Business Plan Writing Guide: Target Market and OpportunityFeatured, Small Business, Small Business How to Guides Tuesday, March 8th, 2011
Identification of target market and opportunity involves understanding customer needs and gaps as well as analyzing the market conditions and the size of the opportunity that your business wants to tap into. Market and opportunity analysis is usually the first section that you will write in your business plan.
You need to describe the overall business opportunity, its potential, the industry and the competition in the market analysis section while writing a business plan. You should also include any special factors that affect the market such as government regulations and policies, entry barriers etc.
A business opportunity usually arises out of a need for a product or service; however, there have been cases where a product/service was first created and people developed the need later but it happens rarely. As an entrepreneur the safest way to go is to identify a predominant need and convert that into a business opportunity. The need can be identified through several methods, for eg: market research, understanding of the situation through experience etc. In this section, you will present the need of the customer, how and to what extent the need is being met currently and the gaps that you have identified as the business opportunity.
This section is used to describe the market that you are aiming to capture. The items to be presented in this section include the market size, demographics, distinguishing characteristics of the market, special trends that affect the market and the market share that you expect and plan to capture.
Size: The size of the market can be expressed by providing the number of buyers and their annual spending on products or services similar to your offering. Don’t forget to consider the market growth rate while calculating the market size.
Demographics: Based on the product or service, you will include the demographics that identify your target market. This may include age range, gender, purchasing power, life-stage, social class etc. You will also need to include the geographical location of your target market.
Special characteristics: All market segments have some distinguishing characteristics such as purchasing cycle, decision making power etc. that separate them from other segments and, also, influence the buying behavior. You will need to identify and describe the special characteristics of your target market.
Trends: You will need to identify special trends that govern your target market currently and the ones which can have a major impact in the near future. An example of this would be automobiles. Today most cars run on gas; however, in future we may find cars running on solar energy becoming a norm.
Market Share: Here you will describe the market share that you expect to capture supported by a logical explanation for your predictions.
Include all your research and analysis in the appendix and only present the key facts and charts here.
This section should have a brief description of your industry along with details like the industry size, historical growth rate and projections, and special trends and factors that affect the industry.
The competitive analysis will need to be presented in this section. The competitive analysis should include the current competitors, their strengths and weaknesses and the market share they represent. In rare cases of no direct competition, you will need to identify the future competitive landscape and who all can become the direct competition to your product or service. It is good to have the future competitive scenario in mind in advance even if you have existing competition.
Regulatory Restrictions and Entry Barriers
Some industries and markets are governed by a set of regulatory restrictions. You will need to identify all the regulations and policies that affect your business and how the business will operate while complying to regulations and policies.
Apart from the regulations and policies, some markets have entry barriers that are either natural or created by the competition. You will need to identify the entry barriers for your business which could be high startup cost, patents and trademarks that are related to your business, lack of human resources etc.
You may also want to list down the entry barriers that you will create or exist in the market, if any, that prevent competition from overpowering your business and penetrating in your target market.
If done right, the target market and opportunity analysis will provide you great insight into your market as well as the chances of your success.
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