Market Analysis

Goal

Market analysis answers a positioning question: which market, with which offer and for which segment does the organisation stand to gain by competing. It serves a precise decision, entering a market, growing in it, repositioning against a competitor or a substitute, weighing a tie-up or deciding to exit, and it produces the evidence that decision rests on: the size of the reachable demand, the buyer segments and what drives their choice, the map of competitors and substitutes, the trends and the forces that will govern profitability.

The deliverable is a market-analysis dossier, consumed ahead of requirements by the strategic decision-maker. It brings together a sizing view that narrows from the total addressable market to the one genuinely reachable, a segmentation of the demand, a map of competitors and substitutes, a reading of the forces and trends, and it closes on a recommendation carrying a green or red light. BABOK, in the section that describes it, frames it as researching customers and what they want, the factors that weigh on their purchase decision and the competitors in play, and notes that it also serves to judge when to leave a market or whether a partnership, a merger or a divestiture is viable.

The technique earns its cost when two conditions hold: the decision is about the playing field rather than the solution, and the organisation is still looking for the answer. It feeds the strategic choice, ahead of the elicitation techniques that will define the solution once the market is chosen. Benchmarking answers a different question, that of internal performance measured against a reference; BABOK groups the two under benchmarking and market analysis, and the question at hand decides which to use.

Usage

When to use it

• New market or new offer: size the addressable demand and the segments before committing the investment.
• Entry or expansion decision: assess a geography or a channel the organisation does not yet serve.
• Repositioning: a competitor, a substitute or a trend has shifted the ground and the current position must be reassessed.
• Exit or divestiture question: read whether demand and profitability still justify staying.
• Assessing a tie-up: understand a target's market before valuing a merger or an acquisition.
• Strategy-analysis stage: frame the playing field upstream, before the solution's requirements take shape.

When not to use it

• Solution already chosen, only its requirements remain: move to elicitation and requirements-definition techniques.
• Captive market or regulated monopoly: the levers are regulatory, prefer stakeholder analysis and regulatory analysis.
• Internal-performance question, not a market one: comparing your own practice against a reference is the job of benchmarking.

Description

Market analysis combines four readings that reinforce one another: sizing the demand, segmenting it, the competitor map and the reading of forces and trends. None suffices on its own. A market size without segmentation hides the winnable segment inside an average; a competitor map without sizing describes a field whose value is unknown. BABOK states the strongest dependency of the four: without segmentation, market analysis may not produce the expected results.

The procedure

1. Frame the decision and the market boundary. State the decision the analysis serves, then define the market by the need served, the geography and the buyer type. Too wide a boundary sizes a market that cannot be served; too narrow, it misses the substitutes.
2. Segment the demand. Split the heterogeneous market into homogeneous segments. Segmentation is the foundation of the whole exercise: a market taken as one block drowns the winnable segment in an average and hides the one targeting decision that mattered.
3. Size the market. Estimate demand top-down, from published data, and bottom-up, by multiplying segments, buyers, price and frequency, then narrow from the total addressable to the genuinely obtainable.
4. Map competitors and substitutes. Identify the direct competitors, their positioning and their offer, along with the substitutes that meet the same need in another way.
5. Read the forces and trends. Assess the structural forces that set profitability and the external trends that bear on demand and growth.
6. Estimate profitability and conclude. Bring sizing, segment attractiveness, competitive intensity and trends together into a positioning recommendation and a green or red light.

Segment the demand

To segment is to divide a heterogeneous market into groups homogeneous enough that a single offer and a single message serve them. Wendell Smith set out segmentation, in 1956, as a marketing strategy in its own right, distinct from product differentiation, and it has remained the foundation of the approach that Kotler and Keller formalise as segmentation, targeting, positioning. The usual bases for the split are geographic, demographic, psychographic and behavioural; purchase behaviour, being more predictive, is often combined with the others. A segment is useful only if it is measurable, its size and purchasing power can be estimated, substantial, it weighs enough to justify an offer, accessible, a channel reaches it, and finally differentiable, it responds to the offer differently from the others. A split that produces segments one can neither measure nor reach is a stylistic exercise that informs no decision.

Sizing: TAM, SAM, SOM

Sizing estimates the value of the demand through successive narrowing, captured in the practitioner shorthand TAM, SAM, SOM. The TAM, total addressable market, is the complete demand for the need, all buyers and all suppliers taken together. The SAM, serviceable addressable market, restricts the TAM to the share the organisation's model can realistically target, through geography, channel or offer type. The SOM, serviceable obtainable market, is the share the organisation can reasonably capture within a given horizon, given its presence, its capacity and the competitors already established. The method runs both ways: top-down from published industry data, bottom-up by reconstructing the demand segment by segment. The two directions cross-check each other, and a large gap between them signals a false assumption to revisit before going any further.

Mapping competitors and substitutes

The competitor map lists the direct competitors, their offer and their positioning, but it misses its target if it ignores the substitutes, those different answers to the same need that capture demand without appearing in the same category. A positioning matrix, built on two axes that matter to the buyer, makes visible the space no one occupies. The choice of axes is the analytical act: two badly chosen axes, correlated with each other or indifferent to the buyer, produce a pretty, empty map. Two axes that separate the offers reveal the uncontested position, the one where an entry has a chance.

Reading forces and trends

A market's profitability does not rest on the number of competitors alone. Michael Porter showed that five structural forces govern it: the intensity of rivalry, the threat of new entrants, the pressure of substitutes, the bargaining power of buyers and that of suppliers. A market where suppliers are concentrated, where entrants meet little resistance or where a substitute is gaining ground is structurally less profitable, regardless of the quality of the offer. To this reading of the forces is added a scan of the external trends, which the discipline calls PESTLE, after the families of factors, political, economic, social, technological, legal and environmental. This scan lists the factors that move the market and keeps them separate from the responses to make to them: confusing the two is the first pitfall of the stage.

The pitfalls that distort the reading

• Skipping segmentation. This is the failure BABOK names explicitly. An unsegmented average hides the winnable segment and misses the one decision that mattered.
• Mistaking the TAM for the real opportunity. Quoting a gigantic total market as though it were reachable revenue is the commonest error. The honest number is the SOM, not the TAM.
• Analysing the response instead of the factor. A reading that jumps straight to « what we should do » mixes evidence with decision. Establish the external map of factors first, decide afterwards.
• Relying on stale or slanted data. Market intelligence ages fast and a single-supplier report carries its own agenda. Sources must be triangulated.
• Letting the boundary drift. Sizing a market wider than the one the organisation can serve inflates every number that follows from it.
• Delivering a snapshot with no trend. An analysis with no view of growth or trend describes yesterday's market and does not inform a decision that commits the future.

AI considerations

AI is of greatest service upstream, on volume. A language model condenses masses of published data, competitor sites, reviews and regulatory filings that no one would read by hand into a first landscape. It proposes a first segmentation hypothesis or a PESTLE scan that the analyst then has to test rather than write from scratch, it speeds up the arithmetic of bottom-up sizing across many sets of assumptions, and it groups unstructured customer feedback into candidate segments.

What it must not do follows from the nature of the decision. The market boundary and the framing of the decision are human choices, and a model will confidently size the wrong market if it is left to set them. The validity of a segment is proven by real data, not by a split that reads plausibly. Above all, every number must be traceable to a source: a model invents a market size or a growth rate that sounds right and is false, and a decision cannot rest on a number no one can verify. The specifics of the Swiss market, local competitors, regulatory frame, price norms, are precisely where a generic model drifts toward American or European references by default. The data in a market dossier also contain confidential material and personal data within the meaning of the revised FADP, which have no place in a public tool.

Examples

A Vaud-based cycle retailer is weighing the launch of a monthly-subscription e-bike offer and runs a market analysis to size the opportunity and choose its segment. The numbers are illustrative.

The first artifact narrows the demand across three tiers. The total addressable market, the annual demand for e-bikes in Switzerland, runs at around 170'000 units, roughly CHF 650m. The serviceable market is limited to French-speaking Switzerland and to buyers open to a subscription rather than an outright purchase, about CHF 70m. The market genuinely obtainable within three years, given the retailer's presence and two already-established competitors, falls to about CHF 4m. The gap between the first tier and the last is the lesson: a market's headline size far exceeds the real opportunity.

The demand then splits into three segments, each sized and characterised.

The competitor map, finally, positions the players on two axes that matter to the French-Swiss buyer, price and local service.

The three artifacts read together. The commuter segment is the heaviest and the most open to a subscription; the map shows that the high-service, low-price quadrant is held by no one, with m-way playing the network, Décathlon the price, Veloplus the specialty. A monthly subscription also answers the buyer's reluctance to pay CHF 3'200 to CHF 5'500 up front, while the substitution of CFF public transport and Mobility car-sharing, like the concentration of motor manufacturers among a few suppliers, sets the limits of the opportunity.

Visualizations

Market analysis produces three artifacts of different kinds, and each calls for its own form. Sizing is a narrowing, a quantity that shrinks from tier to tier: it is drawn as a funnel, where the geometry carries the argument that the headline size is not the opportunity. The competitor map is a position in a plane, two axes and players placed relative to one another: it is drawn as a matrix, because it is the void between the points, the uncontested space, that is the lesson. Segmentation is made of rows and columns, one segment per row and its attributes in columns: the deliverable is the table itself, which reads as well by row, to compare one attribute across segments, as by column, to read a segment's full profile.

Cost

Tooling

The spreadsheet remains the bedrock: it carries top-down and bottom-up sizing, the segment-by-segment reconstruction of demand and the cross-check of the two directions, and it supports the comparison of assumptions. For the segmentation stage and the choice of competitive axes, where discussion matters more than calculation, a shared whiteboard or a workshop tool such as Miro holds the elicitation, on-site as well as remote.

Data sources take precedence over software. For a Swiss market, the data of the Federal Statistical Office, industry and trade-association publications, official registers and sector reports provide the raw material for sizing; intelligence from a single supplier is triangulated against at least one other source. Market- and competitive-intelligence platforms, along with research panels, are warranted when the market is large, shifting or poorly documented, and the decision at stake pays for their subscription. A survey tool serves primary research, the direct enquiry with the segments, when published data are not enough to ground the segmentation.

Sources

• IIBA, A Guide to the Business Analysis Body of Knowledge (BABOK Guide) v3, §10.4 Benchmarking and Market Analysis: descriptive source for the definition, the list of the elements of market analysis and the limitation that an analysis run without segmentation may not produce the expected results. It names the technique and does not fix its method.
• Porter, M. E., The Five Competitive Forces That Shape Strategy, Harvard Business Review, January 2008: the anchor for the reading of the structural forces that determine a market's profitability, rivalry, entrants, substitutes, buyer power and supplier power.
• Smith, W. R., Product Differentiation and Market Segmentation as Alternative Marketing Strategies, Journal of Marketing, 21(1), 1956, pp. 3-8: the founding article of market segmentation as a strategy.
• Kotler, P. and Keller, K. L., Marketing Management, Pearson: the standard reference for the segmentation, targeting, positioning framework, demand estimation and market sizing.