Biased datasets

• Overgeneralized conclusions from small sample sizes

Carefully vet your sources, and cross-check your assumptions. Otherwise, you risk making confident decisions based on flawed inputs.

Market analysis takes time and resources

Thorough analysis isn’t a quick task, especially for smaller teams without analysts on staff or access to premium research tools. Still, not everything requires custom research—a wealth of useful insight can be found in free or publicly available sources.

Bias can creep in

Even with good data, interpretation can get in the way. It’s easy to cherry-pick facts that confirm what you want to believe or to filter everything through the lens of your product vision. To combat this, make a habit of looking for what might disprove your assumptions. Invite others to test your conclusions. If the analysis always ends with “we’re right,” that’s a red flag.

You might miss the bigger picture

Teams can sometimes zoom in so tightly on one piece of the puzzle that they overlook broader dynamics, such as economic shifts, emerging technologies, or new competitors. Markets are moving targets, and your analysis always needs to account for the larger context.

You can get stuck in the loop

It’s easy to delay decisions while you gather more insight, then more, then a little more. But all the analysis in the world can’t create perfect certainty. At some point, you have to act—and resolve to keep learning.

How do businesses use market analysis?

Market analysis is a tool businesses use in major inflection points. Here’s how it shows up in decisions across business types:

Product development

Market analysis helps businesses figure out what to build and why. That might mean:

• Identifying challenges that no one is solving well

• Spotting emerging customer behaviors

• Seeing where competitors have overbuilt or underdelivered

Each move is rooted in a clear understanding of what users need.

New market expansion

Businesses rely on market analysis before they enter a new market (geographic or otherwise). That often includes learning about:

• Local customer preferences and purchasing behaviors

• Local competitors’ strengths and weaknesses

• Regulatory environments or economic trends

• The right distribution channels for the context

For example, if a retail brand is evaluating an expansion into South Korea, a smart market analysis would consider:

• What local customers prioritize (e.g., style, price, brand reputation)

• The dominant domestic ecommerce platforms or payment methods

• Any cultural or compliance nuances that would require adapting the product or go-to-market strategy

Marketing and positioning

Knowing your market makes your messaging more precise. It helps you avoid vague value propositions and focus on what matters most to your audience. For example:

• If your customers care about sustainability, emphasize your eco-friendly sourcing.

• If they’re frustrated by slow service, lead with your speed.

• If competitors are strong on price but weak on user experience (UX), emphasize how easy your product is to use.

Market analysis also helps answer tactical questions such as:

• Which channels are worth investing in?

• What’s the right pricing tier for this audience?

• How do we adapt the message for different segments?

Staying ahead of change

Markets shift, competitors evolve, and customer behavior isn’t static. The businesses that build market analysis into their ongoing processes are set up to spot inflection points earlier. Analysis can reveal:

• Whether newcomers are gaining traction

• Regulatory changes that might affect your business

• Shifts in public sentiment or customer priorities

• Macroeconomic trends that affect purchasing power or risk appetite

For example, a restaurant chain might track the rise in demand for plant-based options. If that trend accelerates, they’re ready to adapt their menu before their competitors.

Internal decisions

Market analysis is used inside businesses to shape priorities and allocate resources. That might mean:

• Justifying a product adjustment based on changes in demand

• Deciding where to open or close offices or stores

• Reallocating budget based on where growth is likely

Internal teams also use market logic. A finance team assessing a new investment or a product team pitching a new feature will often ground their proposals in analysis of market conditions: demand signals, competitive whitespace, timing, and cost of delay.

In practice, great businesses build market awareness into their culture. Insight comes from formal research, frontline teams, customer feedback, competitor moves, and broader economic signals.