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What is Market Analysis?

By Brendan McGuigan
Updated May 16, 2024
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Market analysis may take two distinct forms. It is a method used by investors to look at the market and try to determine whether it is going up or down, in order to make investment decisions. The term can also be used for a field used by marketers to analyze the target market of their clients and determine the best courses of action to take to improve sales and profitability.

As used by investors, market analysis involves looking at numerical data and attempting to discern patterns or determine probable future movement based on that data. Investors will look at how prices within their specific sector are moving, how the market as a whole is trending, and what individual events might affect the prices of stocks and commodities they are trading in. When performing this type of analysis, an investor must also consider events such as announced mergers, profit predictions for a coming quarter, and new technological discoveries. Some investors take a primarily mathematical approach, looking at reams of historical market data and crunching every number at their disposal through their own algorithms in an attempt to predict the market's future path. Other investors take a more "gut" approach, relying on news sources and rumors surrounding companies' activities to sketch a rough picture of possible market tendency.

From a marketer's perspective, a marketing analysis involves looking at every angle of a market to determine policies that will help a company capture more of a market share and make the share it already controls more profitable. An analysis of customer desire and satisfaction is a large part of marketing. Logit analysis, for example, surveys consumers and looks at needs that have not yet been met to predict how an untried product may perform in a fresh market. For companies innovating a new market, this is crucial, because producing too many units of a product results in a massive loss, while producing too few results in a loss of customer satisfaction and opens the door to competitors.

Market analysis may also look at the share a company owns of a particular market, with the aim of determining how to acquire a larger share. Unlike logit analysis, this type, known as market share analysis, is geared more towards entrenched product lines. The goal of market share analysis is not to determine whether a customer would purchase a product, but rather to examine customer loyalty levels, brand perception, and the overall competitive edge, and to come up with a strategy to draw market share away from competitors and increase one's own share.

There are a number of software packages for many types of market analysis, usually taking the form of spreadsheets with fields for a wide array of data that is then processed and used to give a general analysis. Most marketing firms also include it as part of their core package, with different degrees of depth available determining on the size and needs of the company.

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Discussion Comments

By sunshine31 — On Aug 05, 2010

Cafe41- I wanted to add that a company called Quick Insight offers market analysis software.

This really helps companies determine possible target markets that are underserved as well as potential new products that can help them.

It is a really interesting concept that provides additional insight on potential target markets.

By cafe41 — On Aug 05, 2010

I want to add that market research analysis is critical to a company especially when launching a new product or service or my trying to understand why a product is underperforming. Market research often takes the form of surveys and targeted focus groups.

The data from this research provides valuable data that helps companies improve or enhance their product or service.

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