I have most of my best ideas at 3:00 AM or in the shower. But turning those shower ideas into a business opportunity requires further investigation. That’s where market opportunity analysis comes in.

While you and your team may have many new business ideas you want to explore, you don’t have time to head down every path. Some of those paths may even end up being dead-ends.

How do you choose which ideas to pursue, and which ones to let go of? Market opportunity analysis can help you narrow down your options to the ones with the greatest potential.

Who should conduct a market opportunity analysis?

That answer is, "everyone." All sizes of organizations will benefit from better understanding the industry in which they’re operating or approaching. Whether you work in B2B, B2C, government, or non-profit organizations, defining and analyzing the market will help you make better decisions.

This kind of analysis can help you grow your existing business, pivot into new markets and opportunities, or expand into the periphery of your current market.

There are many reasons to take the time and examine the full range of options before forging ahead. Here are five important benefits you’ll get from market analysis.

1. Make better long-term strategic decisions.

Your business is impacted by many external factors. Without taking the time to examine the current market trends, you’ll be flying blind.

A market opportunity analysis can provide the insight you need to see into the future. What will the market look like in a year? Five years? 10 years? What forces are acting on the market today? How is the demographic of your target audience shifting?

2. Evaluate product or service demand.

You may have invented the next Google Glass: a great product with tough, niche demand. A market assessment will show the potential for selling your product or service. This analysis will help you evaluate if expanding into a potential new market is worthwhile for your company.

You may find that there is no existing market for your idea, leading to a “Blue Ocean Strategy.” “Blue oceans,” explain authors W. Chan Kim and Renee Mauborgne, “denote all the industries not in existence today — the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.”

While that might be the case, you might also fail to create the market, or need to spend time and energy educating customers on the value of your new idea.

3. Identify potential marketing strategies.

The four P’s of your marketing mix are price, place, product, and promotion. Through the process of a market opportunity analysis, organizations can gain a deeper understanding of who their target customers are, what they want, and how they make their decisions.

After assessing the current market, you’ll be able to price your product effectively and know which promotion strategies will work best. Are there partnerships you should pursue? Will direct sales or inbound marketing work best?

4. Uncover areas for further research.

When you start to better understand the market, you may identify even more new opportunities to explore. As the saying goes, “You don’t know what you don’t know.” You may discover a new government initiative that encourages sustainable businesses.

A customer research project may identify a new pain point that you didn’t realize existed. The benefit of knowing your marketplace really deeply is that you’ll be ready to leverage any new opportunities that pop up.

5. Identify and navigate potential roadblocks.

A SWOT analysis looks at the strengths, weaknesses, opportunities, and threats of a potential strategy. Identifying the weaknesses and the threats to your market opportunity is key to your success. No business idea is perfect. But knowing where you might run into trouble before you even begin can help you plan ahead and mitigate those risks.

Examples of Market Opportunity Analysis

Before we get into the step-by-step instructions of how to do your own analysis, let’s look at the results of two very different case studies. The purpose of both of these research projects was to identify new opportunities, however, they were done in two different industries: elderly care options and the automotive industry.

1. Say Yeah! ElderCare Case Study

Consulting agency Say Yeah! conducted a market opportunity analysis for a company looking to expand its business model into the elderly care industry. They started by mapping the customer journey for an adult child caring for their elderly parent, along with all the decision points they encounter.

By examining market forces — such as government subsidies, the changing demographics, and all the options older adults have — Say Yeah! was able to uncover several different options by which ElderCare could increase their profits.

Notably, they recommended ElderCare expand its referral business to include retirement homes, in-home care, and other social services.

“Their initial business premise is validated: by shifting the industry to a subscription-based model, led by an online marketplace, this business could carve out a significant piece of profit in the elder care industry by providing far more value to retirement homes at less cost.”

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2. Ipsos Business Consulting Automotive Case Study

A global automotive conglomerate was interested in the growing electronic vehicle (EV) market, specifically three-wheelers in India. Ipsos conducted a study of the EV market through customer interviews, business model analysis, and government research. At the end of the study, they provided recommendations around charging station locations, leasing vs purchasing options, and other infrastructure requirements.

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How To Conduct a Market Opportunity Assessment

1. Identify potential opportunities.

Your first step is to lay out the potential opportunities you want to investigate. What segment are you hoping to expand into? What type of customer are you hoping to attract? Are you looking to acquire or partner with another business? Have current events created a potential opportunity?

Knowing whether you want to expand, pivot, invest, create, or reposition your offerings will inform the next steps of your market research.

Once you’ve identified market opportunities, you’re ready to start researching their potential.

2. Understand the customer.

In every opportunity, the customer will inform your success. Does this product meet their needs? Do they have the purchasing power to make this idea profitable? How do they make their purchasing decisions? The second step in the analysis is to really, deeply understand your potential customers and their needs. This research may include any of the following tools:

• Customer interviews
• Customer journey map
• Surveys
• Demographic data

3. Research competitors.

Next, you’ll want to understand who all the players in the existing market are. Competitor research can help you understand how big the market share is, how existing products are positioned in the market, and how crowded the market is. Here are some questions you might want to ask:

• What is their value proposition?
• How is their product offering different from ours?
• Who are their partners?
• What do their reviews say about their product or service?
• Are there any gaps we could fill?
• How likely are new competitors?

4. Consider external factors.

External factors are always shaping and changing the marketplace. The acronym “STEEP” can help us dive into the five main forces we need to be aware of.

Social

How is culture changing the market? For example, more employees working from home during the pandemic has opened up an entire sector of the market that didn’t exist before. Jumping on trends can be a lucrative strategy unless the trends disappear too quickly.

Technical

What new innovations have influenced the market? Can you apply this technology in other ways or in new industries?

Economic

What is the current economic climate like? Will you be able to get a loan if needed? Do your customers have disposable income? How does the market forecast look for the next year? Five years?

Ecological

What impact does this idea have on the environment? Can you improve the sustainability of the product or service?

Political

You may be pleasantly surprised to learn that your local government is offering grants, tax breaks, or other incentives for businesses in your industry. Alternatively, you may find that there are regulatory roadblocks in your way that you’ll need to account for in your analysis.

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5. Be aware of internal forces.

Finally, dive into your own business’ capabilities. Do you have the skills, workforce, technology, and financial resources to invest in a new product? If you’re launching a very innovative product, are you going to be able to hire people with the necessary skills? What new departments or teams will you need to create to manage this new opportunity?

Make better decisions with market opportunity analysis.

Not every idea is worth pursuing — but many are. With market opportunity analysis, you’ll learn which business strategies will help you grow, along with their potential risks. Don’t launch your next product or service without doing your homework.