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How to Do Market Research: The Complete Guide

Learn how to do market research with this step-by-step guide, complete with templates, tools and real-world examples.

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What are your customers’ needs? How does your product compare to the competition? What are the emerging trends and opportunities in your industry? If these questions keep you up at night, it’s time to conduct market research.

Market research plays a pivotal role in your ability to stay competitive and relevant, helping you anticipate shifts in consumer behavior and industry dynamics. It involves gathering these insights using a wide range of techniques, from surveys and interviews to data analysis and observational studies.

In this guide, we’ll explore why market research is crucial, the various types of market research, the methods used in data collection, and how to effectively conduct market research to drive informed decision-making and success.

What is market research?

Market research is the systematic process of gathering, analyzing and interpreting information about a specific market or industry. The purpose of market research is to offer valuable insight into the preferences and behaviors of your target audience, and anticipate shifts in market trends and the competitive landscape. This information helps you make data-driven decisions, develop effective strategies for your business, and maximize your chances of long-term growth.

Why is market research important? 

By understanding the significance of market research, you can make sure you’re asking the right questions and using the process to your advantage. Some of the benefits of market research include:

• Informed decision-making: Market research provides you with the data and insights you need to make smart decisions for your business. It helps you identify opportunities, assess risks and tailor your strategies to meet the demands of the market. Without market research, decisions are often based on assumptions or guesswork, leading to costly mistakes.
• Customer-centric approach: A cornerstone of market research involves developing a deep understanding of customer needs and preferences. This gives you valuable insights into your target audience, helping you develop products, services and marketing campaigns that resonate with your customers.
• Competitive advantage: By conducting market research, you’ll gain a competitive edge. You’ll be able to identify gaps in the market, analyze competitor strengths and weaknesses, and position your business strategically. This enables you to create unique value propositions, differentiate yourself from competitors, and seize opportunities that others may overlook.
• Risk mitigation: Market research helps you anticipate market shifts and potential challenges. By identifying threats early, you can proactively adjust their strategies to mitigate risks and respond effectively to changing circumstances. This proactive approach is particularly valuable in volatile industries.
• Resource optimization: Conducting market research allows organizations to allocate their time, money and resources more efficiently. It ensures that investments are made in areas with the highest potential return on investment, reducing wasted resources and improving overall business performance.
• Adaptation to market trends: Markets evolve rapidly, driven by technological advancements, cultural shifts and changing consumer attitudes. Market research ensures that you stay ahead of these trends and adapt your offerings accordingly so you can avoid becoming obsolete. 

As you can see, market research empowers businesses to make data-driven decisions, cater to customer needs, outperform competitors, mitigate risks, optimize resources and stay agile in a dynamic marketplace. These benefits make it a huge industry; the global market research services market is expected to grow from $76.37 billion in 2021 to $108.57 billion in 2026 . Now, let’s dig into the different types of market research that can help you achieve these benefits.

Types of market research 

• Qualitative research
• Quantitative research
• Exploratory research
• Descriptive research
• Causal research
• Cross-sectional research
• Longitudinal research

Despite its advantages, 23% of organizations don’t have a clear market research strategy. Part of developing a strategy involves choosing the right type of market research for your business goals. The most commonly used approaches include:

1. Qualitative research

Qualitative research focuses on understanding the underlying motivations, attitudes and perceptions of individuals or groups. It is typically conducted through techniques like in-depth interviews, focus groups and content analysis — methods we’ll discuss further in the sections below. Qualitative research provides rich, nuanced insights that can inform product development, marketing strategies and brand positioning.

2. Quantitative research

Quantitative research, in contrast to qualitative research, involves the collection and analysis of numerical data, often through surveys, experiments and structured questionnaires. This approach allows for statistical analysis and the measurement of trends, making it suitable for large-scale market studies and hypothesis testing. While it’s worthwhile using a mix of qualitative and quantitative research, most businesses prioritize the latter because it is scientific, measurable and easily replicated across different experiments.

3. Exploratory research

Whether you’re conducting qualitative or quantitative research or a mix of both, exploratory research is often the first step. Its primary goal is to help you understand a market or problem so you can gain insights and identify potential issues or opportunities. This type of market research is less structured and is typically conducted through open-ended interviews, focus groups or secondary data analysis. Exploratory research is valuable when entering new markets or exploring new product ideas.

4. Descriptive research

As its name implies, descriptive research seeks to describe a market, population or phenomenon in detail. It involves collecting and summarizing data to answer questions about audience demographics and behaviors, market size, and current trends. Surveys, observational studies and content analysis are common methods used in descriptive research. 

5. Causal research

Causal research aims to establish cause-and-effect relationships between variables. It investigates whether changes in one variable result in changes in another. Experimental designs, A/B testing and regression analysis are common causal research methods. This sheds light on how specific marketing strategies or product changes impact consumer behavior.

6. Cross-sectional research

Cross-sectional market research involves collecting data from a sample of the population at a single point in time. It is used to analyze differences, relationships or trends among various groups within a population. Cross-sectional studies are helpful for market segmentation, identifying target audiences and assessing market trends at a specific moment.

7. Longitudinal research

Longitudinal research, in contrast to cross-sectional research, collects data from the same subjects over an extended period. This allows for the analysis of trends, changes and developments over time. Longitudinal studies are useful for tracking long-term developments in consumer preferences, brand loyalty and market dynamics.

Each type of market research has its strengths and weaknesses, and the method you choose depends on your specific research goals and the depth of understanding you’re aiming to achieve. In the following sections, we’ll delve into primary and secondary research approaches and specific research methods.

Primary vs. secondary market research

Market research of all types can be broadly categorized into two main approaches: primary research and secondary research. By understanding the differences between these approaches, you can better determine the most appropriate research method for your specific goals.

Primary market research 

Primary research involves the collection of original data straight from the source. Typically, this involves communicating directly with your target audience — through surveys, interviews, focus groups and more — to gather information. Here are some key attributes of primary market research:

• Customized data: Primary research provides data that is tailored to your research needs. You design a custom research study and gather information specific to your goals.
• Up-to-date insights: Because primary research involves communicating with customers, the data you collect reflects the most current market conditions and consumer behaviors.
• Time-consuming and resource-intensive: Despite its advantages, primary research can be labor-intensive and costly, especially when dealing with large sample sizes or complex study designs. Whether you hire a market research consultant, agency or use an in-house team, primary research studies consume a large amount of resources and time.

Secondary market research 

Secondary research, on the other hand, involves analyzing data that has already been compiled by third-party sources, such as online research tools, databases, news sites, industry reports and academic studies.

Here are the main characteristics of secondary market research:

• Cost-effective: Secondary research is generally more cost-effective than primary research since it doesn’t require building a research plan from scratch. You and your team can look at databases, websites and publications on an ongoing basis, without needing to design a custom experiment or hire a consultant. 
• Leverages multiple sources: Data tools and software extract data from multiple places across the web, and then consolidate that information within a single platform. This means you’ll get a greater amount of data and a wider scope from secondary research.
• Quick to access: You can access a wide range of information rapidly — often in seconds — if you’re using online research tools and databases. Because of this, you can act on insights sooner, rather than taking the time to develop an experiment. 

So, when should you use primary vs. secondary research? In practice, many market research projects incorporate both primary and secondary research to take advantage of the strengths of each approach.

One rule of thumb is to focus on secondary research to obtain background information, market trends or industry benchmarks. It is especially valuable for conducting preliminary research, competitor analysis, or when time and budget constraints are tight. Then, if you still have knowledge gaps or need to answer specific questions unique to your business model, use primary research to create a custom experiment. 

Market research methods

• Surveys and questionnaires
• Focus groups
• Observational research
• Online research tools
• Experiments
• Content analysis
• Ethnographic research

How do primary and secondary research approaches translate into specific research methods? Let’s take a look at the different ways you can gather data: 

1. Surveys and questionnaires

Surveys and questionnaires are popular methods for collecting structured data from a large number of respondents. They involve a set of predetermined questions that participants answer. Surveys can be conducted through various channels, including online tools, telephone interviews and in-person or online questionnaires. They are useful for gathering quantitative data and assessing customer demographics, opinions, preferences and needs. On average, customer surveys have a 33% response rate , so keep that in mind as you consider your sample size.

2. Interviews

Interviews are in-depth conversations with individuals or groups to gather qualitative insights. They can be structured (with predefined questions) or unstructured (with open-ended discussions). Interviews are valuable for exploring complex topics, uncovering motivations and obtaining detailed feedback. 

3. Focus groups

The most common primary research methods are in-depth webcam interviews and focus groups. Focus groups are a small gathering of participants who discuss a specific topic or product under the guidance of a moderator. These discussions are valuable for primary market research because they reveal insights into consumer attitudes, perceptions and emotions. Focus groups are especially useful for idea generation, concept testing and understanding group dynamics within your target audience.

4. Observational research

Observational research involves observing and recording participant behavior in a natural setting. This method is particularly valuable when studying consumer behavior in physical spaces, such as retail stores or public places. In some types of observational research, participants are aware you’re watching them; in other cases, you discreetly watch consumers without their knowledge, as they use your product. Either way, observational research provides firsthand insights into how people interact with products or environments.

5. Online research tools

You and your team can do your own secondary market research using online tools. These tools include data prospecting platforms and databases, as well as online surveys, social media listening, web analytics and sentiment analysis platforms. They help you gather data from online sources, monitor industry trends, track competitors, understand consumer preferences and keep tabs on online behavior. We’ll talk more about choosing the right market research tools in the sections that follow.

6. Experiments

Market research experiments are controlled tests of variables to determine causal relationships. While experiments are often associated with scientific research, they are also used in market research to assess the impact of specific marketing strategies, product features, or pricing and packaging changes.

7. Content analysis

Content analysis involves the systematic examination of textual, visual or audio content to identify patterns, themes and trends. It’s commonly applied to customer reviews, social media posts and other forms of online content to analyze consumer opinions and sentiments.

8. Ethnographic research

Ethnographic research immerses researchers into the daily lives of consumers to understand their behavior and culture. This method is particularly valuable when studying niche markets or exploring the cultural context of consumer choices.

How to do market research

• Set clear objectives
• Identify your target audience
• Choose your research methods
• Use the right market research tools
• Collect data
• Analyze data 
• Interpret your findings
• Identify opportunities and challenges
• Make informed business decisions
• Monitor and adapt

Now that you have gained insights into the various market research methods at your disposal, let’s delve into the practical aspects of how to conduct market research effectively. Here’s a quick step-by-step overview, from defining objectives to monitoring market shifts.

1. Set clear objectives

When you set clear and specific goals, you’re essentially creating a compass to guide your research questions and methodology. Start by precisely defining what you want to achieve. Are you launching a new product and want to understand its viability in the market? Are you evaluating customer satisfaction with a product redesign? 

Start by creating SMART goals — objectives that are specific, measurable, achievable, relevant and time-bound. Not only will this clarify your research focus from the outset, but it will also help you track progress and benchmark your success throughout the process. 

You should also consult with key stakeholders and team members to ensure alignment on your research objectives before diving into data collecting. This will help you gain diverse perspectives and insights that will shape your research approach.

2. Identify your target audience

Next, you’ll need to pinpoint your target audience to determine who should be included in your research. Begin by creating detailed buyer personas or stakeholder profiles. Consider demographic factors like age, gender, income and location, but also delve into psychographics, such as interests, values and pain points.

The more specific your target audience, the more accurate and actionable your research will be. Additionally, segment your audience if your research objectives involve studying different groups, such as current customers and potential leads.

If you already have existing customers, you can also hold conversations with them to better understand your target market. From there, you can refine your buyer personas and tailor your research methods accordingly.

3. Choose your research methods

Selecting the right research methods is crucial for gathering high-quality data. Start by considering the nature of your research objectives. If you’re exploring consumer preferences, surveys and interviews can provide valuable insights. For in-depth understanding, focus groups or observational research might be suitable. Consider using a mix of quantitative and qualitative methods to gain a well-rounded perspective. 

You’ll also need to consider your budget. Think about what you can realistically achieve using the time and resources available to you. If you have a fairly generous budget, you may want to try a mix of primary and secondary research approaches. If you’re doing market research for a startup , on the other hand, chances are your budget is somewhat limited. If that’s the case, try addressing your goals with secondary research tools before investing time and effort in a primary research study. 

4. Use the right market research tools

Whether you’re conducting primary or secondary research, you’ll need to choose the right tools. These can help you do anything from sending surveys to customers to monitoring trends and analyzing data. Here are some examples of popular market research tools:

• Market research software: Crunchbase is a platform that provides best-in-class company data, making it valuable for market research on growing companies and industries. You can use Crunchbase to access trusted, first-party funding data, revenue data, news and firmographics, enabling you to monitor industry trends and understand customer needs.

• Survey and questionnaire tools: SurveyMonkey is a widely used online survey platform that allows you to create, distribute and analyze surveys. Google Forms is a free tool that lets you create surveys and collect responses through Google Drive.
• Data analysis software: Microsoft Excel and Google Sheets are useful for conducting statistical analyses. SPSS is a powerful statistical analysis software used for data processing, analysis and reporting.
• Social listening tools: Brandwatch is a social listening and analytics platform that helps you monitor social media conversations, track sentiment and analyze trends. Mention is a media monitoring tool that allows you to track mentions of your brand, competitors and keywords across various online sources.
• Data visualization platforms: Tableau is a data visualization tool that helps you create interactive and shareable dashboards and reports. Power BI by Microsoft is a business analytics tool for creating interactive visualizations and reports.

5. Collect data

There’s an infinite amount of data you could be collecting using these tools, so you’ll need to be intentional about going after the data that aligns with your research goals. Implement your chosen research methods, whether it’s distributing surveys, conducting interviews or pulling from secondary research platforms. Pay close attention to data quality and accuracy, and stick to a standardized process to streamline data capture and reduce errors. 

6. Analyze data

Once data is collected, you’ll need to analyze it systematically. Use statistical software or analysis tools to identify patterns, trends and correlations. For qualitative data, employ thematic analysis to extract common themes and insights. Visualize your findings with charts, graphs and tables to make complex data more understandable.

If you’re not proficient in data analysis, consider outsourcing or collaborating with a data analyst who can assist in processing and interpreting your data accurately.

7. Interpret your findings

Interpreting your market research findings involves understanding what the data means in the context of your objectives. Are there significant trends that uncover the answers to your initial research questions? Consider the implications of your findings on your business strategy. It’s essential to move beyond raw data and extract actionable insights that inform decision-making.

Hold a cross-functional meeting or workshop with relevant team members to collectively interpret the findings. Different perspectives can lead to more comprehensive insights and innovative solutions.

8. Identify opportunities and challenges

Use your research findings to identify potential growth opportunities and challenges within your market. What segments of your audience are underserved or overlooked? Are there emerging trends you can capitalize on? Conversely, what obstacles or competitors could hinder your progress?

Lay out this information in a clear and organized way by conducting a SWOT analysis, which stands for strengths, weaknesses, opportunities and threats. Jot down notes for each of these areas to provide a structured overview of gaps and hurdles in the market.

9. Make informed business decisions

Market research is only valuable if it leads to informed decisions for your company. Based on your insights, devise actionable strategies and initiatives that align with your research objectives. Whether it’s refining your product, targeting new customer segments or adjusting pricing, ensure your decisions are rooted in the data.

At this point, it’s also crucial to keep your team aligned and accountable. Create an action plan that outlines specific steps, responsibilities and timelines for implementing the recommendations derived from your research. 

10. Monitor and adapt

Market research isn’t a one-time activity; it’s an ongoing process. Continuously monitor market conditions, customer behaviors and industry trends. Set up mechanisms to collect real-time data and feedback. As you gather new information, be prepared to adapt your strategies and tactics accordingly. Regularly revisiting your research ensures your business remains agile and reflects changing market dynamics and consumer preferences.

Online market research sources

As you go through the steps above, you’ll want to turn to trusted, reputable sources to gather your data. Here’s a list to get you started:

• Crunchbase: As mentioned above, Crunchbase is an online platform with an extensive dataset, allowing you to access in-depth insights on market trends, consumer behavior and competitive analysis. You can also customize your search options to tailor your research to specific industries, geographic regions or customer personas.

• Academic databases: Academic databases, such as ProQuest and JSTOR , are treasure troves of scholarly research papers, studies and academic journals. They offer in-depth analyses of various subjects, including market trends, consumer preferences and industry-specific insights. Researchers can access a wealth of peer-reviewed publications to gain a deeper understanding of their research topics.
• Government and NGO databases: Government agencies, nongovernmental organizations and other institutions frequently maintain databases containing valuable economic, demographic and industry-related data. These sources offer credible statistics and reports on a wide range of topics, making them essential for market researchers. Examples include the U.S. Census Bureau , the Bureau of Labor Statistics and the Pew Research Center .
• Industry reports: Industry reports and market studies are comprehensive documents prepared by research firms, industry associations and consulting companies. They provide in-depth insights into specific markets, including market size, trends, competitive analysis and consumer behavior. You can find this information by looking at relevant industry association databases; examples include the American Marketing Association and the National Retail Federation .
• Social media and online communities: Social media platforms like LinkedIn or Twitter (X) , forums such as Reddit and Quora , and review platforms such as G2 can provide real-time insights into consumer sentiment, opinions and trends. 

Market research examples

At this point, you have market research tools and data sources — but how do you act on the data you gather? Let’s go over some real-world examples that illustrate the practical application of market research across various industries. These examples showcase how market research can lead to smart decision-making and successful business decisions.

Example 1: Apple’s iPhone launch

Apple ’s iconic iPhone launch in 2007 serves as a prime example of market research driving product innovation in tech. Before the iPhone’s release, Apple conducted extensive market research to understand consumer preferences, pain points and unmet needs in the mobile phone industry. This research led to the development of a touchscreen smartphone with a user-friendly interface, addressing consumer demands for a more intuitive and versatile device. The result was a revolutionary product that disrupted the market and redefined the smartphone industry.

Example 2: McDonald’s global expansion

McDonald’s successful global expansion strategy demonstrates the importance of market research when expanding into new territories. Before entering a new market, McDonald’s conducts thorough research to understand local tastes, preferences and cultural nuances. This research informs menu customization, marketing strategies and store design. For instance, in India, McDonald’s offers a menu tailored to local preferences, including vegetarian options. This market-specific approach has enabled McDonald’s to adapt and thrive in diverse global markets.

Example 3: Organic and sustainable farming

The shift toward organic and sustainable farming practices in the food industry is driven by market research that indicates increased consumer demand for healthier and environmentally friendly food options. As a result, food producers and retailers invest in sustainable sourcing and organic product lines — such as with these sustainable seafood startups — to align with this shift in consumer values. 

The bottom line? Market research has multiple use cases and is a critical practice for any industry. Whether it’s launching groundbreaking products, entering new markets or responding to changing consumer preferences, you can use market research to shape successful strategies and outcomes.

Market research templates

You finally have a strong understanding of how to do market research and apply it in the real world. Before we wrap up, here are some market research templates that you can use as a starting point for your projects:

• Smartsheet competitive analysis templates : These spreadsheets can serve as a framework for gathering information about the competitive landscape and obtaining valuable lessons to apply to your business strategy.
• SurveyMonkey product survey template : Customize the questions on this survey based on what you want to learn from your target customers.
• HubSpot templates : HubSpot offers a wide range of free templates you can use for market research, business planning and more.
• SCORE templates : SCORE is a nonprofit organization that provides templates for business plans, market analysis and financial projections.
• SBA.gov : The U.S. Small Business Administration offers templates for every aspect of your business, including market research, and is particularly valuable for new startups. 

Strengthen your business with market research

When conducted effectively, market research is like a guiding star. Equipped with the right tools and techniques, you can uncover valuable insights, stay competitive, foster innovation and navigate the complexities of your industry.

Throughout this guide, we’ve discussed the definition of market research, different research methods, and how to conduct it effectively. We’ve also explored various types of market research and shared practical insights and templates for getting started. 

Now, it’s time to start the research process. Trust in data, listen to the market and make informed decisions that guide your company toward lasting success.

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How to do Market Analysis in 6 Easy Steps

Knowing how to do market analysis is pivotal for many roles, benefiting any organization, regardless of its size, scope, or sector.

Regular market analysis levels up your individual ability to spot potential opportunities, stay on top of current trends, and gives you insights into the competitive landscape .

This article will cover why you need to analyze a market frequently and shows you how to do a basic market analysis in 6 straightforward steps.

What is a market analysis?

Market analysis is the process of gathering data about a target market . It examines the competitive landscape, consumers, and conditions that impact the marketplace.

The benefits of market analysis

Here are eight reasons why a regular market analysis is beneficial:

• Understand the competitive landscape
• Spot trends in your market
• Uncover opportunities for growth or diversification
• Reduce either risk or cost for launching new products or services
• Develop a deeper understanding of a target audience
• Enhance marketing efforts or discover ways to change
• Analyze business performance within a market
• Identify new segments of a market to target

Why you should conduct a market analysis

Aside from the benefits we’ve already listed, reviewing and redoing your market analysis regularly is important . Here’s why.

• Markets shift
• Consumer behaviors change
• New players enter existing markets
• Disruptive technologies and enhancements to rival offerings can shift the landscape
• External events impact market conditions that drive changes

If you already know how to do market analysis, ask yourself how frequently you undertake the task: is it annually or quarterly? And consider the time it takes and the tools you used to obtain your information.

With this in mind, we’ll walk you through the most effective market analysis methods. Showing you the steps to take, with market analysis examples, to bring these steps to life.

How to conduct a market analysis

These six steps break down how to analyze a market into easy-to-follow, digestible stages.

Before you start: Use a framework to record your findings. There are plenty of visualization tools, but a basic excel sheet will be fine if you want to keep it simple. Why? Because when you return to review this analysis and repeat this exercise, you’ll want to have everything recorded in a single place. It will save you time and make any future comparisons easier.

Step 1 – Market segmentation

What: Whether you want to enter a new market , launch a new product, or simply assess opportunities for an existing business, this first step in the market analysis process is crucial yet often overlooked.

Why: Market segmentation helps you identify the core segments of a market to target. By identifying the portion of a market your products will be suitable for, you can accurately define the market size and better understand your potential customers’ specific needs and preferences.

How: There are multiple ways you can segment a market, and the right approach will depend on your product, its customers, and its target profiles.

Here, we can see how a segment is built using Similarweb’s website segment feature. I specifically want to view the credit card sector in the US, a market made up of pure players (think Amex or Visa ) and individual players with credit card lines as one of their segments (think Wells Fargo or USAA ). By splitting up a market like this, I can analyze the areas of business I care about more for my market analysis.

So, instead of viewing data that encompasses the other lines of business the likes of Wells Fargo and the USAA handle, such as loans, I get to hone in on their credit card segments only.

This is just one example of market segmentation. You can also segment a market based on consumer needs, ideal consumer profiles, regions, and other demographic data.

Step 2 – Market sizing

What: Market sizing determines your target market’s potential volume or sales revenue. It’s an essential component of market analysis that uses either secondary or primary research to explore the actual size of the market you are in or wish to enter. 

Total Addressable Market (TAM) – This gives you the complete value of the overall market and the first step in the market sizing process . Let’s say we want to analyze the US credit card market, the TAM would account for the whole of this market. Service Addressable Market (SAM) looks at potential audience volumes for a product or service in a target region. Sticking with the credit card sector example, this could be the total value of the credit card business that specifically targets the ‘poor credit rating’ segment of this market. Share of Market (SOM) – Also known as ‘service addressable market,’ it represents the proportion of your SAM that you are likely to achieve. SOM is always lower than SAM, taking a range of estimates based on the previous year’s performance or current market share + project growth to arrive at this figure.

Why: Market sizing helps businesses understand the size of their opportunity. By understanding the size and scope of a market, companies can better assess the potential profitability of the market. Tracking market share over time can also show who wins or loses at any given time.

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Market analysis example: market sizing.

Using a metric known as traffic share , we can estimate the potential market size by showing the total reachable audience you have or could have with a product or service.

Using Similarweb Industry Analysis , I can see a real-time snapshot of my market’s performance. With it, I can see the total number of people in a market (unique visitors) and establish how much of that share I have or will target this year.

When sizing a market, it’s easy to fall into the habit of analyzing the market quarterly or annually. But often, the best insights are dynamic in nature. They appear to show shifts, sometimes unexpectedly or can indicate growth and changing behaviors as the year progresses. This is why we place a high emphasis on continuing a market analysis throughout the year.

Here, we’re looking at traffic share changes over time using Similarweb’s market trends. You can see the impact of Snychrony’s growth (in green) as they gain traction, along with USAA (purple). At the start of the year, these two players had no impact on the market. By the end of 2022, they’re showing gains and would be two key competitors to track when you reach step 4 of the market analysis process.

Those analyzing a market annually would miss out on key insights that show the rise of these two emerging players. At the end of the year, they’ve already grabbed a chunk of the market and, if they continue on the same trajectory, will continue to do so in 2023.

With the right tools, you get a dynamic view of the market data you need, allowing you to change tactics when markets shift.

Step 3 – Market trends

What: Reviewing current trends is key to any good market analysis. As we all know, trends can rise and fall at a moment’s notice. This is why this activity, in particular, is one you should routinely perform.

Why: Keeping a finger on the pulse can help you adapt and flex, at the right time, in the right way. Market trends give you insights into the current market situation and potential opportunities and challenges. Doing so can help you identify areas for growth, spot potential risks, and plan effective strategies. Market trends can also provide valuable information about customer preferences, competition, and economic and technological developments. By monitoring these trends, businesses can stay ahead of the curve and make informed decisions that will benefit their bottom line.

You may have heard about ChatGPT in the press ; this is an example of a highly-disruptive technology that has the potential to completely shift an entire market; many, in fact. It managed to gain over 1 million users within its first week on the market. And it’s a great example of why regular market trends analysis should occur.

How: There are lots of ways new market trends can surface. Consumer behavior, economic trends, technological advancements, and the competitive landscape can impact how markets behave. Legal and regulatory changes can also influence trends and changes too.

Staying up to date with industry news and legislation changes is useful. But it takes time, and it’s not always the most effective way to know when consumer sentiment changes.

Market research surveys are one way to understand customer attitudes and needs and how they shift over time. However, it’s not the most effective way to inform your market analysis. Particularly when you want real-time market intel.

Market analysis example: trend detection 

Similarweb analyzes billions of data signals daily to deliver game-changing insights about any market, region, or individual company. So, as we look at how to do market analysis, I wanted to share a practical example of how clients use Similarweb to spot trends in a market.

Wonderbly , a global business, provides personalized books, serving over 6 million customers. To grow its business, it conducts regular market analysis. As part of this process, they analyzed seasonal trending keywords within Similarweb. Let’s look at what it found out and how it impacted the business.

Wonderbly was able to spot an emerging category (anniversaries and weddings) that was not currently catered for within its own product set. In addition to being able to capitalize on seasonal trends in its market, it achieved a 69% revenue in books purchased by a more mature demographic and a completely new audience for its business.

Read more: Wonderbly’s market analysis success story .

Step 4 – Competitive analysis

What: A competitive analysis involves collecting and reviewing data about key industry players, rivals, or emerging stars in your market. It unpacks and tracks their activities and successes, letting you see what’s working, how they go to market and the various marketing strategies they use to attract and retain customers.

Why: Regardless of your size or scope, understanding the competitive landscape is key. Your target audience knows your competitors and will likely size up the pros and cons of buying from thesm before considering whether to do business with you. A robust competitive analysis can help you refine your own offerings, make informed pricing decisions, show where you can beat out your rivals, and identify areas for improvement or diversification.

How: A tried and trusted tool for this process is the well-known SWOT analysis . It lets you map and view what and how each competitor takes its products to market. Considering things like pricing, positioning, marketing, services, and more. A competitive matrix is another tool used to visualize data about rivals in a market.

To do it, download our free competitive analysis framework . Then, pick five competitors in your market to track. Complete each section, and analyze the results to discover your biggest opportunities.

Step 5 – Develop strategies

What: Use the results of your market analysis to make data-driven decisions .

Why: When you read a post about how to do market analysis, the chances are you’ve got a goal in mind. Perhaps you want to explore a new market before deciding if it’s ripe for entry. You may want to introduce a new product or service or acquire an existing company. Whatever your goal is, ensure you put the insights and data you’ve obtained to good use.

How: Create a list of potential opportunities, then build strategies around each. Here, you might evaluate potential ideas based on project costs or timeframes. Once you’ve clearly mapped out each opportunity, and understand the potential impact it will have, along with associated costs and timeframes, you can think strategically about which ideas to move forward with from both a short and long-term perspective.

Pro Tip: Use a framework to record, capture, and review the data you’ve collected about market segmentation, size, trends, and key competitors. You can draw inspiration from our downloadable competitive analysis frameworks. However, what’s key is that you systematically record your findings and review them regularly.

Step 6 – Monitor the market

What: Keep track of your market and its key players; monitor changes over time.

Why: We know markets shift, whether they’re impacted by consumer behaviors, external factors, or something else. So, it’s important to monitor changes over time.

How: We may be a little biased, but Similarweb gives you a real-time bird-eye view of your market. Letting you dive into the details and unpick changes and tactics whenever you need. With it, you can track key growth metrics, marketing channels, emerging players, trending topics , and much more.

Using the Industry Analysis tab in Similarweb Research Intelligence , I can identify the market leaders and rising stars quickly. Here, I immediately see a company to track, Synchrony . As an emerging player showing exponential growth (2700%), I’ll take my market analysis a step further by investigating their successes later.

Similarweb shows me key insights, such as website traffic , the marketing channels it’s getting traffic from, audience demographics , geography , organic search insights, and more. As part of any good market analysis, the ability to spot rising players and unpack their successes can be crucial, particularly when they’re showing such growth.

Analyzing a market: Conclusions

Learning how to do market analysis is the first step. Aside from analyzing the results and making key strategic decisions, the ability to track changes over time is key. Similarweb makes it easy to segment, size, and analyze a market fast. With it, you can spot opportunities, benchmark your performance, and monitor shifts and changes as they happen, not a month or quarter later.

What are the 4 types of market analysis?

The four types of market analysis are market segmentation, market sizing, market trends, and competitive analysis.

What are the five components of market analysis?

The five components of market analysis are: customer segmentation, customer needs and trends, competitors, market size and trend, and pricing.

What makes a good market analysis?

A good market analysis should include accurate, up-to-date data, clear objectives, and a thorough market and customer needs analysis.

Is market analysis the same as a SWOT analysis?

No, market analysis and SWOT analysis are not the same. While a SWOT analysis evaluates an organization’s strengths, weaknesses, opportunities, and threats, a market analysis focuses on the external environment, such as customer needs, market trends, and competitors.

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Market Research: A How-To Guide and Template

Discover the different types of market research, how to conduct your own market research, and use a free template to help you along the way.

MARKET RESEARCH KIT

5 Research and Planning Templates + a Free Guide on How to Use Them in Your Market Research

Updated: 02/21/24

Published: 02/21/24

Today's consumers have a lot of power. As a business, you must have a deep understanding of who your buyers are and what influences their purchase decisions.

Enter: Market Research.

Whether you're new to market research or not, I created this guide to help you conduct a thorough study of your market, target audience, competition, and more. Let’s dive in.

Table of Contents

What is market research?

Primary vs. secondary research, types of market research, how to do market research, market research report template, market research examples.

Market research is the process of gathering information about your target market and customers to verify the success of a new product, help your team iterate on an existing product, or understand brand perception to ensure your team is effectively communicating your company's value effectively.

Market research can answer various questions about the state of an industry. But if you ask me, it's hardly a crystal ball that marketers can rely on for insights on their customers.

Market researchers investigate several areas of the market, and it can take weeks or even months to paint an accurate picture of the business landscape.

However, researching just one of those areas can make you more intuitive to who your buyers are and how to deliver value that no other business is offering them right now.

How? Consider these two things:

• Your competitors also have experienced individuals in the industry and a customer base. It‘s very possible that your immediate resources are, in many ways, equal to those of your competition’s immediate resources. Seeking a larger sample size for answers can provide a better edge.
• Your customers don't represent the attitudes of an entire market. They represent the attitudes of the part of the market that is already drawn to your brand.

The market research services market is growing rapidly, which signifies a strong interest in market research as we enter 2024. The market is expected to grow from roughly $75 billion in 2021 to $90.79 billion in 2025 .

Free Market Research Kit

• SWOT Analysis Template
• Survey Template
• Focus Group Template

You're all set!

Click this link to access this resource at any time.

Why do market research?

Market research allows you to meet your buyer where they are.

As our world becomes louder and demands more of our attention, this proves invaluable.

By understanding your buyer's problems, pain points, and desired solutions, you can aptly craft your product or service to naturally appeal to them.

Market research also provides insight into the following:

• Where your target audience and current customers conduct their product or service research
• Which of your competitors your target audience looks to for information, options, or purchases
• What's trending in your industry and in the eyes of your buyer
• Who makes up your market and what their challenges are
• What influences purchases and conversions among your target audience
• Consumer attitudes about a particular topic, pain, product, or brand
• Whether there‘s demand for the business initiatives you’re investing in
• Unaddressed or underserved customer needs that can be flipped into selling opportunity
• Attitudes about pricing for a particular product or service

Ultimately, market research allows you to get information from a larger sample size of your target audience, eliminating bias and assumptions so that you can get to the heart of consumer attitudes.

As a result, you can make better business decisions.

To give you an idea of how extensive market research can get , consider that it can either be qualitative or quantitative in nature — depending on the studies you conduct and what you're trying to learn about your industry.

Qualitative research is concerned with public opinion, and explores how the market feels about the products currently available in that market.

Quantitative research is concerned with data, and looks for relevant trends in the information that's gathered from public records.

That said, there are two main types of market research that your business can conduct to collect actionable information on your products: primary research and secondary research.

Primary Research

Primary research is the pursuit of first-hand information about your market and the customers within your market.

It's useful when segmenting your market and establishing your buyer personas.

Primary market research tends to fall into one of two buckets:

• Exploratory Primary Research: This kind of primary market research normally takes place as a first step — before any specific research has been performed — and may involve open-ended interviews or surveys with small numbers of people.
• Specific Primary Research: This type of research often follows exploratory research. In specific research, you take a smaller or more precise segment of your audience and ask questions aimed at solving a suspected problem.

Secondary Research

Secondary research is all the data and public records you have at your disposal to draw conclusions from (e.g. trend reports, market statistics, industry content, and sales data you already have on your business).

Secondary research is particularly useful for analyzing your competitors . The main buckets your secondary market research will fall into include:

• Public Sources: These sources are your first and most-accessible layer of material when conducting secondary market research. They're often free to find and review — like government statistics (e.g., from the U.S. Census Bureau ).
• Commercial Sources: These sources often come in the form of pay-to-access market reports, consisting of industry insight compiled by a research agency like Pew , Gartner , or Forrester .
• Internal Sources: This is the market data your organization already has like average revenue per sale, customer retention rates, and other historical data that can help you draw conclusions on buyer needs.
• Focus Groups
• Product/ Service Use Research
• Observation-Based Research
• Buyer Persona Research
• Market Segmentation Research
• Pricing Research
• Competitive Analysis Research
• Customer Satisfaction and Loyalty Research
• Brand Awareness Research
• Campaign Research

1. Interviews

Interviews allow for face-to-face discussions so you can allow for a natural flow of conversation. Your interviewees can answer questions about themselves to help you design your buyer personas and shape your entire marketing strategy.

2. Focus Groups

Focus groups provide you with a handful of carefully-selected people that can test out your product and provide feedback. This type of market research can give you ideas for product differentiation.

3. Product/Service Use Research

Product or service use research offers insight into how and why your audience uses your product or service. This type of market research also gives you an idea of the product or service's usability for your target audience.

4. Observation-Based Research

Observation-based research allows you to sit back and watch the ways in which your target audience members go about using your product or service, what works well in terms of UX , and which aspects of it could be improved.

5. Buyer Persona Research

Buyer persona research gives you a realistic look at who makes up your target audience, what their challenges are, why they want your product or service, and what they need from your business or brand.

6. Market Segmentation Research

Market segmentation research allows you to categorize your target audience into different groups (or segments) based on specific and defining characteristics. This way, you can determine effective ways to meet their needs.

7. Pricing Research

Pricing research helps you define your pricing strategy . It gives you an idea of what similar products or services in your market sell for and what your target audience is willing to pay.

8. Competitive Analysis

Competitive analyses give you a deep understanding of the competition in your market and industry. You can learn about what's doing well in your industry and how you can separate yourself from the competition .

9. Customer Satisfaction and Loyalty Research

Customer satisfaction and loyalty research gives you a look into how you can get current customers to return for more business and what will motivate them to do so (e.g., loyalty programs , rewards, remarkable customer service).

10. Brand Awareness Research

Brand awareness research tells you what your target audience knows about and recognizes from your brand. It tells you about the associations people make when they think about your business.

11. Campaign Research

Campaign research entails looking into your past campaigns and analyzing their success among your target audience and current customers. The goal is to use these learnings to inform future campaigns.

• Define your buyer persona.
• Identify a persona group to engage.
• Prepare research questions for your market research participants.
• List your primary competitors.
• Summarize your findings.

1. Define your buyer persona.

You have to understand who your customers are and how customers in your industry make buying decisions.

This is where your buyer personas come in handy. Buyer personas — sometimes referred to as marketing personas — are fictional, generalized representations of your ideal customers.

Use a free tool to create a buyer persona that your entire company can use to market, sell, and serve better.

Don't forget to share this post!

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Marketing software that helps you drive revenue, save time and resources, and measure and optimize your investments — all on one easy-to-use platform

How to Conduct a Market Analysis? (+ Examples)

Appinio Research · 04.10.2023 · 29min read

Are you ready to transform your business with the unparalleled advantages of market analysis? Discover how harnessing the power of data-driven insights can propel your decision-making and unlock exceptional growth opportunities.

In this guide, we delve deep into the art of market analysis, showing you how to gain a competitive edge, tailor your strategies with precision, and, ultimately, boost your success. Let's embark on this journey of discovery together.

What is Market Analysis?

Market analysis is the process of evaluating market conditions and dynamics to understand its potential and make informed decisions. It helps you answer crucial questions:

• Who are your customers?
• What are their needs and preferences?
• Who are your competitors?
• What market trends should you be aware of?

Market analysis is crucial because it empowers you to make data-driven choices, minimize risks, and maximize opportunities.

Why is Market Analysis Important?

Before diving into the analysis, you need to define your objectives. Common goals of market analysis include:

• Market Entry: Evaluating the feasibility of entering a new market.
• Product Development : Identifying market gaps for new product development.
• Competitor Analysis: Understanding your competition's strengths and weaknesses.
• Strategic Planning: Shaping your business strategies based on market insights.

Benefits of Effective Market Analysis

Conducting a thorough market analysis brings several benefits:

• Risk Mitigation: Minimize the risk of entering an unprofitable market.
• Resource Allocation: Optimize resource allocation for marketing and product development.
• Competitive Advantage: Gain a competitive edge by understanding your market better.
• Innovation: Identify opportunities for innovation and growth.

Now that you understand the importance of market analysis, let's move on to the practical steps involved.

How to Prepare for Market Analysis?

Before diving into market analysis, setting the stage for success is essential. Here are the key steps to prepare for market analysis:

• Set Clear Objectives: Define your specific goals and objectives for the analysis. Be clear about what you want to achieve. For example, if you're planning to enter a new market, your purpose might be to determine market demand and competition.
• Identify Target Audience: Knowing your audience is crucial. Identify the demographics, preferences, and behaviors of your target market. This information will guide your data collection methods .
• Gather Necessary Resources: Market analysis requires data, tools, and expertise. Ensure you have access to the resources you need. This might include budget allocation for research tools, hiring analysts, or outsourcing data collection.
• Consider Ethical Considerations: Ethical guidelines are paramount in market analysis. Ensure that your data collection methods and analysis processes adhere to ethical standards, respecting privacy and confidentiality.

With your preparations in place, you're ready to collect the data necessary for your market analysis.

Data Collection for Market Analysis

Accurate and relevant data is the lifeblood of market analysis. Here's how you can gather the information you need:

Primary Data Sources

Primary data refers to information collected directly from the source. You can obtain primary data through:

• Surveys: Conducting surveys to gather insights from your target audience.
• Interviews: Engaging in one-on-one interviews with industry experts or potential customers .
• Observations: Collecting data by observing customer behavior or market trends.

Secondary Data Sources

Secondary data is information that already exists and is collected by someone else. Sources of secondary data include:

• Market Reports: Industry-specific reports and publications.
• Government Data: Data provided by government agencies.
• Competitor Reports : Analyzing reports and information about your competitors.

Qualitative Data Collection Methods

Qualitative data provides in-depth insights into customer attitudes and behaviors. Qualitative methods include:

• Focus Groups: Gathering a small group of participants to discuss specific topics.
• In-Depth Interviews: Conducting in-depth interviews with individuals to explore their perspectives.

Quantitative Data Collection Methods

Quantitative data is numerical and can be analyzed statistically. Common quantitative methods include:

• Surveys: Creating structured questionnaires for large-scale data collection.
• Online Analytics: Analyzing website and social media metrics for user behavior.

With your data collected, it's time to move on to the next crucial step: analyzing and interpreting the data.

Market Research Techniques

Analyzing the data you've collected is where the real insights come to light. Let's explore various market research techniques that help you make sense of your data.

Surveys and Questionnaires

Surveys and questionnaires are powerful tools for collecting quantitative data. They allow you to gather structured responses from a large sample of participants. When designing surveys, consider:

• Question Types: Crafting survey questions that are clear and unbiased.
• Sampling Techniques: Ensuring your sample is representative of your target audience.
• Data Analysis: Applying statistical methods to analyze survey data.

Interviews provide qualitative data through in-depth conversations with individuals. Key considerations include:

• Interview Structure: Developing a structured interview guide.
• Listening Skills: Active listening to uncover valuable insights.
• Transcribing and Coding: Transcribing interviews and coding responses for analysis.

Focus Groups

Focus groups involve small group discussions, providing rich qualitative data. To conduct effective focus groups:

• Moderation Skills: Skillfully moderating group discussions.
• Participant Selection: Recruiting diverse participants for varied perspectives.
• Thematic Analysis : Identifying themes and patterns in focus group discussions.

Observational Research

Observational research involves watching and recording customer behavior.

• Research Setting: Choosing the right environment for observations.
• Data Recording: Accurate and detailed recording of observations.
• Interpretation: Interpreting observed behaviors in the context of your objectives.

Competitor Analysis

Competitor analysis involves evaluating your rivals to understand their strengths and weaknesses.

• Identifying Competitors: Determine who your main competitors are.
• Competitive Metrics: Choose relevant metrics to assess competition.
• Benchmarking: Comparing your performance against competitors.

By mastering these market research techniques, you'll be well-prepared to extract valuable insights from your data. The next step is to interpret these insights effectively.

Data Analysis and Interpretation

Analyzing and interpreting data is the heart of market analysis. This process involves converting raw data into actionable insights.

Data Cleaning and Preparation

Data can be messy, and cleaning and preparing it for analysis is essential. This involves:

• Data Cleaning: Removing outliers, errors, and inconsistencies.
• Data Transformation: Converting data into a consistent format.
• Data Validation: Ensuring data accuracy and completeness.

Descriptive Analysis

Descriptive analysis involves summarizing and visualizing data to understand its basic characteristics. Techniques include:

• Summary Statistics: Calculating measures like mean, median, and standard deviation.
• Data Visualization: Creating charts and graphs to represent data visually.
• Data Distribution Analysis: Understanding how data is distributed.

Statistical Analysis

Statistical analysis allows you to draw meaningful conclusions from your data. Techniques include:

• Hypothesis Testing: Testing hypotheses to make data-driven decisions.
• Regression Analysis: Examining relationships between variables.
• Segmentation Analysis: Grouping data for more targeted insights.

Identify Trends and Patterns

Identifying trends and patterns in your data helps you make predictions and formulate strategies.

• Time Series Analysis: Analyzing data over time to identify trends.
• Pattern Recognition: Spotting recurring patterns in customer behavior.
• Predictive Modeling : Using data to make future predictions.

Armed with these analytical skills, you can effectively uncover valuable insights that inform your business decisions.

Market Segmentation

Market segmentation is crucial in understanding your audience better and tailoring your strategies accordingly.

What is Market Segmentation?

Market segmentation involves dividing your market into distinct groups based on shared characteristics. This is significant because it allows you to:

• Target Specific Audiences: Tailor your marketing efforts to specific segments.
• Personalize Products: Customize products and services to meet segment needs.
• Optimize Resource Allocation: Allocate resources more efficiently by focusing on high-potential segments.

Types of Market Segmentation

There are various ways to segment a market, including:

• Demographic Segmentation : Dividing based on age, gender, income, etc.
• Psychographic Segmentation : Grouping by lifestyles, values, and attitudes.
• Geographic Segmentation: Segmenting by location or region.
• Behavioral Segmentation : Dividing based on buying behavior and preferences.

Targeting Specific Market Segments

After segmentation, you must target your chosen segments effectively. This involves:

• Positioning: Crafting a unique value proposition for each segment.
• Messaging: Tailoring your marketing messages to resonate with each segment.
• Product Development: Adapting products to meet segment-specific needs.

By understanding your market segments, you can connect with your audience on a deeper level and increase your chances of success.

SWOT Analysis

A SWOT analysis is a valuable tool for assessing your business's internal strengths and weaknesses, as well as external opportunities and threats.

Identify and leverage your strengths, such as:

• Unique Products: What sets your products apart from the competition?
• Skilled Workforce: Highlight the expertise of your team.
• Strong Brand: Emphasize your brand reputation and recognition.

Acknowledge and address your weaknesses, including:

• Limited Resources: Recognize budget constraints or resource shortages.
• Market Share: Assess areas where competitors outperform you.
• Operational Challenges: Identify internal issues that need improvement.

Opportunities

Exploit opportunities in your market, such as:

• Market Growth: Explore emerging markets and trends.
• Partnerships: Seek collaboration with complementary businesses.
• New Technologies: Embrace innovations that can improve your operations.

Mitigate potential threats, such as:

• Competition: Analyze the competitive landscape and potential disruptors.
• Economic Trends: Consider how economic fluctuations may affect your business.
• Regulatory Changes: Stay updated on industry regulations and compliance.

Conducting a SWOT analysis helps you develop strategies that capitalize on strengths, mitigate weaknesses, seize opportunities, and guard against threats.

How to Conduct Competitive Market Analysis?

Competitive market analysis is a critical component of your overall market analysis strategy. Understanding who your competitors are, analyzing their strengths and weaknesses, and conducting competitive benchmarking are essential steps to gain a strategic advantage in your market.

1. Identify Key Competitors

Identifying your key competitors is the first step in a competitive market analysis. Key competitors are those businesses that directly compete with you for the same target audience or market share. Here's how to identify them:

• Market Research : Conduct thorough market research to identify businesses offering similar products or services in your industry or niche.
• Customer Feedback: Listen to your customers. Often, they will mention your competitors when discussing alternatives or choices.
• Industry Associations: Explore industry associations, directories, or trade publications to find a list of competitors.
• Online Search: Use search engines and social media platforms to discover businesses that appear in similar search results or target similar keywords.

Once you have identified your key competitors, you can move on to a more in-depth analysis of their strengths and weaknesses.

2. Analyze Competitor Strengths and Weaknesses

Analyzing competitor strengths and weaknesses provides valuable insights into their strategies and helps you identify opportunities and threats. Here's how to conduct this analysis effectively:

Product or Service Offering

• Strengths: Determine what your competitors excel at regarding product quality, features, and innovation.
• Weaknesses: Identify areas where their products or services fall short compared to yours.

Pricing Strategies

• Strengths: Analyze whether competitors offer competitive pricing or unique pricing models.
• Weaknesses: Look for instances where their pricing may be less competitive or prohibitive.

Market Share and Customer Base

• Strengths: Assess the size of their customer base and market share in your industry.
• Weaknesses: Investigate whether they have any vulnerabilities or dependencies on a specific customer segment.

Marketing and Branding

• Strengths: Analyze their marketing strategies, branding efforts, and customer engagement tactics.
• Weaknesses: Identify any gaps or areas where their marketing efforts may be less effective.

Customer Reviews and Feedback

• Strengths: Look for positive customer reviews and feedback to understand what your competitors are doing well.
• Weaknesses: Pay attention to negative reviews and areas where customers express dissatisfaction.

This analysis will help you identify areas where you can differentiate yourself and gain a competitive edge. It also enables you to anticipate how competitors might respond to your strategies.

3. Competitive Benchmarking

Competitive benchmarking involves comparing your performance and strategies against those of your key competitors. It allows you to set performance goals, identify best practices, and continuously improve.

• Select Key Metrics: Choose the key performance metrics that matter most to your business. These could include revenue growth, customer acquisition costs, customer satisfaction scores, or market share.
• Gather Data: Collect data on these selected metrics for both your business and your competitors. This data can come from public sources, industry reports, or your own internal records.
• Analyze and Compare: Compare your performance against that of your competitors using the selected metrics. Pay close attention to areas where you outperform them and areas where you lag behind.
• Identify Best Practices: Identify the strategies and practices that contribute to your competitors' success. Learn from their best practices and consider implementing similar strategies in your business.
• Set Improvement Goals: Based on your analysis, set specific improvement goals for your business. These goals should be realistic and aligned with your overall business objectives.
• Monitor Progress: Regularly monitor your progress toward achieving your improvement goals. Adjust your strategies and tactics as needed to stay competitive.

Competitive benchmarking is an ongoing process. By continuously assessing your performance compared to your competitors, you can adapt and refine your strategies to maintain a competitive advantage in the market.

How to Conduct Comparative Market Analysis?

Comparative market analysis involves assessing your market position, understanding competitor strategies and performance, and identifying opportunities for growth. Let's explore each aspect in more detail.

What is Comparative Analysis in Market Research?

Comparative analysis involves examining your business in relation to your competitors and the overall market. It helps you:

• Gain Perspective: Understand where your business stands in the market landscape.
• Identify Trends: Recognize industry trends and shifts.
• Spot Opportunities: Discover areas where your business can excel or innovate.

To conduct an effective comparative analysis:

• Collect Data: Gather data on your business, competitors, and the market as a whole.
• Use Key Metrics: Focus on key performance metrics relevant to your industry.
• Benchmark Against Competitors: Compare your performance against that of your direct competitors.

Analyzing Competitor Strategies and Performance

Analyzing competitor strategies and performance is a critical aspect of comparative analysis. Here's how to go about it:

1. Competitor Strategies

Product and Service Strategies: Examine their product/service offerings and pricing strategies.

• Marketing and Promotion: Analyze their marketing campaigns, messaging, and customer engagement tactics.
• Distribution Channels: Understand how they reach and distribute products or services to customers.
• Innovation: Identify areas where they innovate or introduce new features.

2. Financial Performance

• Revenue and Growth: Assess their revenue figures and growth rates over time.
• Profit Margins: Analyze their profit margins and how they compare to industry standards.
• Investment and Funding: Explore whether they have secured significant investments or funding.

3. Customer Engagement

• Customer Base: Understand the size and composition of their customer base.
• Customer Satisfaction: Look for indicators of customer satisfaction, such as reviews or feedback.

4. Market Presence

Market Share: Determine their market share in your industry or niche.

Geographic Reach: Explore the regions or markets they serve.

Identifying Market Position and Opportunities

Identifying your market position and opportunities is the ultimate goal of comparative market analysis. Here's how to accomplish this:

1. Market Position

• Relative Strengths: Determine where your business excels compared to competitors.
• Areas of Improvement: Identify areas where you lag and need improvement.
• Market Niche: Define your unique value proposition and niche within the market.

2. Opportunities

• Competitive Gaps: Recognize gaps in the market that your business can fill.
• Unmet Customer Needs: Explore customer needs that competitors are not effectively addressing.
• Emerging Trends: Stay alert to emerging industry trends and adapt your strategies accordingly.

3. Strategic Planning

• Strategy Development: Formulate strategies that capitalize on your strengths and address weaknesses.
• Innovation: Consider innovative approaches to differentiate your business.
• Risk Mitigation: Develop plans to mitigate risks associated with market dynamics.

By conducting a comprehensive comparative market analysis, you gain a deeper understanding of your competitive landscape, enabling you to make informed decisions, refine your strategies, and seize growth opportunities effectively. This process should be ongoing, as the market is dynamic and ever-changing.

Competitive Market Analysis vs. Comparative Market Analysis

While these approaches share some similarities, they serve distinct purposes and offer unique insights. Let's explore the key differences and applications of each.

Competitive Market Analysis

Objective: Competitive Market Analysis primarily focuses on assessing your direct competitors and understanding their strategies, strengths, weaknesses, and overall market position. Its main goal is to help you gain a competitive edge by learning from and responding to your rivals effectively.

Key Aspects:

• Competitor-Centric: It revolves around thoroughly examining specific competitors that directly impact your business.
• Strategy-Oriented: The emphasis is on understanding your competitors' strategies, pricing models, product offerings, and marketing tactics.
• Market Positioning: It helps you define your position in relation to your immediate competitors and identify areas for differentiation.
• Direct Impact: Competitive Market Analysis is often employed for short-term decision-making, such as refining marketing strategies or adjusting pricing to respond to competitor moves.

Comparative Market Analysis

Objective: Comparative Market Analysis takes a broader perspective by evaluating your business within the context of the entire market. It aims to provide a comprehensive view of your market's dynamics, trends, and opportunities, helping you make informed, long-term strategic decisions.

• Market-Centric: It considers a broader view of the market, including competitors, potential entrants, and industry dynamics.
• Trend Analysis : Comparative Market Analysis looks at industry trends, market growth, consumer behavior, and emerging technologies that may impact your business.
• Strategic Insights: It provides strategic insights that extend beyond immediate competition, helping you identify opportunities for market expansion , diversification, or innovation.
• Long-Term Planning: This approach is suitable for long-term strategic planning, such as entering new markets, launching new products, or adapting to evolving market conditions.

How to Choose the Right Approach?

The choice between Competitive Market Analysis and Comparative Market Analysis depends on your specific business goals and the depth of insights you seek:

• Use Competitive Market Analysis when you need to closely monitor and respond to specific competitors' actions, refine short-term strategies, or differentiate your offerings within a crowded market segment.
• Opt for Comparative Market Analysis when you are making long-term strategic decisions, considering market expansion, or seeking to innovate based on broader industry trends. This approach provides a holistic view that extends beyond immediate competitors.

In practice, many businesses find value in combining elements of both approaches to gain a comprehensive understanding of their market environment. The key is to align your analysis with your strategic objectives and adapt your approach as your business evolves.

Market Analysis Template

A well-structured market analysis template is invaluable for streamlining the market research process, ensuring you cover all essential aspects and gather data systematically. Let's explore the components of an effective market analysis template and how to customize it to your specific needs.

How to Create a Structured Market Analysis Framework?

A comprehensive market analysis template typically includes the following sections:

1. Market Overview

• Market Size: Describe the current size and potential growth of the market.
• Market Segmentation: Identify key segments within the market.
• Market Trends: Highlight recent trends and developments.

2. Competitive Landscape

• Competitor Identification: List your main competitors and potential disruptors.
• Competitor Analysis: Evaluate their strengths, weaknesses, opportunities, and threats (SWOT).
• Competitive Advantage: Explore ways in which your business can gain a competitive edge.

3. Target Market Analysis

• Customer Personas: Develop detailed customer personas based on demographics, behavior, and preferences.
• Customer Needs: Understand your target audience's specific needs and pain points.
• Market Demand: Assess the demand for your products or services within your target market.

4. SWOT Analysis

• Strengths: Identify your business's internal strengths and advantages.
• Weaknesses: Acknowledge areas where your business may be vulnerable.
• Opportunities: Explore external factors that can be leveraged for growth.
• Threats: Recognize potential challenges and external risks.

5. Trends and Forecast

• Market Trends: Analyze current trends and their potential impact on your business.
• Market Forecast: Make data-driven predictions about the future of the market.
• Emerging Technologies: Assess how emerging technologies may influence your industry.

How to Utilize Template for Efficient Market Analysis?

Templates not only save time but also ensure that you cover all critical aspects of market analysis. To effectively utilize a template:

1. Identify Relevant Sections

Review the template to identify sections that are relevant to your specific market analysis objectives. Not all sections may be necessary for every analysis.

2. Customize Sections

Tailor each section to your business and market. For example:

• In the "Market Overview" section , provide market data specific to your industry or region.
• In the "Competitive Landscape" section , focus on competitors directly impacting your business.

3. Collect Data Methodically

Use the template as a guide to collect data methodically. It ensures that you gather the right information in a structured manner.

4. Analyze and Interpret Data

After collecting data, analyze and interpret it within the context of each section of the template.

This step provides actionable insights.

5. Draw Conclusions and Recommendations

Utilize the insights gained from your analysis to draw conclusions and formulate recommendations that address your initial market analysis objectives.

6. Report Compilation

Compile the information from your template into a well-organized market analysis report that can be easily shared with stakeholders, investors, or team members.

How to Customize the Market Analysis Template?

Market analysis templates should not be rigid but rather adaptable to meet your unique requirements.

• Additional Sections: If your analysis requires sections not covered in the template, feel free to add them. For example, you might include a section on environmental or sustainability factors.
• Data Sources and Tools: Specify the data sources and analysis tools you'll use for each section. This ensures transparency and accountability in your analysis process.
• Visual Elements: Incorporate charts, graphs, and visual representations where relevant. Graphic elements can make complex data more digestible.
• Timelines and Milestones: If your market analysis is part of a larger project or business plan, include timelines and milestones to track progress.
• Appendices: Consider including appendices with supplementary materials such as raw data, survey questionnaires, or detailed calculations to support your analysis.

Market Analysis Examples

To gain a deeper understanding of how market analysis is applied in real-world scenarios, let's explore a variety of detailed examples that showcase different aspects of this crucial business practice.

Example 1: Entering a New Market

Scenario: Imagine you are the marketing manager of a well-established electronics company considering expansion into a new geographic market. Let's call it Market X.

Market Analysis Objective: Your goal is to assess the feasibility and potential success of entering Market X.

Data Collection and Analysis

• Market Research: Begin by collecting data on Market X, such as population demographics, economic indicators, and consumer behavior.
• Competitor Analysis: Identify and analyze competitors already operating in Market X. Assess their market share, product offerings, pricing strategies, and customer reviews.
• Consumer Surveys: Conduct surveys in Market X to understand consumer preferences, needs, and willingness to adopt your products.
• Regulatory Environment: Investigate the regulatory framework in Market X, including import/export regulations, industry standards, and compliance requirements.

Findings and Insights

• Market Potential: Through extensive data analysis, you discover that Market X has a growing population with a high demand for electronics, indicating market potential.
• Competitive Landscape: You identify several established competitors, but their product offerings are limited in comparison to your company's range.
• Consumer Preferences: Survey results reveal a preference for high-quality, durable electronics aligning with your product portfolio.
• Regulatory Insights: Understanding the regulatory environment helps you plan for compliance, ensuring a smooth market entry.

Recommendations

Based on your analysis, you can make informed recommendations:

• Market Entry Strategy: Develop a comprehensive market entry strategy tailored to Market X, including distribution channels and pricing strategies.
• Product Localization: Customize certain product features to align with local preferences and regulatory requirements.
• Competitive Edge: Leverage your wider product range as a competitive advantage.

Example 2: Product Launch Strategy

Scenario: You work for a startup that has developed an innovative health and fitness wearable device. Your goal is to create an effective product launch strategy.

Market Analysis Objective: Understand your target market, competition, and market trends to launch the wearable successfully.

• Target Audience Profiling: Create detailed customer personas based on demographics, interests, and health and fitness habits.
• Competitor Analysis: Examine the market for similar wearable devices, assessing their features, pricing, and customer reviews.
• Market Trends and Consumer Behavior: Analyze market trends related to health and fitness, wearable technology adoption, and consumer preferences.
• Market Size and Growth: Determine the size of the wearable technology market and its growth rate.
• Target Audience: Detailed personas reveal that your primary customer segments include health-conscious individuals, athletes, and tech enthusiasts.
• Competition: While there are competitors in the market, a gap exists for a wearable that combines health monitoring with advanced fitness tracking.
• Market Trends: Trends show an increasing demand for health-related wearables due to a growing focus on fitness and well-being.
• Market Size: The market is substantial and expected to grow steadily over the next few years.
• Product Features: Focus your product's features on health monitoring and advanced fitness tracking to cater to the identified target segments.
• Pricing Strategy: Set a competitive yet profitable price point for your wearable.
• Marketing Campaign: Develop a marketing campaign highlighting the unique features of your wearable and its benefits for health-conscious consumers, athletes, and tech enthusiasts.

Example 3: Competitive Analysis for an E-commerce Startup

Scenario: You're part of a startup team launching an e-commerce platform that sells handmade artisanal products. You need to understand the competitive landscape to formulate a successful business strategy.

Market Analysis Objective: Gain insights into the e-commerce market for handmade products and identify opportunities for differentiation.

• Competitor Identification: Identify existing e-commerce platforms specializing in handmade products.
• Product Range and Quality: Assess the variety and quality of products offered by competitors.
• Pricing Strategies: Analyze pricing strategies and discount offers of competitors.
• Customer Reviews: Study customer reviews and ratings for competing platforms.
• Competitor Landscape: You discover several established e-commerce platforms in the handmade product niche, but none seem to offer a comprehensive range of unique artisanal items.
• Product Quality: Competitors mainly offer mass-produced items with limited emphasis on craftsmanship and uniqueness.
• Pricing: Pricing strategies appear to be competitive, but customer reviews indicate a desire for more affordable options.
• Product Curation: Focus on curating a selection of high-quality, truly artisanal products to differentiate your platform.
• Competitive Pricing: Offer competitive pricing while maintaining the unique value proposition of handmade items.
• Customer Engagement: Implement strategies to engage customers and gather feedback for continuous improvement.

These examples illustrate how market analysis informs critical business decisions. Whether entering a new market, launching a product, or competing in e-commerce, a data-driven approach empowers you to make informed choices and increase your chances of success.

Remember that market analysis is an ongoing process, and staying updated with evolving market dynamics is essential for long-term success.

Market analysis is your secret weapon for success in the ever-evolving business landscape. By understanding your market, customers, and competition, you gain the knowledge to make informed decisions, identify growth opportunities, and stay ahead of the curve.

Remember, market analysis is not a one-time task; it's an ongoing journey. Continuously gather data, adapt your strategies, and embrace the power of real-time insights. With the right tools and knowledge, you have the potential to turn market analysis into a dynamic force that propels your business to new heights.

How to Conduct Market Analysis in Minutes?

Looking to supercharge your market analysis? Look no further than Appinio , the real-time market research platform changing the game. With Appinio, you can harness the power of real-time consumer insights to make data-driven decisions that drive your business forward.

• Lightning-Fast Insights: Say goodbye to waiting weeks for market research results. Appinio delivers answers to your burning questions in minutes.
• Instant Decision-Making: With real-time consumer insights at your fingertips, you can make informed decisions on the fly, giving your business a competitive edge.
• User-Friendly and Intuitive: Market research doesn't have to be a daunting task. Appinio's user-friendly platform makes it easy for anyone to access and interpret valuable data.

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What Is Market Research?

• How It Works
• Primary vs. Secondary
• How to Conduct Research

The Bottom Line

• Marketing Essentials

How to Do Market Research, Types, and Example

Joules Garcia / Investopedia

Market research examines consumer behavior and trends in the economy to help a business develop and fine-tune its business idea and strategy. It helps a business understand its target market by gathering and analyzing data.

Market research is the process of evaluating the viability of a new service or product through research conducted directly with potential customers. It allows a company to define its target market and get opinions and other feedback from consumers about their interest in a product or service.

Research may be conducted in-house or by a third party that specializes in market research. It can be done through surveys and focus groups, among other ways. Test subjects are usually compensated with product samples or a small stipend for their time.

Key Takeaways

• Companies conduct market research before introducing new products to determine their appeal to potential customers.
• Tools include focus groups, telephone interviews, and questionnaires.
• The results of market research inform the final design of the product and determine how it will be positioned in the marketplace.
• Market research usually combines primary information, gathered directly from consumers, and secondary information, which is data available from external sources.

Market Research

How market research works.

Market research is used to determine the viability of a new product or service. The results may be used to revise the product design and fine-tune the strategy for introducing it to the public. This can include information gathered for the purpose of determining market segmentation . It also informs product differentiation , which is used to tailor advertising.

A business engages in various tasks to complete the market research process. It gathers information based on the market sector being targeted by the product. This information is then analyzed and relevant data points are interpreted to draw conclusions about how the product may be optimally designed and marketed to the market segment for which it is intended.

It is a critical component in the research and development (R&D) phase of a new product or service introduction. Market research can be conducted in many different ways, including surveys, product testing, interviews, and focus groups.

Market research is a critical tool that companies use to understand what consumers want, develop products that those consumers will use, and maintain a competitive advantage over other companies in their industry.

Primary Market Research vs. Secondary Market Research

Market research usually consists of a combination of:

• Primary research, gathered by the company or by an outside company that it hires
• Secondary research, which draws on external sources of data

Primary Market Research

Primary research generally falls into two categories: exploratory and specific research.

• Exploratory research is less structured and functions via open-ended questions. The questions may be posed in a focus group setting, telephone interviews, or questionnaires. It results in questions or issues that the company needs to address about a product that it has under development.
• Specific research delves more deeply into the problems or issues identified in exploratory research.

Secondary Market Research

All market research is informed by the findings of other researchers about the needs and wants of consumers. Today, much of this research can be found online.

Secondary research can include population information from government census data , trade association research reports , polling results, and research from other businesses operating in the same market sector.

History of Market Research

Formal market research began in Germany during the 1920s. In the United States, it soon took off with the advent of the Golden Age of Radio.

Companies that created advertisements for this new entertainment medium began to look at the demographics of the audiences who listened to each of the radio plays, music programs, and comedy skits that were presented.

They had once tried to reach the widest possible audience by placing their messages on billboards or in the most popular magazines. With radio programming, they had the chance to target rural or urban consumers, teenagers or families, and judge the results by the sales numbers that followed.

Types of Market Research

Face-to-face interviews.

From their earliest days, market research companies would interview people on the street about the newspapers and magazines that they read regularly and ask whether they recalled any of the ads or brands that were published in them. Data collected from these interviews were compared to the circulation of the publication to determine the effectiveness of those ads.

Market research and surveys were adapted from these early techniques.

To get a strong understanding of your market, it’s essential to understand demand, market size, economic indicators, location, market saturation, and pricing.

Focus Groups

A focus group is a small number of representative consumers chosen to try a product or watch an advertisement.

Afterward, the group is asked for feedback on their perceptions of the product, the company’s brand, or competing products. The company then takes that information and makes decisions about what to do with the product or service, whether that's releasing it, making changes, or abandoning it altogether.

Phone Research

The man-on-the-street interview technique soon gave way to the telephone interview. A telephone interviewer could collect information in a more efficient and cost-effective fashion.

Telephone research was a preferred tactic of market researchers for many years. It has become much more difficult in recent years as landline phone service dwindles and is replaced by less accessible mobile phones.

Survey Research

As an alternative to focus groups, surveys represent a cost-effective way to determine consumer attitudes without having to interview anyone in person. Consumers are sent surveys in the mail, usually with a coupon or voucher to incentivize participation. These surveys help determine how consumers feel about the product, brand, and price point.

Online Market Research

With people spending more time online, market research activities have shifted online as well. Data collection still uses a survey-style form. But instead of companies actively seeking participants by finding them on the street or cold calling them on the phone, people can choose to sign up, take surveys, and offer opinions when they have time.

This makes the process far less intrusive and less rushed, since people can participate on their own time and of their own volition.

How to Conduct Market Research

The first step to effective market research is to determine the goals of the study. Each study should seek to answer a clear, well-defined problem. For example, a company might seek to identify consumer preferences, brand recognition, or the comparative effectiveness of different types of ad campaigns.

After that, the next step is to determine who will be included in the research. Market research is an expensive process, and a company cannot waste resources collecting unnecessary data. The firm should decide in advance which types of consumers will be included in the research, and how the data will be collected. They should also account for the probability of statistical errors or sampling bias .

The next step is to collect the data and analyze the results. If the two previous steps have been completed accurately, this should be straightforward. The researchers will collect the results of their study, keeping track of the ages, gender, and other relevant data of each respondent. This is then analyzed in a marketing report that explains the results of their research.

The last step is for company executives to use their market research to make business decisions. Depending on the results of their research, they may choose to target a different group of consumers, or they may change their price point or some product features.

The results of these changes may eventually be measured in further market research, and the process will begin all over again.

Benefits of Market Research

Market research is essential for developing brand loyalty and customer satisfaction. Since it is unlikely for a product to appeal equally to every consumer, a strong market research program can help identify the key demographics and market segments that are most likely to use a given product.

Market research is also important for developing a company’s advertising efforts. For example, if a company’s market research determines that its consumers are more likely to use Facebook than X (formerly Twitter), it can then target its advertisements to one platform instead of another. Or, if they determine that their target market is value-sensitive rather than price-sensitive, they can work on improving the product rather than reducing their prices.

Market research only works when subjects are honest and open to participating.

Example of Market Research

Many companies use market research to test new products or get information from consumers about what kinds of products or services they need and don’t currently have.

For example, a company that’s considering starting a business might conduct market research to test the viability of its product or service. If the market research confirms consumer interest, the business can proceed confidently with its business plan . If not, the company can use the results of the market research to make adjustments to the product to bring it in line with customer desires.

What Are the Main Types of Market Research?

The main types of market research are primary research and secondary research. Primary research includes focus groups, polls, and surveys. Secondary research includes academic articles, infographics, and white papers.

Qualitative research gives insights into how customers feel and think. Quantitative research uses data and statistics such as website views, social media engagement, and subscriber numbers.

What Is Online Market Research?

Online market research uses the same strategies and techniques as traditional primary and secondary market research, but it is conducted on the Internet. Potential customers may be asked to participate in a survey or give feedback on a product. The responses may help the researchers create a profile of the likely customer for a new product.

What Are Paid Market Research Surveys?

Paid market research involves rewarding individuals who agree to participate in a study. They may be offered a small payment for their time or a discount coupon in return for filling out a questionnaire or participating in a focus group.

What Is a Market Study?

A market study is an analysis of consumer demand for a product or service. It looks at all of the factors that influence demand for a product or service. These include the product’s price, location, competition, and substitutes as well as general economic factors that could influence the new product’s adoption, for better or worse.

Market research is a key component of a company’s research and development (R&D) stage. It helps companies understand in advance the viability of a new product that they have in development and to see how it might perform in the real world.

Britannica Money. “ Market Research .”

U.S. Small Business Administration. “ Market Research and Competitive Analysis .”

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A step-by-step guide to product demand analysis in 2023

2020 showed us: even the steady sales of toilet paper can’t be taken for granted. Sudden surges or drops in demand happen across all product categories, from soap to software.

What is a product demand analysis?

Why conduct a product demand analysis, what are the types of product demand, how to conduct a product demand analysis in 5 steps, product demand analysis examples, product demand analysis best practices, picking the right market research tools.

But if you become an expert at product demand analysis, those highs and lows don’t catch you by surprise as often. In this guide, you’ll learn the foundations of product demand analysis for the marketplace of tomorrow.

With a product demand analysis, you try to get an accurate estimate of future sales of your product. It’s a way of understanding how competition, seasons and other relevant events affect the sales of a certain product. 

Product demand analysis can be done at various times – even for products that aren’t for sale yet. It’s not only based on past sales, demand can also be predicted based on changes in society, technological advancements and environmental changes. 

So yes, there are a lot of factors weighing in, and nobody can predict the future down to the last chocolate bar being sold. But gauging product demand is crucial for building a future-proof business. Here’s why.

The goals of your product demand analysis depend very much on at what stage your business or product is in. 

Validating ideas and financial planning

You could be doing exploratory market research and trying to find out if there’s a big enough market for you to enter with your product. And if there is, could you enter at a price point high enough to make your idea worth pursuing? 

Buying materials from suppliers

Product demand analysis is also important for businesses who heavily rely on secondary manufacturers or resources from external sources. Will you be able to get the necessary materials in time? 

Save money and work more efficiently

Saving money could also be one of the goals of performing a product demand analysis. Knowing when your product will be popular will help you better allocate your budget and manpower. Knowing when demand will be higher will help you plan the budget and timing for marketing campaigns, but also make sure you have enough employees on the work floor to handle the extra orders. 

Track product demand with our audience of 125 million

Attest makes any product demand analysis easy. Unlock new sources of growth and find out what product features your key customers want.

Product demand isn’t as straightforward as you’d think. Products and categories are connected to each other, and sometimes demand comes from where you were least expecting it. Here are the most important types of product demand with examples. 

• Direct demand: the simplest form of product demand is the demand for a final product. For instance, how many people are planning to buy a new smart TV.
• Indirect Demand is the demand for a product that is used to produce another product. Are you still following? A simple example is the rising demand for, let’s say, standing desks. The wood of the table would be the product that is in higher indirect demand, due to the popularity of the end product.
• Joint demand occurs when two products have a direct and positive correlation in demand. If people start buying more paint, they will start buying more canvases.
• Composite demand is the demand for products that can be used in more ways than one. For materials like the wood earlier, it’s important to know that it’s not just in demand for stand-up desks. It could also be used for millions of other products.
• Latent demand is the demand for a product that consumers can’t satisfy. There are three scenarios in which this happens:

1. The consumer doesn’t have the means to buy the product. They want it, but they can’t afford it. 

2. The product that consumers want isn’t available.

3. The consumer doesn’t know the product exists or doesn’t know a certain product fulfils their needs. 

When conducting your product demand analysis, it’s important to distinguish between these types of demand, but also to see the connections where possible. You might be able to benefit from composite or joint demand, while never having looked into that option.

Product demand analysis shouldn’t be wild guessing: it’s building a solid foundation of knowledge and structuring your research on top of that- and it’s a fundamental part of market research for new product development . Here are the steps:

• Define your market
• Assess the maturity of the market business cycle

Identify your market niche

Calculate market growth potential.

• Evaluate the competition 

Define your market 

Who could you be selling to, how much do those people have to spend, and who are they currently giving their money to? Those are crucial questions to ask when defining your market. 

Defining your market shouldn’t just be done in words, by explaining personas or target audiences – the numbers are crucial to this. 

Depending on the goal of your product demand analysis, you could also look at secondary markets for this part of your research. There might be some ground you could cover in markets where your product would be used by people who are not in your primary target audience. 

Assess the maturity of the market and business cycle

Some products seem to have an endless life cycle. The oldest beer brewery has been around since 1040, and we’re still drinking it – even though many other alternatives have entered the market. But there are also breweries that have gone bankrupt. What’s up with that?

The market and business life cycle are two important things to analyse. First of all, you want to get an idea of how steady the market is. Will you be entering a market that is in the growth phase, is it mature and stable, or is it heading towards decline?

The same should be done for your business: how mature is it? It’s important to make this a part of your product demand analysis. If your market is growing but you can’t keep up, how will you deliver enough products to actually be profitable?

Your market niche is the sweet spot of where there’s potential to enter and where you would be able to deliver. Not only in terms of physical products or practical services, it should also be a match when it comes to values and USPs. Consumers aren’t just looking for products, they are looking for brands they connect with. 

When doing a product market analysis, it’s important that you are specific and don’t paint a better picture by looking at the entire market, or too large a part of it. Eventually, you will have to choose a targeted message that will not speak to everyone in the market: keep this in mind when defining the real size of your market.

Find your niche fast with Attest

Our consumer segmentation filters and built-in audience of over 125 million people make finding your niche easy.

Now you have the data on the current situation: time to look into the future. To do that, we’ll start by going to the past. 

How has the market share been divided among your competitors ever since the market came to exist? What events and products affected these changes in the division? What was happening in related or similar markets in the same time period? 

Based on this information you can try to pinpoint patterns and find opportunities for growth in the future. Also keep societal factors in mind, like wages and costs of other possibly related products, and changes in tax.

Evaluate the competition

Chances are, your competitors are also performing some kind of product demand analysis while you are too. Maybe they also have a new product in mind that they want to launch, or they’re trying to increase their market share another way. 

Look at how they went about their previous product launches and how this was received by your target market. How were the sales numbers? What could you learn from them?

You can keep an eye on what’s being said by and about your competitors using smart competitor tracking tools . 

Is it magic? Is it witchcraft? Is it espionage? No, it’s artificial intelligence. 

One of the kings in product demand analysis is undoubtedly Amazon. How do they have that tiny screw in the right colour available for next day delivery, when all hardware stores in your area are out of stock?

A lot of it is thanks to artificial intelligence, and an exquisite product demand analysis. Amazon has mastered the craft of balancing human intelligence with human tasks. Product demand analysis on the scale they are doing would simply take too long to do manually, so where possible they let AI do the heavy lifting. In the background, their team is figuring out the details that make their supply chain so impressive. 

The team knows not only what products to have in stock, but also where. In 2013, they got a patent for ‘anticipatory shipping’. This technique helped them to get a product to the closest warehouse to you, even before you actually hit ‘buy now’.

Other parts of their product demand analysis are more common sense. Certain local products will only get stocked in relevant regions, and they look beyond the obvious seasonal changes. Sunscreen is important in summer, yes, but also in winter in places where, for example, families go on skiing holidays. 

How do you actually gather all that information we mentioned above? Let’s look at some tools and best practices that will help you get the most relevant and actionable insights regarding product demand predictions. 

Product demand surveys

To accurately estimate the demand for your product through a survey, it’s crucial that you ask the right questions. Think about how precise you would want people to answer, what data you need. Is it just numbers, or also about days or months? Will you ask them about alternative buying reasons for your product? 

Set a clear goal for your product demand survey and build the questions based on that, so you won’t miss a single piece of information. 

Another crucial element is defining quality respondents. Your product demand analysis survey should only be sent to people who match the criteria of actual buyers. This way you prevent getting data on latent demand, from people who would buy, but don’t actually have the money. 

Ask the right questions with the right survey

With templates for market analysis plus on-demand support from our research experts, we’re here to help you gather continuous product demand data, fast.

Experiments with price and offer

Some markets are unpredictable, mostly because they are new. If after your initial product demand analysis you find that the numbers are a tiny bit lower than you’d hoped for, try analysing what happens if you tweak your offer.

You can experiment with different price points, package deals or bundles, or other types of promotions. You can also try finding partnerships or products that go well with yours to create more demand, even if it’s just secondary. This could be especially helpful if you are just entering a new market, and you want to ride on the success of another product.

Consumer trends

To identify consumer trends, you can use tools such as Google Trends, look into frequent Amazon searches and keep an eye on trending topics on social media. 

With social listening tools, you can keep track of what people are saying about a certain product or brand, which will help you get data on what’s trending. Joining online communities or Facebook groups that are relevant to your market is also a great way to stay up to date on what’s happening. 

Don’t forget to also look into popular topics in specific regions if that’s relevant for you. When looking at specific keywords, you can get incredibly precise data that will drive your decision-making process forward. 

Still feel like product demand analysis is just a guessing game? With the right market research tools , you’ll see that getting accurate data is more a science than an art. Here are four of our favourite tools for market research that could help you getting your product demand analysis right:

• Attest : we had to! With our quick, easy-to-use market research platform you can find those hyper-relevant consumers and ask them those burning questions about their buying behaviour.
• Social Mention : to keep an eye on consumer trends, we highly recommend using social mention. This is a social listening tool that will give you first-hand data on what’s being said about your market across different platforms, without you having to monitor them manually. 
• Heartbeat.ai : if you know that people are talking about your market, it’s also important to know what they’re saying. Just because a lot of people are talking about Blockbuster, doesn’t mean DVD rental is back in the picture. They’re just making memes. With heartbeat.ai, you can automatically analyse the tone of online conversations. 

Love these tools? So do we. If you’re looking for more of this, check out our entire article with 6 of our favourite tools for market research . 

Track product demand with Attest

Learn how your customers think, act and buy to give them the products they want. With an audience of over 125 million people in 59 countries, our data gives you an accurate picture of your product demand.

VP Customer Success 

Sam joined Attest in 2019 and leads the Customer Research Team. Sam and her team support brands through their market research journey, helping them carry out effective research and uncover insights to unlock new areas for growth.

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Demand Analysis: Meaning and Types

Demystifying Demand Analysis: Unveiling the Secrets of Market Research

In today's fierce business terrain, grasping customer demand is pertinent to excellence. Demand analysis plays a crucial role in assisting businesses to make informed decisions, chart out efficient marketing strategies, and optimize their product offerings. By searching deep into market trends, consumer behavior, and preferences, demand analysis equips companies to align their supply with the ever-transforming demands of their target audience. Here, we will traverse the concept of demand analysis, its importance, and how it can be leveraged to amass a competitive edge.

What is Demand Analysis?

Demand analysis is the method of accessing the desire and purchasing power of consumers for a specific product or service within a given market. It comprises inspecting different factors that shape demand, such as consumer demographics, economic conditions, pricing, competitors, and market trends. By comprehending the demand for a product or service, businesses can make informed decisions about production, pricing, marketing, and distribution.

Significance of Demand Analysis

Market Opportunity Identification: Demand analysis aids businesses figure out unexploited market opportunities by assessing consumer needs, inclinations, and behaviors. It offers worthy insights into market gaps, emerging trends, and unmet customer requirements, permitting companies to construct new products or modify current ones to fulfill those needs.

Forecasting and Planning: Precise demand forecasting is instrumental for successful production planning, inventory management, and resource distribution. By examining historical data, market trends, and customer behavior, demand analysis empowers businesses to forecast future demand patterns, anticipate market fluctuations, and make informed decisions about production capacity and timing.

Pricing and Revenue Management: Apprehending consumer demand assists businesses decipher optimal pricing strategies. By gauging price elasticity, competitive pricing, and perceived value, demand analysis permits companies to set prices that align with customer expectations while enhancing profitability. It helps in revenue management by identifying opportunities for dynamic pricing and promotional activities.

Marketing Strategy Development: Effective marketing campaigns are based on an extensive understanding of customer requirements. Demand analysis offers invaluable insights into target market segments, letting businesses customize their marketing messages, channels, and promotions accordingly. It helps identify the most successful marketing channels and optimize marketing budgets for the most impact.

Methods of Demand Analysis

Surveys and Questionnaires: Organizing surveys and questionnaires is a famous technique to collect direct feedback from consumers. By asking targeted questions, businesses can amass data on consumer preferences, buying habits, and opinions, providing insights for demand analysis.

Data Analysis: Using available data sources, like sales records, customer databases, and market research reports, businesses can conduct statistical analysis techniques to detect demand patterns, trends, and correlations. Data analysis tools and software can aid in procuring meaningful insights from large datasets.

Focus Groups and Interviews: Organizing focus groups or executing interviews with target customers can offer qualitative insights into consumer preferences, motivations, and opinions. This method offers a chance for in-depth deliberations and exploration of underlying parameters shaping demand.

Online Analytics: Capitalising on web analytics tools and social media monitoring, businesses can assess online consumer behavior, involvement, and sentiment. Tracking website traffic, search trends, and social media conversations can unveil valuable insights about consumer preferences and demand.

Demand analysis is an integral component of market research that enables businesses to decipher and accustom to changing consumer needs. Companies can acquire valuable insights into market trends, consumer behavior, and preferences by using varied research methods and evaluating relevant data. This know-how enables them to make data-driven decisions regarding production, pricing, marketing , and innovation. In an ever-evolving business landscape, demand analysis provides the base for strategic planning, helping businesses flourish and stay ahead of their rivals.

Demand Distinctions: Exploring Different Types of Demand in Demand Analysis

In the arena of business and economics, demand is a core concept that propels the production, pricing, and marketing strategies of companies. However, demand is not a monolithic entity; it manifests in various shapes, each with its own features and ramifications. Understanding the different kinds of demand is imperative for executing effective demand analysis, facilitating businesses to tailor their approaches based on particular market dynamics. Here, we will explore the distinctions between different kinds of demand and how demand analysis plays a crucial role in deciphering consumer preferences and behaviors.

Types of Demand in Demand Analysis

Primary Demand: Primary demand symbolizes the overall demand for a product or service category within a specific market. It refers to the aspiration and purchasing power of consumers for a specific category of product, irrespective of brand or particular attributes. For instance, the primary demand for smartphones spans the over-arching desire for smartphones as a technology, regardless of individual brand preferences. Evaluating primary demand lets businesses identify growth opportunities and market potential within a specific industry.

Derived Demand: Derived demand originates when the demand for a specific product or service is directly shaped by the demand for another allied product or service. It often occurs in business-to-business (B2B) contexts, where the demand for components, raw materials, or intermediate goods is derived from the demand for the final product. For example, the demand for automobile tires is derived from the demand for cars. Knowing derived demand is paramount for suppliers and manufacturers to align their production and distribution strategies accordingly.

Composite Demand: Composite demand exists when a product or service demands a multitude of purposes. It comprises catering to varied consumer segments with varying needs and preferences. An example of composite demand is milk, which is consumed as a beverage, used in cooking, and serves as an ingredient in various food products. Analyzing composite demand lets businesses identify market segments and accordingly sketch their marketing and distribution strategies to address diverse consumer needs.

Seasonal Demand: Seasonal demand refers to shifting demand patterns owing to seasonal or periodic parameters. It is characterized by distinctive peaks and troughs in demand throughout the year. Seasonal demand is widespread in industries such as fashion, tourism, and agriculture. By analyzing seasonal demand, businesses can generalize and plan for fluctuations, adjust production and inventory levels, and produce targeted marketing campaigns during peak seasons.

Price Elastic Demand: Price elastic demand refers to the sensitivity of consumer demand to changes in price. When demand is price elastic, a small change in price leads to a proportionally larger change in demand. Whereas, when demand is price inelastic, changes in price have a comparatively smaller impact on demand. Understanding price elasticity helps businesses investigate optimal pricing strategies, predict revenue, and assess the potential effect of price changes on consumer demand.

Demand analysis is a pivotal tool that pushes businesses to understand consumer preferences, anticipate market trends, and make informed decisions across different business functions. By realizing and analyzing the different kinds of demand, companies can tailor their strategies to meet specific market dynamics effectively. Whether it is primary demand, derived demand, composite demand, seasonal demand, or price elastic demand, each type offers valuable insights that can influence product development, pricing, marketing, and supply chain management approaches. 

Unveiling the Exceptional Demand Curve: Analyzing Demand Patterns for Informed Decision-Making

Demand analysis forms the bedrock of successful decision-making for businesses. By acknowledging consumer preferences, behaviors, and purchasing power, companies can align their strategies to meet market demands. The exceptional demand curve is a concept within demand analysis that throws light on unique demand patterns and their implications. Here, we will explore the exceptional demand curve, its importance in demand analysis, and how it aids businesses in making informed decisions to achieve success in the marketplace.

The Exceptional Demand Curve: A Unique Perspective

The exceptional demand curve challenges the traditional notion of a linear demand curve, which illustrates the inverse relationship between price and quantity demanded. Unlike the typical downward-sloping demand curve, the exceptional demand curve exhibits unique patterns due to specific factors or market conditions that defy conventional expectations. These factors can cause demand to digress from the usual price-demand relationship, resulting in exceptional demand patterns.

Understanding Exceptional Demand Patterns

Veblen Goods: Veblen goods are a kind of exceptional demand pattern where consumers perceive higher-priced goods as more desirable. The demand for these goods rises as their prices rise, contradicting the law of demand. The Veblen effect occurs when consumers link high prices with luxury, exclusivity, or social stature, leading to higher demand as prices increase.

Giffen Goods: Giffen goods symbolize a rare exception where the demand for a product rises as its price rises, in spite of consumers having a lower income. This situation occurs when a product is regarded as a staple or essential, and its price increase compels consumers to allocate a larger chunk of their restrained budget to that particular item, resulting in higher demand.

Snob Effect: The snob effect alludes to a demand pattern where consumers seek products or services to distinguish themselves from others. In this case, consumers demand goods precisely because they are unique or exclusive. As demand for the product increases, its desirability disappears, leading to a downward-sloping exceptional demand curve.

Bandwagon Effect: The bandwagon effect is the opposite of the snob effect. Consumers are driven by the desire to conform and be part of a trend or social group. As more people adopt a particular product or trend, its demand increases, producing an upward-sloping exceptional demand curve.

Utilizing Demand Analysis for Exceptional Demand Pattern

Demand analysis plays an instrumental role in figuring out and deciphering extraordinary demand patterns. By employing different research methods, businesses can gather data on consumer preferences, organize market surveys, assess historical sales records, and leverage economic indicators. These insights let businesses assess market dynamics, identify exceptional demand patterns, and make informed decisions.

Implications for Business Decision-Making

Understanding exceptional demand patterns has important implications for businesses. By acknowledging the existence of Veblen goods, Giffen goods, snob effects, or bandwagon effects, companies can tailor their strategies accordingly:

Pricing Strategies: Exceptional demand patterns challenge conventional pricing models. For Veblen goods, a higher price may be significant to maintain the notion of luxury. Giffen goods may warrant strategic pricing to ensure affordability. Businesses need to adapt pricing strategies to leverage these demand patterns effectively.

Product Differentiation: The snob effect and bandwagon effect stress the significance of product positioning and branding. Companies can leverage these effects to generate an emotion of exclusivity or appeal to the longing for social conformity. By stressing the unique characteristics or restricted availability of a product, businesses can tap into the snob effect. Conversely, leveraging the bandwagon effect comprises highlighting the popularity and widespread adoption of a product to attract consumers.

Marketing and Promotion: Exceptional demand patterns need tailored marketing and promotional strategies. For Veblen goods, marketing efforts should center on highlighting the luxury and status linked with the product. Giffen Goods may mandate targeted promotions that stress affordability and value. The snob effect and bandwagon effect can be harnessed through strategic influencer marketing, social proof, and creating a sense of community around the product.

Product Development and Innovation: Recognizing extraordinary demand patterns can propel product development and innovation. For example, understanding the Veblen effect may prompt businesses to produce high-end variations of their products to cater to luxury-seeking consumers. Identifying Giffen goods can inspire companies to develop cost-effective alternatives that meet essential needs.

Market Segmentation: Exceptional demand patterns often showcase unique consumer segments with distinctive preferences and behaviors. Businesses can leverage these patterns to identify and target specific customer segments more effectively. By tailoring marketing messages and product offerings to these segments, companies can leverage extraordinary demand and maximize their market share.

Exceptional demand patterns, represented by the exceptional demand curve, challenge conventional assumptions about price-demand relationships. By knowing and analyzing these patterns, businesses can make informed decisions in domains such as pricing, product differentiation, marketing, and innovation. Recognizing the existence of Veblen goods, Giffen goods, snob effects, and bandwagon effects empowers companies to customize their strategies and tap into consumer behavior more successfully. Demand analysis plays a crucial role in uncovering these exceptional demand patterns and providing valuable insights for businesses seeking a competitive edge in the marketplace.

Exploring the Chief Characteristics of the Law of Demand: Insights for Effective Demand Analysis

The law of demand is a foundational principle in economics that underlies the correlation between the price and quantity demanded of a product or service. Understanding the chief features of the law of demand is critical for businesses carrying out demand analysis. By delving into these characteristics, companies can acquire valuable insights into consumer behavior and make informed decisions regarding pricing, marketing, and resource allocation. Here, we will explore the primary characteristics of the law of demand and its relevance in demand analysis.

Chief Characteristics of the Law of Demand

Inverse relationship between price and quantity demanded.

The essential characteristic of the law of demand is the inverse relationship between price and quantity demanded. According to this principle, when the price of a product or service rises, the quantity demanded by consumers decreases, and vice versa. This behavior occurs due to the substitution effect and income effect. As the price rises, consumers tend to seek alternatives or substitutes, reducing their demand for the higher-priced item. Additionally, a higher price can reduce consumers' purchasing power, leading to a decrease in overall demand.

Ceteris Paribus Assumption

The law of demand assumes that all other factors influencing demand remain constant, except for the price of the product or service in question. This assumption, known as ceteris paribus, lets economists and businesses isolate the effect of price changes on demand. In reality, however, different factors, such as consumer income, tastes and preferences, availability of substitutes, and market trends, can shape demand. While demand analysis regards these factors, the law of demand centers specifically on the relation between price and quantity demanded, assuming other factors remain constant.

Individual and Market Demand

The law of demand is applicable to both individual consumers and the overall market. At the individual level, consumers make choices dependent on their own choices, income, and needs. When aggregated, these individual demand curves produce the market demand curve, which represents the combined behavior of all consumers in the market. The law of demand holds true at both levels, indicating that as the price of a product increases, individuals and the market, as a whole, will demand less of that product.

Diminishing Marginal Utility

Another characteristic linked with the law of demand is the concept of diminishing marginal utility. Marginal utility refers to the additional satisfaction or benefit derived from consuming one more unit of a product. According to the law of diminishing marginal utility, as individuals consume more units of a product, the additional satisfaction they get from each additional unit diminishes. This diminishing marginal utility contributes to the inverse relationship between price and quantity demanded. As the price decreases, consumers can afford to consume more units, increasing their overall satisfaction.

Relevance of the Law of Demand in Demand Analysis

Understanding the key characteristics of the law of demand is quintessential for businesses conducting demand analysis. By recognizing the inverse relationship between price and quantity demanded, companies can:

Price Products Strategically: The law of demand stresses the significance of pricing strategies. By assessing demand elasticity and consumer responsiveness to price changes, businesses can determine optimal price points to maximize revenue and profitability.

Forecast Demand: The law of demand offers an edifice for demand forecasting. By considering the relation between price and quantity demanded, businesses can anticipate how changes in price will affect future demand patterns, enabling effective production planning and inventory management. By understanding the price elasticity of demand, companies can forecast how changes in price will affect the quantity demanded. This information is invaluable for managing inventory levels, and production capacity, and ensuring efficient resource allocation.

Evaluate Pricing and Promotional Strategies: The law of demand helps businesses assess the effectiveness of their pricing and promotional strategies. By analyzing the price-demand relationship, companies can analyze the effect of price changes or promotional campaigns on consumer behavior. This knowledge facilitates businesses to make data-driven decisions about adjusting prices, offering discounts, or executing targeted marketing campaigns to drive demand.

Understand Consumer Behaviour: The law of demand offers insights into consumer behavior and decision-making processes. By recognizing the inverse relationship between price and quantity demanded, businesses can acquire deeper know-how of consumer preferences, purchasing power, and sensitivity to price changes. This understanding helps companies tailor their products, marketing messages, and distribution channels to better meet customer needs and maximize sales.

Identify Market Opportunities and Competitive Advantages: Demand analysis, premised on the law of demand, lets businesses identify market opportunities and acquire a competitive edge. By assessing price-demand relationships, companies can figure out underpriced or overpriced products in the market. This knowledge enables businesses to adjust their pricing strategies and leverage gaps in the market, effectively positioning themselves against competitors.

Optimize Resource Allocation: The law of demand assists businesses in optimizing resource distribution. By understanding the price-demand relation, companies can allocate resources more efficiently, emphasizing products or services with higher demand elasticity and profit potential. This optimization can result in improved operational efficiency, cost management , and overall business performance.

The law of demand acts as a guiding principle in demand analysis, offering businesses valuable insights into consumer behavior and market dynamics. By acknowledging the inverse relationship between price and quantity demanded, companies can strategically price their products, forecast demand, evaluate pricing and promotional strategies, understand consumer behavior, identify market opportunities, and optimize resource allocation. Incorporating the chief characteristics of the law of demand into demand analysis empowers businesses to make informed decisions, meet consumer needs effectively, and achieve a competitive advantage in the marketplace.

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Written by Mary Kate Miller | June 1, 2021

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Market research is a cornerstone of all successful, strategic businesses. It can also be daunting for entrepreneurs looking to launch a startup or start a side hustle . What is market research, anyway? And how do you…do it?

We’ll walk you through absolutely everything you need to know about the market research process so that by the end of this guide, you’ll be an expert in market research too. And what’s more important: you’ll have actionable steps you can take to start collecting your own market research.

What Is Market Research?

Market research is the organized process of gathering information about your target customers and market. Market research can help you better understand customer behavior and competitor strengths and weaknesses, as well as provide insight for the best strategies in launching new businesses and products. There are different ways to approach market research, including primary and secondary research and qualitative and quantitative research. The strongest approaches will include a combination of all four.

“Virtually every business can benefit from conducting some market research,” says Niles Koenigsberg of Real FiG Advertising + Marketing . “Market research can help you piece together your [business’s] strengths and weaknesses, along with your prospective opportunities, so that you can understand where your unique differentiators may lie.” Well-honed market research will help your brand stand out from the competition and help you see what you need to do to lead the market. It can also do so much more.

The Purposes of Market Research

Why do market research? It can help you…

• Pinpoint your target market, create buyer personas, and develop a more holistic understanding of your customer base and market.
• Understand current market conditions to evaluate risks and anticipate how your product or service will perform.
• Validate a concept prior to launch.
• Identify gaps in the market that your competitors have created or overlooked.
• Solve problems that have been left unresolved by the existing product/brand offerings.
• Identify opportunities and solutions for new products or services.
• Develop killer marketing strategies .

What Are the Benefits of Market Research?

Strong market research can help your business in many ways. It can…

• Strengthen your market position.
• Help you identify your strengths and weaknesses.
• Help you identify your competitors’ strengths and weaknesses.
• Minimize risk.
• Center your customers’ experience from the get-go.
• Help you create a dynamic strategy based on market conditions and customer needs/demands.

What Are the Basic Methods of Market Research?

The basic methods of market research include surveys, personal interviews, customer observation, and the review of secondary research. In addition to these basic methods, a forward-thinking market research approach incorporates data from the digital landscape like social media analysis, SEO research, gathering feedback via forums, and more. Throughout this guide, we will cover each of the methods commonly used in market research to give you a comprehensive overview.

Primary vs. Secondary Market Research

Primary and secondary are the two main types of market research you can do. The latter relies on research conducted by others. Primary research, on the other hand, refers to the fact-finding efforts you conduct on your own.

This approach is limited, however. It’s likely that the research objectives of these secondary data points differ from your own, and it can be difficult to confirm the veracity of their findings.

Primary Market Research

Primary research is more labor intensive, but it generally yields data that is exponentially more actionable. It can be conducted through interviews, surveys, online research, and your own data collection. Every new business should engage in primary market research prior to launch. It will help you validate that your idea has traction, and it will give you the information you need to help minimize financial risk.

You can hire an agency to conduct this research on your behalf. This brings the benefit of expertise, as you’ll likely work with a market research analyst. The downside is that hiring an agency can be expensive—too expensive for many burgeoning entrepreneurs. That brings us to the second approach. You can also do the market research yourself, which substantially reduces the financial burden of starting a new business .

Secondary Market Research

Secondary research includes resources like government databases and industry-specific data and publications. It can be beneficial to start your market research with secondary sources because it’s widely available and often free-to-access. This information will help you gain a broad overview of the market conditions for your new business.

Identify Your Goals and Your Audience

Before you begin conducting interviews or sending out surveys, you need to set your market research goals. At the end of your market research process, you want to have a clear idea of who your target market is—including demographic information like age, gender, and where they live—but you also want to start with a rough idea of who your audience might be and what you’re trying to achieve with market research.

You can pinpoint your objectives by asking yourself a series of guiding questions:

• What are you hoping to discover through your research?
• Who are you hoping to serve better because of your findings?
• What do you think your market is?
• Who are your competitors?
• Are you testing the reception of a new product category or do you want to see if your product or service solves the problem left by a current gap in the market?
• Are you just…testing the waters to get a sense of how people would react to a new brand?

Once you’ve narrowed down the “what” of your market research goals, you’re ready to move onto how you can best achieve them. Think of it like algebra. Many math problems start with “solve for x.” Once you know what you’re looking for, you can get to work trying to find it. It’s a heck of a lot easier to solve a problem when you know you’re looking for “x” than if you were to say “I’m gonna throw some numbers out there and see if I find a variable.”

How to Do Market Research

This guide outlines every component of a comprehensive market research effort. Take into consideration the goals you have established for your market research, as they will influence which of these elements you’ll want to include in your market research strategy.

Secondary Data

Secondary data allows you to utilize pre-existing data to garner a sense of market conditions and opportunities. You can rely on published market studies, white papers, and public competitive information to start your market research journey.

Secondary data, while useful, is limited and cannot substitute your own primary data. It’s best used for quantitative data that can provide background to your more specific inquiries.

Find Your Customers Online

Once you’ve identified your target market, you can use online gathering spaces and forums to gain insights and give yourself a competitive advantage. Rebecca McCusker of The Creative Content Shop recommends internet recon as a vital tool for gaining a sense of customer needs and sentiment. “Read their posts and comments on forums, YouTube video comments, Facebook group [comments], and even Amazon/Goodreads book comments to get in their heads and see what people are saying.”

If you’re interested in engaging with your target demographic online, there are some general rules you should follow. First, secure the consent of any group moderators to ensure that you are acting within the group guidelines. Failure to do so could result in your eviction from the group.

Not all comments have the same research value. “Focus on the comments and posts with the most comments and highest engagement,” says McCusker. These high-engagement posts can give you a sense of what is already connecting and gaining traction within the group.

Social media can also be a great avenue for finding interview subjects. “LinkedIn is very useful if your [target customer] has a very specific job or works in a very specific industry or sector. It’s amazing the amount of people that will be willing to help,” explains Miguel González, a marketing executive at Dealers League . “My advice here is BE BRAVE, go to LinkedIn, or even to people you know and ask them, do quick interviews and ask real people that belong to that market and segment and get your buyer persona information first hand.”

Market research interviews can provide direct feedback on your brand, product, or service and give you a better understanding of consumer pain points and interests.

When organizing your market research interviews, you want to pay special attention to the sample group you’re selecting, as it will directly impact the information you receive. According to Tanya Zhang, the co-founder of Nimble Made , you want to first determine whether you want to choose a representative sample—for example, interviewing people who match each of the buyer persona/customer profiles you’ve developed—or a random sample.

“A sampling of your usual persona styles, for example, can validate details that you’ve already established about your product, while a random sampling may [help you] discover a new way people may use your product,” Zhang says.

Market Surveys

Market surveys solicit customer inclinations regarding your potential product or service through a series of open-ended questions. This direct outreach to your target audience can provide information on your customers’ preferences, attitudes, buying potential, and more.

Every expert we asked voiced unanimous support for market surveys as a powerful tool for market research. With the advent of various survey tools with accessible pricing—or free use—it’s never been easier to assemble, disseminate, and gather market surveys. While it should also be noted that surveys shouldn’t replace customer interviews , they can be used to supplement customer interviews to give you feedback from a broader audience.

Who to Include in Market Surveys

• Current customers
• Past customers
• Your existing audience (such as social media/newsletter audiences)

Example Questions to Include in Market Surveys

While the exact questions will vary for each business, here are some common, helpful questions that you may want to consider for your market survey. Demographic Questions: the questions that help you understand, demographically, who your target customers are:

• “What is your age?”
• “Where do you live?”
• “What is your gender identity?”
• “What is your household income?”
• “What is your household size?”
• “What do you do for a living?”
• “What is your highest level of education?”

Product-Based Questions: Whether you’re seeking feedback for an existing brand or an entirely new one, these questions will help you get a sense of how people feel about your business, product, or service:

• “How well does/would our product/service meet your needs?”
• “How does our product/service compare to similar products/services that you use?”
• “How long have you been a customer?” or “What is the likelihood that you would be a customer of our brand?

Personal/Informative Questions: the deeper questions that help you understand how your audience thinks and what they care about.

• “What are your biggest challenges?”
• “What’s most important to you?”
• “What do you do for fun (hobbies, interests, activities)?”
• “Where do you seek new information when researching a new product?”
• “How do you like to make purchases?”
• “What is your preferred method for interacting with a brand?”

Survey Tools

Online survey tools make it easy to distribute surveys and collect responses. The best part is that there are many free tools available. If you’re making your own online survey, you may want to consider SurveyMonkey, Typeform, Google Forms, or Zoho Survey.

Competitive Analysis

A competitive analysis is a breakdown of how your business stacks up against the competition. There are many different ways to conduct this analysis. One of the most popular methods is a SWOT analysis, which stands for “strengths, weaknesses, opportunities, and threats.” This type of analysis is helpful because it gives you a more robust understanding of why a customer might choose a competitor over your business. Seeing how you stack up against the competition can give you the direction you need to carve out your place as a market leader.

Social Media Analysis

Social media has fundamentally changed the market research landscape, making it easier than ever to engage with a wide swath of consumers. Follow your current or potential competitors on social media to see what they’re posting and how their audience is engaging with it. Social media can also give you a lower cost opportunity for testing different messaging and brand positioning.

SEO Analysis and Opportunities

SEO analysis can help you identify the digital competition for getting the word out about your brand, product, or service. You won’t want to overlook this valuable information. Search listening tools offer a novel approach to understanding the market and generating the content strategy that will drive business. Tools like Google Trends and Awario can streamline this process.

Ready to Kick Your Business Into High Gear?

Now that you’ve completed the guide to market research you know you’re ready to put on your researcher hat to give your business the best start. Still not sure how actually… launch the thing? Our free mini-course can run you through the essentials for starting your side hustle .

About Mary Kate Miller

Mary Kate Miller writes about small business, real estate, and finance. In addition to writing for Foundr, her work has been published by The Washington Post, Teen Vogue, Bustle, and more. She lives in Chicago.

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How to do market research in 4 steps: a lean approach to marketing research

From pinpointing your target audience and assessing your competitive advantage, to ongoing product development and customer satisfaction efforts, market research is a practice your business can only benefit from.

Learn how to conduct quick and effective market research using a lean approach in this article full of strategies and practical examples. 

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A comprehensive (and successful) business strategy is not complete without some form of market research—you can’t make informed and profitable business decisions without truly understanding your customer base and the current market trends that drive your business.

In this article, you’ll learn how to conduct quick, effective market research  using an approach called 'lean market research'. It’s easier than you might think, and it can be done at any stage in a product’s lifecycle.

How to conduct lean market research in 4 steps

What is market research, why is market research so valuable, advantages of lean market research, 4 common market research methods, 5 common market research questions, market research faqs.

We’ll jump right into our 4-step approach to lean market research. To show you how it’s done in the real world, each step includes a practical example from Smallpdf , a Swiss company that used lean market research to reduce their tool’s error rate by 75% and boost their Net Promoter Score® (NPS) by 1%.

Research your market the lean way...

From on-page surveys to user interviews, Hotjar has the tools to help you scope out your market and get to know your customers—without breaking the bank.

The following four steps and practical examples will give you a solid market research plan for understanding who your users are and what they want from a company like yours.

1. Create simple user personas

A user persona is a semi-fictional character based on psychographic and demographic data from people who use websites and products similar to your own. Start by defining broad user categories, then elaborate on them later to further segment your customer base and determine your ideal customer profile .

How to get the data: use on-page or emailed surveys and interviews to understand your users and what drives them to your business.

How to do it right: whatever survey or interview questions you ask, they should answer the following questions about the customer:

Who are they?

What is their main goal?

What is their main barrier to achieving this goal?

Pitfalls to avoid:

Don’t ask too many questions! Keep it to five or less, otherwise you’ll inundate them and they’ll stop answering thoughtfully.

Don’t worry too much about typical demographic questions like age or background. Instead, focus on the role these people play (as it relates to your product) and their goals.

How Smallpdf did it: Smallpdf ran an on-page survey for a couple of weeks and received 1,000 replies. They learned that many of their users were administrative assistants, students, and teachers.

Next, they used the survey results to create simple user personas like this one for admins:

Who are they? Administrative Assistants.

What is their main goal? Creating Word documents from a scanned, hard-copy document or a PDF where the source file was lost.

What is their main barrier to achieving it? Converting a scanned PDF doc to a Word file.

💡Pro tip: Smallpdf used Hotjar Surveys to run their user persona survey. Our survey tool helped them avoid the pitfalls of guesswork and find out who their users really are, in their own words. 

You can design a survey and start running it in minutes with our easy-to-use drag and drop builder. Customize your survey to fit your needs, from a sleek one-question pop-up survey to a fully branded questionnaire sent via email. 

We've also created 40+ free survey templates that you can start collecting data with, including a user persona survey like the one Smallpdf used.

2. Conduct observational research

Observational research involves taking notes while watching someone use your product (or a similar product).

Overt vs. covert observation

Overt observation involves asking customers if they’ll let you watch them use your product. This method is often used for user testing and it provides a great opportunity for collecting live product or customer feedback .

Covert observation means studying users ‘in the wild’ without them knowing. This method works well if you sell a type of product that people use regularly, and it offers the purest observational data because people often behave differently when they know they’re being watched. 

Tips to do it right:

Record an entry in your field notes, along with a timestamp, each time an action or event occurs.

Make note of the users' workflow, capturing the ‘what,’ ‘why,’ and ‘for whom’ of each action.

Don’t record identifiable video or audio data without consent. If recording people using your product is helpful for achieving your research goal, make sure all participants are informed and agree to the terms.

Don’t forget to explain why you’d like to observe them (for overt observation). People are more likely to cooperate if you tell them you want to improve the product.

💡Pro tip: while conducting field research out in the wild can wield rewarding results, you can also conduct observational research remotely. Hotjar Recordings is a tool that lets you capture anonymized user sessions of real people interacting with your website. 

Observe how customers navigate your pages and products to gain an inside look into their user behavior . This method is great for conducting exploratory research with the purpose of identifying more specific issues to investigate further, like pain points along the customer journey and opportunities for optimizing conversion .

With Hotjar Recordings you can observe real people using your site without capturing their sensitive information

How Smallpdf did it: here’s how Smallpdf observed two different user personas both covertly and overtly.

Observing students (covert): Kristina Wagner, Principle Product Manager at Smallpdf, went to cafes and libraries at two local universities and waited until she saw students doing PDF-related activities. Then she watched and took notes from a distance. One thing that struck her was the difference between how students self-reported their activities vs. how they behaved (i.e, the self-reporting bias). Students, she found, spent hours talking, listening to music, or simply staring at a blank screen rather than working. When she did find students who were working, she recorded the task they were performing and the software they were using (if she recognized it).

Observing administrative assistants (overt): Kristina sent emails to admins explaining that she’d like to observe them at work, and she asked those who agreed to try to batch their PDF work for her observation day. While watching admins work, she learned that they frequently needed to scan documents into PDF-format and then convert those PDFs into Word docs. By observing the challenges admins faced, Smallpdf knew which products to target for improvement.

“Data is really good for discovery and validation, but there is a bit in the middle where you have to go and find the human.”

3. Conduct individual interviews

Interviews are one-on-one conversations with members of your target market. They allow you to dig deep and explore their concerns, which can lead to all sorts of revelations.

Listen more, talk less. Be curious.

Act like a journalist, not a salesperson. Rather than trying to talk your company up, ask people about their lives, their needs, their frustrations, and how a product like yours could help.

Ask "why?" so you can dig deeper. Get into the specifics and learn about their past behavior.

Record the conversation. Focus on the conversation and avoid relying solely on notes by recording the interview. There are plenty of services that will transcribe recorded conversations for a good price (including Hotjar!).

Avoid asking leading questions , which reveal bias on your part and pushes respondents to answer in a certain direction (e.g. “Have you taken advantage of the amazing new features we just released?).

Don't ask loaded questions , which sneak in an assumption which, if untrue, would make it impossible to answer honestly. For example, we can’t ask you, “What did you find most useful about this article?” without asking whether you found the article useful in the first place.

Be cautious when asking opinions about the future (or predictions of future behavior). Studies suggest that people aren’t very good at predicting their future behavior. This is due to several cognitive biases, from the misguided exceptionalism bias (we’re good at guessing what others will do, but we somehow think we’re different), to the optimism bias (which makes us see things with rose-colored glasses), to the ‘illusion of control’ (which makes us forget the role of randomness in future events).

How Smallpdf did it: Kristina explored her teacher user persona by speaking with university professors at a local graduate school. She learned that the school was mostly paperless and rarely used PDFs, so for the sake of time, she moved on to the admins.

A bit of a letdown? Sure. But this story highlights an important lesson: sometimes you follow a lead and come up short, so you have to make adjustments on the fly. Lean market research is about getting solid, actionable insights quickly so you can tweak things and see what works.

💡Pro tip: to save even more time, conduct remote interviews using an online user research service like Hotjar Engage , which automates the entire interview process, from recruitment and scheduling to hosting and recording.

You can interview your own customers or connect with people from our diverse pool of 200,000+ participants from 130+ countries and 25 industries. And no need to fret about taking meticulous notes—Engage will automatically transcribe the interview for you.

4. Analyze the data (without drowning in it)

The following techniques will help you wrap your head around the market data you collect without losing yourself in it. Remember, the point of lean market research is to find quick, actionable insights.

A flow model is a diagram that tracks the flow of information within a system. By creating a simple visual representation of how users interact with your product and each other, you can better assess their needs.

You’ll notice that admins are at the center of Smallpdf’s flow model, which represents the flow of PDF-related documents throughout a school. This flow model shows the challenges that admins face as they work to satisfy their own internal and external customers.

Affinity diagram

An affinity diagram is a way of sorting large amounts of data into groups to better understand the big picture. For example, if you ask your users about their profession, you’ll notice some general themes start to form, even though the individual responses differ. Depending on your needs, you could group them by profession, or more generally by industry.

We wrote a guide about how to analyze open-ended questions to help you sort through and categorize large volumes of response data. You can also do this by hand by clipping up survey responses or interview notes and grouping them (which is what Kristina does).

“For an interview, you will have somewhere between 30 and 60 notes, and those notes are usually direct phrases. And when you literally cut them up into separate pieces of paper and group them, they should make sense by themselves.”

Pro tip: if you’re conducting an online survey with Hotjar, keep your team in the loop by sharing survey responses automatically via our Slack and Microsoft Team integrations. Reading answers as they come in lets you digest the data in pieces and can help prepare you for identifying common themes when it comes time for analysis.

Hotjar lets you easily share survey responses with your team

Customer journey map

A customer journey map is a diagram that shows the way a typical prospect becomes a paying customer. It outlines their first interaction with your brand and every step in the sales cycle, from awareness to repurchase (and hopefully advocacy).

The above  customer journey map , created by our team at Hotjar, shows many ways a customer might engage with our tool. Your map will be based on your own data and business model.

📚 Read more: if you’re new to customer journey maps, we wrote this step-by-step guide to creating your first customer journey map in 2 and 1/2 days with free templates you can download and start using immediately.

Next steps: from research to results

So, how do you turn market research insights into tangible business results? Let’s look at the actions Smallpdf took after conducting their lean market research: first they implemented changes, then measured the impact.

Implement changes

Based on what Smallpdf learned about the challenges that one key user segment (admins) face when trying to convert PDFs into Word files, they improved their ‘PDF to Word’ conversion tool.

We won’t go into the details here because it involves a lot of technical jargon, but they made the entire process simpler and more straightforward for users. Plus, they made it so that their system recognized when you drop a PDF file into their ‘Word to PDF’ converter instead of the ‘PDF to Word’ converter, so users wouldn’t have to redo the task when they made that mistake. 

In other words: simple market segmentation for admins showed a business need that had to be accounted for, and customers are happier overall after Smallpdf implemented an informed change to their product.

Measure results

According to the Lean UX model, product and UX changes aren’t retained unless they achieve results.

Smallpdf’s changes produced:

A 75% reduction in error rate for the ‘PDF to Word’ converter

A 1% increase in NPS

Greater confidence in the team’s marketing efforts

"With all the changes said and done, we've cut our original error rate in four, which is huge. We increased our NPS by +1%, which isn't huge, but it means that of the users who received a file, they were still slightly happier than before, even if they didn't notice that anything special happened at all.”

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Market research (or marketing research) is any set of techniques used to gather information and better understand a company’s target market. This might include primary research on brand awareness and customer satisfaction or secondary market research on market size and competitive analysis. Businesses use this information to design better products, improve user experience, and craft a marketing strategy that attracts quality leads and improves conversion rates.

David Darmanin, one of Hotjar’s founders, launched two startups before Hotjar took off—but both companies crashed and burned. Each time, he and his team spent months trying to design an amazing new product and user experience, but they failed because they didn’t have a clear understanding of what the market demanded.

With Hotjar, they did things differently . Long story short, they conducted market research in the early stages to figure out what consumers really wanted, and the team made (and continues to make) constant improvements based on market and user research.

Without market research, it’s impossible to understand your users. Sure, you might have a general idea of who they are and what they need, but you have to dig deep if you want to win their loyalty.

Here’s why research matters:

Obsessing over your users is the only way to win. If you don’t care deeply about them, you’ll lose potential customers to someone who does.

Analytics gives you the ‘what’, while research gives you the ‘why’. Big data, user analytics , and dashboards can tell you what people do at scale, but only research can tell you what they’re thinking and why they do what they do. For example, analytics can tell you that customers leave when they reach your pricing page, but only research can explain why.

Research beats assumptions, trends, and so-called best practices. Have you ever watched your colleagues rally behind a terrible decision? Bad ideas are often the result of guesswork, emotional reasoning, death by best practices , and defaulting to the Highest Paid Person’s Opinion (HiPPO). By listening to your users and focusing on their customer experience , you’re less likely to get pulled in the wrong direction.

Research keeps you from planning in a vacuum. Your team might be amazing, but you and your colleagues simply can’t experience your product the way your customers do. Customers might use your product in a way that surprises you, and product features that seem obvious to you might confuse them. Over-planning and refusing to test your assumptions is a waste of time, money, and effort because you’ll likely need to make changes once your untested business plan gets put into practice.

Lean User Experience (UX) design is a model for continuous improvement that relies on quick, efficient research to understand customer needs and test new product features.

Lean market research can help you become more...

Efficient: it gets you closer to your customers, faster.

Cost-effective: no need to hire an expensive marketing firm to get things started.

Competitive: quick, powerful insights can place your products on the cutting edge.

As a small business or sole proprietor, conducting lean market research is an attractive option when investing in a full-blown research project might seem out of scope or budget.

There are lots of different ways you could conduct market research and collect customer data, but you don’t have to limit yourself to just one research method. Four common types of market research techniques include surveys, interviews, focus groups, and customer observation.

Which method you use may vary based on your business type: ecommerce business owners have different goals from SaaS businesses, so it’s typically prudent to mix and match these methods based on your particular goals and what you need to know.

1. Surveys: the most commonly used

Surveys are a form of qualitative research that ask respondents a short series of open- or closed-ended questions, which can be delivered as an on-screen questionnaire or via email. When we asked 2,000 Customer Experience (CX) professionals about their company’s approach to research , surveys proved to be the most commonly used market research technique.

What makes online surveys so popular?  

They’re easy and inexpensive to conduct, and you can do a lot of data collection quickly. Plus, the data is pretty straightforward to analyze, even when you have to analyze open-ended questions whose answers might initially appear difficult to categorize.

We've built a number of survey templates ready and waiting for you. Grab a template and share with your customers in just a few clicks.

💡 Pro tip: you can also get started with Hotjar AI for Surveys to create a survey in mere seconds . Just enter your market research goal and watch as the AI generates a survey and populates it with relevant questions. 

Once you’re ready for data analysis, the AI will prepare an automated research report that succinctly summarizes key findings, quotes, and suggested next steps.

An example research report generated by Hotjar AI for Surveys

2. Interviews: the most insightful

Interviews are one-on-one conversations with members of your target market. Nothing beats a face-to-face interview for diving deep (and reading non-verbal cues), but if an in-person meeting isn’t possible, video conferencing is a solid second choice.

Regardless of how you conduct it, any type of in-depth interview will produce big benefits in understanding your target customers.

What makes interviews so insightful?

By speaking directly with an ideal customer, you’ll gain greater empathy for their experience , and you can follow insightful threads that can produce plenty of 'Aha!' moments.

3. Focus groups: the most unreliable

Focus groups bring together a carefully selected group of people who fit a company’s target market. A trained moderator leads a conversation surrounding the product, user experience, or marketing message to gain deeper insights.

What makes focus groups so unreliable?

If you’re new to market research, we wouldn’t recommend starting with focus groups. Doing it right is expensive , and if you cut corners, your research could fall victim to all kinds of errors. Dominance bias (when a forceful participant influences the group) and moderator style bias (when different moderator personalities bring about different results in the same study) are two of the many ways your focus group data could get skewed.

4. Observation: the most powerful

During a customer observation session, someone from the company takes notes while they watch an ideal user engage with their product (or a similar product from a competitor).

What makes observation so clever and powerful?

‘Fly-on-the-wall’ observation is a great alternative to focus groups. It’s not only less expensive, but you’ll see people interact with your product in a natural setting without influencing each other. The only downside is that you can’t get inside their heads, so observation still isn't a recommended replacement for customer surveys and interviews.

The following questions will help you get to know your users on a deeper level when you interview them. They’re general questions, of course, so don’t be afraid to make them your own.

1. Who are you and what do you do?

How you ask this question, and what you want to know, will vary depending on your business model (e.g. business-to-business marketing is usually more focused on someone’s profession than business-to-consumer marketing).

It’s a great question to start with, and it’ll help you understand what’s relevant about your user demographics (age, race, gender, profession, education, etc.), but it’s not the be-all-end-all of market research. The more specific questions come later.

2. What does your day look like?

This question helps you understand your users’ day-to-day life and the challenges they face. It will help you gain empathy for them, and you may stumble across something relevant to their buying habits.

3. Do you ever purchase [product/service type]?

This is a ‘yes or no’ question. A ‘yes’ will lead you to the next question.

4. What problem were you trying to solve or what goal were you trying to achieve?

This question strikes to the core of what someone’s trying to accomplish and why they might be willing to pay for your solution.

5. Take me back to the day when you first decided you needed to solve this kind of problem or achieve this goal.

This is the golden question, and it comes from Adele Revella, Founder and CEO of Buyer Persona Institute . It helps you get in the heads of your users and figure out what they were thinking the day they decided to spend money to solve a problem.

If you take your time with this question, digging deeper where it makes sense, you should be able to answer all the relevant information you need to understand their perspective.

“The only scripted question I want you to ask them is this one: take me back to the day when you first decided that you needed to solve this kind of problem or achieve this kind of a goal. Not to buy my product, that’s not the day. We want to go back to the day that when you thought it was urgent and compelling to go spend money to solve a particular problem or achieve a goal. Just tell me what happened.”

— Adele Revella , Founder/CEO at Buyer Persona Institute

Bonus question: is there anything else you’d like to tell me?

This question isn’t just a nice way to wrap it up—it might just give participants the opportunity they need to tell you something you really need to know.

That’s why Sarah Doody, author of UX Notebook , adds it to the end of her written surveys.

“I always have a last question, which is just open-ended: “Is there anything else you would like to tell me?” And sometimes, that’s where you get four paragraphs of amazing content that you would never have gotten if it was just a Net Promoter Score [survey] or something like that.”

What is the difference between qualitative and quantitative research?

Qualitative research asks questions that can’t be reduced to a number, such as, “What is your job title?” or “What did you like most about your customer service experience?” 

Quantitative research asks questions that can be answered with a numeric value, such as, “What is your annual salary?” or “How was your customer service experience on a scale of 1-5?”

 → Read more about the differences between qualitative and quantitative user research .

How do I do my own market research?

You can do your own quick and effective market research by 

Surveying your customers

Building user personas

Studying your users through interviews and observation

Wrapping your head around your data with tools like flow models, affinity diagrams, and customer journey maps

What is the difference between market research and user research?

Market research takes a broad look at potential customers—what problems they’re trying to solve, their buying experience, and overall demand. User research, on the other hand, is more narrowly focused on the use (and usability ) of specific products.

What are the main criticisms of market research?

Many marketing professionals are critical of market research because it can be expensive and time-consuming. It’s often easier to convince your CEO or CMO to let you do lean market research rather than something more extensive because you can do it yourself. It also gives you quick answers so you can stay ahead of the competition.

Do I need a market research firm to get reliable data?

Absolutely not! In fact, we recommend that you start small and do it yourself in the beginning. By following a lean market research strategy, you can uncover some solid insights about your clients. Then you can make changes, test them out, and see whether the results are positive. This is an excellent strategy for making quick changes and remaining competitive.

Net Promoter, Net Promoter System, Net Promoter Score, NPS, and the NPS-related emoticons are registered trademarks of Bain & Company, Inc., Fred Reichheld, and Satmetrix Systems, Inc.

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What is market demand and how to find it

Have you ever imagined allocating tons of resources just for your product to end up having no traction and zero adoption rate? This can happen because of the lack of market demand — when there are little to no users interested in using your product.

Without market demand, your product might struggle to gain momentum, achieve growth, and generate revenue. A struggling product means you spent resources and gained no return on investment (ROI). Thus, it is crucial to study and have market demand before building a product.

What is market demand?

The definition of market demand differs between physical, tangible, and software/digital products. In general, it’s the overall quantity of a service or a product that customers are able to purchase in a particular market and at X price. It measures the demands of the product considering different factors such as customer problems, customer preferences, consumer buying power, consumer purchase power, market trends, and pricing.

Market demand is both a metric and research element. It is primarily collected through market research and is measured in the product analysis stage. Market demand has a significant role in determining the resources allocated to product development, pricing schemes, and the overall strategic course of the product.

Market demand for digital products, where the majority of product managers work, is the total number of users that want to buy or subscribe to your product within a given window of time and in a specific market.

The market demand for digital products is based on multiple factors, such as user pain points, product user experience, number of features, and ease of use. To create and develop digital products that really satisfy user expectations and needs, product teams must first understand the market and determine the demand for those products.

When does market demand analysis happen?

In the product life cycle , market demand analysis typically happens when the company and the product team are introducing a new prominent feature or product vertical.

Depending on the company’s resource threshold, significant initiatives are features that require 3–4 months (or longer) of development.

Before committing to building such products and spending resources on pursuing them, the product manager will need to do a lot of analysis, and one of the key research points is market demand analysis.

The market demand curve

Before we look into the top factors of market demand and the technique to forecast and find it, it is crucial to understand the market demand curve. This concept is mainly used when working on product pricing with your team.

The market demand curve is a graphical representation that demonstrates the correlation between the price of a product and its demand for it. The price is shown on the y-axis while the demand is shown on the x-axis.

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A typical market demand curve has a downward slope, indicating that as the price of a product increases, the quantity demanded decreases and vice versa. This derives from the law of demand, which states that as the price of a good or service increases, the quantity demanded by consumers decreases, and as the price decreases, the quantity demanded increases:

Top factors that influence market demand

There are many factors that influence market demand. Some of them are on the company level (e.g., the brand) and others are on the product level (e.g, user experience).

Below are the top factors that influence the market demand for digital products:

Customers look for products that offer features that solve their core problems. Products with relevant features for users are likely to be in higher demand.

Competitive edge

Competition within the market can impact demand. Products that solve more core problems and offer more feature options than the other competitors tend to have more market demand.

User experience

The experience your users have when using your digital product is crucial. Products that offer a seamless and enjoyable user experience are likely to be more popular. This is especially important in that if users have a bad experience, word of mouth will travel and other people may not be motivated to try your product at all.

Users are likely to choose products that are priced competitively and to what they believe gives them value. So take time to understand the willingness to pay (WTP) and to come up with a solid pricing strategy.

Brand recognition

Brands with a wide presence that are well-known and trusted are likely to have a higher demand for their products. Thus, companies should invest in branding the same way they do with their products.

How to find market demand

Again, market demand is a qualitative metric and an ongoing process. There are tons of frameworks out there that can help product managers and executives identify the market demand for their products.

Below are sample steps to follow to help you determine market demand:

1. Identify target users

Identifying and understanding your target users is the very first step in determining market demand for the product. Scoping and launching some qualitative research initiatives to understand the target users’ demographics, psychographics, and behavior will serve you best when you look for the market demand.

The product team should consider demographic factors like age, gender, income, education, interests, environmental context, and lifestyle, documenting them in user personas for better future decisions.

The research outcome will help the product team identify and understand the target users’ main problems and pain points, what products they are looking for, and what features and solutions they want.

2. Analyze the market

Market research can help you gain insights into overall market conditions, gaps, and your competitors’ way of dealing with the market. Through techniques like surveys, focus groups, market interviews, and competitor analysis, you and your product team will be able to understand the prevailing market conditions.

Surveys can be conducted online or in person and can help you gather data about your target users’ pain points, preferences and behavior. Focus groups can provide more in-depth insights into your users’ needs by allowing them to state and model their experiences. User interviews can act like a feedback channel where you will be able to pick some users and follow up on the insights gathered from them.

Finally, competitor analysis can help you identify the strengths and weaknesses of your competitors, observe how they solved similar problems, and understand the market landscape.

3. Monitor industry trends

Keeping up with industry trends is essential to staying ahead of your competitors and understanding users’ changing problems and needs. Following industry publications, attending industry events, and networking with other subject matter experts and professionals can help you come up with innovative features and solve problems before other competitors.

In general, this will help you generate more market demand for your product and even open room for new markets to emerge. Keeping an eye out for changes in technology, user behavior, and emerging markets can be highly beneficial.

4. Launch small and test

Launching a small-scale test of your product ( aka an MVP ) can help you gauge interest and demand without rigorously spending resources on building the end-to-end experience. This can include offering a free trial or beta test to a selected group of users or launching a small set of features to test their performance before completing the bigger picture.

This will allow you to gather feedback and data to make informed decisions about different aspects of the product, like the pricing and the priority of some features.

5. Find interest using social media

One way of finding market demand is by collaborating cross-functionally with the marketing department to build a brand, create awareness, and have a direct connection with users.

Through social media strategies like ads and optimizations, you can build a landing page and, with some test techniques, like fake door tests, you can attract potential users and collect data about their preferences.

Another great tool for gauging interest in B2C products with a big user base is the pulse check technique on social media. Pulse check is basically tracking success after launching a small subset of the feature to the market.

Typically, the pulse checks are paired with social listening to see top comments, feedback, and suggestions people post about on social media. Once solid evidence is found, the product team can proceed with building the other versions of the initiative.

Successful products require two things: users who want what your product offers and users who are willing to pay for it. In essence, that’s market demand.

Market demand, especially for tech products, is influenced by multiple factors such as user experience, pricing, and brand recognition. To forecast and determine the market demand, there are multiple techniques you can utilize. Some of those techniques are testing on a small scale and running some systematic surveys around the problem and solution space.

Market demand is one of the most essential components that need to be analyzed before pursuing and building big products or features.

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How to Conduct Market Research for a Startup

• 17 Mar 2022

With every innovative product idea comes the pressing question: “Will people want to buy it?”

As an entrepreneur with a big idea, what’s the best way to determine how potential customers will react to your product? Conducting market research can provide the data needed to decide whether your product fits your target market.

Before launching a new venture, you should understand market research. Here’s how to conduct market research for a startup and why it’s important.

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What Is Market Research?

Market research is the process of gathering information about customers and the market as a whole to determine a product or service’s viability. Market research includes interviews, surveys, focus groups, and industry data analyses.

The goal of market research is to better understand potential customers, how well your product or service fits their needs, and how it compares to competitors’ offerings.

There are two types of research you can conduct: primary and secondary.

• Primary research requires collecting data to learn about your specific customers or target market segment. It’s useful for creating buyer personas, segmenting your market, and improving your product to cater to customers’ needs .
• Secondary research is conducted using data you didn’t collect yourself. Industry reports, public databases, and other companies’ proprietary data can be used to gain insights into your target market segment and industry.

Why Is Market Research Important for Entrepreneurs?

Before launching your venture, it’s wise to conduct market research to ensure your product or service will be well received. Feedback from people who fall into your target demographics can be invaluable as you iterate on and improve your product.

Performing market research can also help you determine a pricing strategy by gauging customers’ willingness to pay for your product. Additionally, it can improve the user experience by revealing what features matter most to potential customers.

When assessing which startups to fund, investors place heavy importance on thorough market research that indicates promising potential. Providing tangible proof that your product fulfills a market need and demonstrating you’ve taken the time to iterate on and improve it signal that your startup could be a worthwhile investment.

Related: How to Talk to Potential Investors: 5 Tips

How to Do Market Research for a Startup

1. form hypotheses.

What questions do you aim to answer through market research? Using those questions, you can make predictions called hypotheses . Defining your hypotheses upfront can help guide your approach to selecting subjects, researching questions, and testing designs.

An example question you may ask is: “How much are people in my target demographic willing to pay for the current version of my product?” Your hypothesis could be: “If my product contains all its current features, customers will be willing to pay $500 for it.”

Another example question you may ask is: “What’s the user’s biggest pain point, and is my product meeting their needs?” Your hypothesis could be: “I believe the user’s biggest pain point is needing an easy, unintimidating way to learn basic car maintenance, and I predict that my product meets that need.”

You can and should test multiple hypotheses, but try to select no more than a few per test, so the research stays focused.

Related: A Beginner’s Guide to Hypothesis Testing in Business

2. Select the Type of Research Needed to Test Hypotheses

Once you’ve formed your hypotheses, determine which type of research to conduct.

If your hypotheses focus on determining your startup’s place in the broader market, start with secondary research. This can include using existing data to determine market size, how much of that market your startup could reasonably own, who your biggest competitors are, and how your brand and product compare to theirs.

If your hypotheses require primary research, decide which data collection method best fits your needs. These can include one-on-one interviews, surveys, focus groups, and polls. Primary research allows you to gather insights into customer satisfaction and loyalty, brand awareness and perception, and real-time product usability.

3. Identify Target Demographics and Recruit Subjects

To gather meaningful insights, you need to understand your target demographic. Do you aim to cater to working parents, young athletes, or pet owners? Determine the type of person who can benefit from your product.

If you conduct primary research, you need to recruit subjects. This can be done in several ways, including:

• Word of mouth: The simplest but least reliable way to recruit participants is by word of mouth. Ask people you know to refer others to be research subjects, then screen them to confirm they fit your target demographic.
• Promoting the study on social media: Many social media platforms enable you to show an ad to people who fall into specific demographic categories or have certain interests. This allows you to get the word out to a large number of people who qualify.
• Hiring a third-party market research company: Some companies provide full market research services and recruit participants and conduct research on your behalf.

However you recruit subjects, ensure they take a screener survey beforehand, which allows you to determine whether they fit the specific demographic you want to study or have a trait that eliminates them from the research pool. It also provides demographic data—such as age and race—that enables you to select a diverse subset of your target demographic.

In addition, you can offer compensation to boost participation, such as money, meal vouchers, gift cards, or early access to your product. Make it clear that compensation is in appreciation for subjects’ time and honest feedback.

4. Conduct the Research

Once you’ve determined the type of research and target demographic necessary to test your hypotheses, conduct your research. To reduce bias, enlist someone unfamiliar with your hypotheses to perform interviews or lead focus groups.

Ask questions based on your audience and hypotheses. For instance, if you’re aiming to test existing customers’ purchase motivations, you may ask: “What challenge were you trying to solve when you first bought the product?”

If examining brand perception, your audience should consist of potential customers who don’t yet know your brand. Present them with a list of competitor logos—with yours in the mix—and ask them to rank the brands by perceived reliability.

While the questions you ask are vehicles to prove or disprove hypotheses, ensure they don’t lead subjects in one direction. To craft unbiased research questions , use neutral language and vary the order of options in multiple-choice questions. This can keep subjects from selecting the same option each time if they sense the third option is always mapped to a certain outcome. It also helps account for primacy bias (the tendency to select the first option in a list) and recency bias (the tendency to select the final option in a list).

Once you’ve collected data, ensure it’s organized efficiently and securely so you can protect subjects’ identities .

Related: 3 Examples of Bad Survey Questions and How to Fix Them

5. Gather Insights and Determine Action Items

After you’ve organized your data, analyze it to extract actionable insights. While some of the data will be qualitative rather than quantitative, you can detect patterns in responses to make it quantifiable. For instance, noting that 15 of 20 subjects mentioned feeling overwhelmed when attempting to assemble your product.

Once you’ve analyzed the data and communicated emerging trends using data visualizations , outline action items.

If the majority of users in your target demographic reported feeling overwhelmed while assembling your product, action items might include:

• Creating different versions of assembly instructions to test with other groups, varying diagrams and instructional language
• Researching instruction manual best practices

Each round of market research can offer more information about how your product is perceived and experienced by potential users.

Market Research as an Ongoing Endeavor

While it’s useful to conduct market research before launching your product, you should revisit your hypotheses and form new ones over the course of building your venture.

By conducting market research with each version of your product, you can gradually improve it and ensure it continues to fit target customers’ needs.

Are you interested in bolstering your entrepreneurship skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn to speak the language of the startup world.

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Demand Analysis - Meaning, Importance, Steps, Parameters & Example

What is demand analysis.

Demand analysis is a research done to estimate or find out the customer demand for a product or service in a particular market. Demand analysis is one of the important consideration for a variety of business decisions like determining sales forecasting, pricing products/services, marketing and advertisement spending, manufacturing decisions, expansion planning etc. Demand analysis covers both future and retrospective analysis so that they can analyze the demand better and understand the product/service's past success and failure too.

Importance of Demand Analysis

For a new company, the analysis can tell whether a substantial demand exists for the product/service and given the other information like number of competitors, size of competitors, industry growth etc. It helps to decide if the company could enter the market and generate enough returns to sustain and advance its business. 

Demand analysis helps in identifying key business areas where demand is highest and areas which needs attention as very low demand indicates different problems like either the customers are not aware of the product/service and more focus must be in advertisement and promotion or the customer needs are not met by current product/service and improvements are needed or competitors have sprung up with better offerings etc.

With the rise of AI (Artificial Intelligence) in recent years, demand analysis has become much more accurate and can very accurately be used to predict future demands and trends. AI models can be trained on multiple parameters and data points to arrive at tangible and actionable demand analysis.

• Demand Based Pricing
• Demand-Backward Pricing

Steps in the Demand Analysis

Demand analysis process needs to be done in a structured manner for a particular market and affects the business strategy and decisions. Some of the steps which are to be followed for the analyzing the demand are:

1. Market Selection

Demand is linked to a market. Without knowing the market properly, demand cannot be analyzed. Every business would be operating in a single or multiple markets but it should be clearly known. The first step is understanding the market and knowing the demand trends for the particular product or service.

2. Product/Service category analysis

Next step would be to make sure which product or service is being used to analyze the demand. A company may be having a product portfolio of 20 products. Total demand would not give a picture at an individual level. It may happen that demand is huge for 5 categories and low for the rest of 15 but still overall demand is high. For analysis, the product category has to be selected. e.g. if a company is selling smart devices it needs to select phones or the tablets only for its purpose.

3. Understanding Business Parameters

Demand is never constant across a single year or a time. A less demand in a particular month may not be a sign of an issue with the product line but it may be that due to climate change, the demand of an item like an air conditioner may go low but it may again rise in summer season.

4. Understanding the competitors and partner trends

For an accurate demand analysis, we also need to see what our partners, vendors and suppliers are predicting in the market as they are also in the same market and product category. Also competitors performance and past sales can help us analyze the demand correctly.

Demand Analysis Parameters

The key drivers while determining demand are:

1. Product's own price

Price of the product plays an important role in demand analysis. If the price is high as compared to competitors or what the customer can pay, the demand would be affected.

It can be low or high depending upon the price point of the product or service.

2. Customer income

They buying power of customer would definitely impact the demand of a product. If the product or service is offered at a price point more than the affordability of a customer group then the demand would be low hence customer income needs to be analyzed for demand.

3. Price of competitor goods

As we discussed in the first 2 points about price and buying power, competitor's price adds to the equation and can affect the demand of product/service. If competitor is priced lower then the demand of that particular product would be more and vice versa. It can be different scenario in case of luxury of niche products.

4. Tastes & requirements of the customer

Consumer behavior has be to taken into account. The product or service has to align with the customer's preferences else there would be no demand for the product.

5. Expectations

Sometimes the customer has expectations from a new or existing product based on the overall industry landscape. e.g. if every competitor in the market is offering free warranty service but one company doesn't then most likely it would not be able to meet the customer expectations.

6. Number of customers in the market

The potential market is an important parameter for demand analysis as the customers drive the demand. if the customers are too low then even though the first 5 points are in favor still the demand would never rise as the customer base is too small for a viable business.

Demand Analysis Example

Below is the demand analysis for US restaurant industry (Source: Dun & Bradstreet)

It shows that market activity is highest in East North Central area. The figures are arrived by tracking the annual sales in each region. So for offering a particular product in this market, a company needs to analyze if they can do business in multiple sub-markets with decent demand or focus on sub markets or areas with high demand. Both aspects are part of demand analysis to be done by the company based on product or service parameters.

Hence, this concludes the definition of Demand Analysis along with its overview.

This article has been researched & authored by the Business Concepts Team . It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 1800 business concepts from 5 categories.

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McKinsey Global Private Markets Review 2024: Private markets in a slower era

At a glance, macroeconomic challenges continued.

McKinsey Global Private Markets Review 2024: Private markets: A slower era

If 2022 was a tale of two halves, with robust fundraising and deal activity in the first six months followed by a slowdown in the second half, then 2023 might be considered a tale of one whole. Macroeconomic headwinds persisted throughout the year, with rising financing costs, and an uncertain growth outlook taking a toll on private markets. Full-year fundraising continued to decline from 2021’s lofty peak, weighed down by the “denominator effect” that persisted in part due to a less active deal market. Managers largely held onto assets to avoid selling in a lower-multiple environment, fueling an activity-dampening cycle in which distribution-starved limited partners (LPs) reined in new commitments.

About the authors

This article is a summary of a larger report, available as a PDF, that is a collaborative effort by Fredrik Dahlqvist , Alastair Green , Paul Maia, Alexandra Nee , David Quigley , Aditya Sanghvi , Connor Mangan, John Spivey, Rahel Schneider, and Brian Vickery , representing views from McKinsey’s Private Equity & Principal Investors Practice.

Performance in most private asset classes remained below historical averages for a second consecutive year. Decade-long tailwinds from low and falling interest rates and consistently expanding multiples seem to be things of the past. As private market managers look to boost performance in this new era of investing, a deeper focus on revenue growth and margin expansion will be needed now more than ever.

Perspectives on a slower era in private markets

Global fundraising contracted.

Fundraising fell 22 percent across private market asset classes globally to just over $1 trillion, as of year-end reported data—the lowest total since 2017. Fundraising in North America, a rare bright spot in 2022, declined in line with global totals, while in Europe, fundraising proved most resilient, falling just 3 percent. In Asia, fundraising fell precipitously and now sits 72 percent below the region’s 2018 peak.

Despite difficult fundraising conditions, headwinds did not affect all strategies or managers equally. Private equity (PE) buyout strategies posted their best fundraising year ever, and larger managers and vehicles also fared well, continuing the prior year’s trend toward greater fundraising concentration.

The numerator effect persisted

Despite a marked recovery in the denominator—the 1,000 largest US retirement funds grew 7 percent in the year ending September 2023, after falling 14 percent the prior year, for example 1 “U.S. retirement plans recover half of 2022 losses amid no-show recession,” Pensions and Investments , February 12, 2024. —many LPs remain overexposed to private markets relative to their target allocations. LPs started 2023 overweight: according to analysis from CEM Benchmarking, average allocations across PE, infrastructure, and real estate were at or above target allocations as of the beginning of the year. And the numerator grew throughout the year, as a lack of exits and rebounding valuations drove net asset values (NAVs) higher. While not all LPs strictly follow asset allocation targets, our analysis in partnership with global private markets firm StepStone Group suggests that an overallocation of just one percentage point can reduce planned commitments by as much as 10 to 12 percent per year for five years or more.

Despite these headwinds, recent surveys indicate that LPs remain broadly committed to private markets. In fact, the majority plan to maintain or increase allocations over the medium to long term.

Investors fled to known names and larger funds

Fundraising concentration reached its highest level in over a decade, as investors continued to shift new commitments in favor of the largest fund managers. The 25 most successful fundraisers collected 41 percent of aggregate commitments to closed-end funds (with the top five managers accounting for nearly half that total). Closed-end fundraising totals may understate the extent of concentration in the industry overall, as the largest managers also tend to be more successful in raising non-institutional capital.

While the largest funds grew even larger—the largest vehicles on record were raised in buyout, real estate, infrastructure, and private debt in 2023—smaller and newer funds struggled. Fewer than 1,700 funds of less than $1 billion were closed during the year, half as many as closed in 2022 and the fewest of any year since 2012. New manager formation also fell to the lowest level since 2012, with just 651 new firms launched in 2023.

Whether recent fundraising concentration and a spate of M&A activity signals the beginning of oft-rumored consolidation in the private markets remains uncertain, as a similar pattern developed in each of the last two fundraising downturns before giving way to renewed entrepreneurialism among general partners (GPs) and commitment diversification among LPs. Compared with how things played out in the last two downturns, perhaps this movie really is different, or perhaps we’re watching a trilogy reusing a familiar plotline.

Dry powder inventory spiked (again)

Private markets assets under management totaled $13.1 trillion as of June 30, 2023, and have grown nearly 20 percent per annum since 2018. Dry powder reserves—the amount of capital committed but not yet deployed—increased to $3.7 trillion, marking the ninth consecutive year of growth. Dry powder inventory—the amount of capital available to GPs expressed as a multiple of annual deployment—increased for the second consecutive year in PE, as new commitments continued to outpace deal activity. Inventory sat at 1.6 years in 2023, up markedly from the 0.9 years recorded at the end of 2021 but still within the historical range. NAV grew as well, largely driven by the reluctance of managers to exit positions and crystallize returns in a depressed multiple environment.

Private equity strategies diverged

Buyout and venture capital, the two largest PE sub-asset classes, charted wildly different courses over the past 18 months. Buyout notched its highest fundraising year ever in 2023, and its performance improved, with funds posting a (still paltry) 5 percent net internal rate of return through September 30. And although buyout deal volumes declined by 19 percent, 2023 was still the third-most-active year on record. In contrast, venture capital (VC) fundraising declined by nearly 60 percent, equaling its lowest total since 2015, and deal volume fell by 36 percent to the lowest level since 2019. VC funds returned –3 percent through September, posting negative returns for seven consecutive quarters. VC was the fastest-growing—as well as the highest-performing—PE strategy by a significant margin from 2010 to 2022, but investors appear to be reevaluating their approach in the current environment.

Private equity entry multiples contracted

PE buyout entry multiples declined by roughly one turn from 11.9 to 11.0 times EBITDA, slightly outpacing the decline in public market multiples (down from 12.1 to 11.3 times EBITDA), through the first nine months of 2023. For nearly a decade leading up to 2022, managers consistently sold assets into a higher-multiple environment than that in which they had bought those assets, providing a substantial performance tailwind for the industry. Nowhere has this been truer than in technology. After experiencing more than eight turns of multiple expansion from 2009 to 2021 (the most of any sector), technology multiples have declined by nearly three turns in the past two years, 50 percent more than in any other sector. Overall, roughly two-thirds of the total return for buyout deals that were entered in 2010 or later and exited in 2021 or before can be attributed to market multiple expansion and leverage. Now, with falling multiples and higher financing costs, revenue growth and margin expansion are taking center stage for GPs.

Real estate receded

Demand uncertainty, slowing rent growth, and elevated financing costs drove cap rates higher and made price discovery challenging, all of which weighed on deal volume, fundraising, and investment performance. Global closed-end fundraising declined 34 percent year over year, and funds returned −4 percent in the first nine months of the year, losing money for the first time since the 2007–08 global financial crisis. Capital shifted away from core and core-plus strategies as investors sought liquidity via redemptions in open-end vehicles, from which net outflows reached their highest level in at least two decades. Opportunistic strategies benefited from this shift, with investors focusing on capital appreciation over income generation in a market where alternative sources of yield have grown more attractive. Rising interest rates widened bid–ask spreads and impaired deal volume across food groups, including in what were formerly hot sectors: multifamily and industrial.

Private debt pays dividends

Debt again proved to be the most resilient private asset class against a turbulent market backdrop. Fundraising declined just 13 percent, largely driven by lower commitments to direct lending strategies, for which a slower PE deal environment has made capital deployment challenging. The asset class also posted the highest returns among all private asset classes through September 30. Many private debt securities are tied to floating rates, which enhance returns in a rising-rate environment. Thus far, managers appear to have successfully navigated the rising incidence of default and distress exhibited across the broader leveraged-lending market. Although direct lending deal volume declined from 2022, private lenders financed an all-time high 59 percent of leveraged buyout transactions last year and are now expanding into additional strategies to drive the next era of growth.

Infrastructure took a detour

After several years of robust growth and strong performance, infrastructure and natural resources fundraising declined by 53 percent to the lowest total since 2013. Supply-side timing is partially to blame: five of the seven largest infrastructure managers closed a flagship vehicle in 2021 or 2022, and none of those five held a final close last year. As in real estate, investors shied away from core and core-plus investments in a higher-yield environment. Yet there are reasons to believe infrastructure’s growth will bounce back. Limited partners (LPs) surveyed by McKinsey remain bullish on their deployment to the asset class, and at least a dozen vehicles targeting more than $10 billion were actively fundraising as of the end of 2023. Multiple recent acquisitions of large infrastructure GPs by global multi-asset-class managers also indicate marketwide conviction in the asset class’s potential.

Private markets still have work to do on diversity

Private markets firms are slowly improving their representation of females (up two percentage points over the prior year) and ethnic and racial minorities (up one percentage point). On some diversity metrics, including entry-level representation of women, private markets now compare favorably with corporate America. Yet broad-based parity remains elusive and too slow in the making. Ethnic, racial, and gender imbalances are particularly stark across more influential investing roles and senior positions. In fact, McKinsey’s research  reveals that at the current pace, it would take several decades for private markets firms to reach gender parity at senior levels. Increasing representation across all levels will require managers to take fresh approaches to hiring, retention, and promotion.

Artificial intelligence generating excitement

The transformative potential of generative AI was perhaps 2023’s hottest topic (beyond Taylor Swift). Private markets players are excited about the potential for the technology to optimize their approach to thesis generation, deal sourcing, investment due diligence, and portfolio performance, among other areas. While the technology is still nascent and few GPs can boast scaled implementations, pilot programs are already in flight across the industry, particularly within portfolio companies. Adoption seems nearly certain to accelerate throughout 2024.

Private markets in a slower era

If private markets investors entered 2023 hoping for a return to the heady days of 2021, they likely left the year disappointed. Many of the headwinds that emerged in the latter half of 2022 persisted throughout the year, pressuring fundraising, dealmaking, and performance. Inflation moderated somewhat over the course of the year but remained stubbornly elevated by recent historical standards. Interest rates started high and rose higher, increasing the cost of financing. A reinvigorated public equity market recovered most of 2022’s losses but did little to resolve the valuation uncertainty private market investors have faced for the past 18 months.

Within private markets, the denominator effect remained in play, despite the public market recovery, as the numerator continued to expand. An activity-dampening cycle emerged: higher cost of capital and lower multiples limited the ability or willingness of general partners (GPs) to exit positions; fewer exits, coupled with continuing capital calls, pushed LP allocations higher, thereby limiting their ability or willingness to make new commitments. These conditions weighed on managers’ ability to fundraise. Based on data reported as of year-end 2023, private markets fundraising fell 22 percent from the prior year to just over $1 trillion, the largest such drop since 2009 (Exhibit 1).

The impact of the fundraising environment was not felt equally among GPs. Continuing a trend that emerged in 2022, and consistent with prior downturns in fundraising, LPs favored larger vehicles and the scaled GPs that typically manage them. Smaller and newer managers struggled, and the number of sub–$1 billion vehicles and new firm launches each declined to its lowest level in more than a decade.

Despite the decline in fundraising, private markets assets under management (AUM) continued to grow, increasing 12 percent to $13.1 trillion as of June 30, 2023. 2023 fundraising was still the sixth-highest annual haul on record, pushing dry powder higher, while the slowdown in deal making limited distributions.

Investment performance across private market asset classes fell short of historical averages. Private equity (PE) got back in the black but generated the lowest annual performance in the past 15 years, excluding 2022. Closed-end real estate produced negative returns for the first time since 2009, as capitalization (cap) rates expanded across sectors and rent growth dissipated in formerly hot sectors, including multifamily and industrial. The performance of infrastructure funds was less than half of its long-term average and even further below the double-digit returns generated in 2021 and 2022. Private debt was the standout performer (if there was one), outperforming all other private asset classes and illustrating the asset class’s countercyclical appeal.

Private equity down but not out

Higher financing costs, lower multiples, and an uncertain macroeconomic environment created a challenging backdrop for private equity managers in 2023. Fundraising declined for the second year in a row, falling 15 percent to $649 billion, as LPs grappled with the denominator effect and a slowdown in distributions. Managers were on the fundraising trail longer to raise this capital: funds that closed in 2023 were open for a record-high average of 20.1 months, notably longer than 18.7 months in 2022 and 14.1 months in 2018. VC and growth equity strategies led the decline, dropping to their lowest level of cumulative capital raised since 2015. Fundraising in Asia fell for the fourth year of the last five, with the greatest decline in China.

Despite the difficult fundraising context, a subset of strategies and managers prevailed. Buyout managers collectively had their best fundraising year on record, raising more than $400 billion. Fundraising in Europe surged by more than 50 percent, resulting in the region’s biggest haul ever. The largest managers raised an outsized share of the total for a second consecutive year, making 2023 the most concentrated fundraising year of the last decade (Exhibit 2).

Despite the drop in aggregate fundraising, PE assets under management increased 8 percent to $8.2 trillion. Only a small part of this growth was performance driven: PE funds produced a net IRR of just 2.5 percent through September 30, 2023. Buyouts and growth equity generated positive returns, while VC lost money. PE performance, dating back to the beginning of 2022, remains negative, highlighting the difficulty of generating attractive investment returns in a higher interest rate and lower multiple environment. As PE managers devise value creation strategies to improve performance, their focus includes ensuring operating efficiency and profitability of their portfolio companies.

Deal activity volume and count fell sharply, by 21 percent and 24 percent, respectively, which continued the slower pace set in the second half of 2022. Sponsors largely opted to hold assets longer rather than lock in underwhelming returns. While higher financing costs and valuation mismatches weighed on overall deal activity, certain types of M&A gained share. Add-on deals, for example, accounted for a record 46 percent of total buyout deal volume last year.

Real estate recedes

For real estate, 2023 was a year of transition, characterized by a litany of new and familiar challenges. Pandemic-driven demand issues continued, while elevated financing costs, expanding cap rates, and valuation uncertainty weighed on commercial real estate deal volumes, fundraising, and investment performance.

Managers faced one of the toughest fundraising environments in many years. Global closed-end fundraising declined 34 percent to $125 billion. While fundraising challenges were widespread, they were not ubiquitous across strategies. Dollars continued to shift to large, multi-asset class platforms, with the top five managers accounting for 37 percent of aggregate closed-end real estate fundraising. In April, the largest real estate fund ever raised closed on a record $30 billion.

Capital shifted away from core and core-plus strategies as investors sought liquidity through redemptions in open-end vehicles and reduced gross contributions to the lowest level since 2009. Opportunistic strategies benefited from this shift, as investors turned their attention toward capital appreciation over income generation in a market where alternative sources of yield have grown more attractive.

In the United States, for instance, open-end funds, as represented by the National Council of Real Estate Investment Fiduciaries Fund Index—Open-End Equity (NFI-OE), recorded $13 billion in net outflows in 2023, reversing the trend of positive net inflows throughout the 2010s. The negative flows mainly reflected $9 billion in core outflows, with core-plus funds accounting for the remaining outflows, which reversed a 20-year run of net inflows.

As a result, the NAV in US open-end funds fell roughly 16 percent year over year. Meanwhile, global assets under management in closed-end funds reached a new peak of $1.7 trillion as of June 2023, growing 14 percent between June 2022 and June 2023.

Real estate underperformed historical averages in 2023, as previously high-performing multifamily and industrial sectors joined office in producing negative returns caused by slowing demand growth and cap rate expansion. Closed-end funds generated a pooled net IRR of −3.5 percent in the first nine months of 2023, losing money for the first time since the global financial crisis. The lone bright spot among major sectors was hospitality, which—thanks to a rush of postpandemic travel—returned 10.3 percent in 2023. 2 Based on NCREIFs NPI index. Hotels represent 1 percent of total properties in the index. As a whole, the average pooled lifetime net IRRs for closed-end real estate funds from 2011–20 vintages remained around historical levels (9.8 percent).

Global deal volume declined 47 percent in 2023 to reach a ten-year low of $650 billion, driven by widening bid–ask spreads amid valuation uncertainty and higher costs of financing (Exhibit 3). 3 CBRE, Real Capital Analytics Deal flow in the office sector remained depressed, partly as a result of continued uncertainty in the demand for space in a hybrid working world.

During a turbulent year for private markets, private debt was a relative bright spot, topping private markets asset classes in terms of fundraising growth, AUM growth, and performance.

Fundraising for private debt declined just 13 percent year over year, nearly ten percentage points less than the private markets overall. Despite the decline in fundraising, AUM surged 27 percent to $1.7 trillion. And private debt posted the highest investment returns of any private asset class through the first three quarters of 2023.

Private debt’s risk/return characteristics are well suited to the current environment. With interest rates at their highest in more than a decade, current yields in the asset class have grown more attractive on both an absolute and relative basis, particularly if higher rates sustain and put downward pressure on equity returns (Exhibit 4). The built-in security derived from debt’s privileged position in the capital structure, moreover, appeals to investors that are wary of market volatility and valuation uncertainty.

Direct lending continued to be the largest strategy in 2023, with fundraising for the mostly-senior-debt strategy accounting for almost half of the asset class’s total haul (despite declining from the previous year). Separately, mezzanine debt fundraising hit a new high, thanks to the closings of three of the largest funds ever raised in the strategy.

Over the longer term, growth in private debt has largely been driven by institutional investors rotating out of traditional fixed income in favor of private alternatives. Despite this growth in commitments, LPs remain underweight in this asset class relative to their targets. In fact, the allocation gap has only grown wider in recent years, a sharp contrast to other private asset classes, for which LPs’ current allocations exceed their targets on average. According to data from CEM Benchmarking, the private debt allocation gap now stands at 1.4 percent, which means that, in aggregate, investors must commit hundreds of billions in net new capital to the asset class just to reach current targets.

Private debt was not completely immune to the macroeconomic conditions last year, however. Fundraising declined for the second consecutive year and now sits 23 percent below 2021’s peak. Furthermore, though private lenders took share in 2023 from other capital sources, overall deal volumes also declined for the second year in a row. The drop was largely driven by a less active PE deal environment: private debt is predominantly used to finance PE-backed companies, though managers are increasingly diversifying their origination capabilities to include a broad new range of companies and asset types.

Infrastructure and natural resources take a detour

For infrastructure and natural resources fundraising, 2023 was an exceptionally challenging year. Aggregate capital raised declined 53 percent year over year to $82 billion, the lowest annual total since 2013. The size of the drop is particularly surprising in light of infrastructure’s recent momentum. The asset class had set fundraising records in four of the previous five years, and infrastructure is often considered an attractive investment in uncertain markets.

While there is little doubt that the broader fundraising headwinds discussed elsewhere in this report affected infrastructure and natural resources fundraising last year, dynamics specific to the asset class were at play as well. One issue was supply-side timing: nine of the ten largest infrastructure GPs did not close a flagship fund in 2023. Second was the migration of investor dollars away from core and core-plus investments, which have historically accounted for the bulk of infrastructure fundraising, in a higher rate environment.

The asset class had some notable bright spots last year. Fundraising for higher-returning opportunistic strategies more than doubled the prior year’s total (Exhibit 5). AUM grew 18 percent, reaching a new high of $1.5 trillion. Infrastructure funds returned a net IRR of 3.4 percent in 2023; this was below historical averages but still the second-best return among private asset classes. And as was the case in other asset classes, investors concentrated commitments in larger funds and managers in 2023, including in the largest infrastructure fund ever raised.

The outlook for the asset class, moreover, remains positive. Funds targeting a record amount of capital were in the market at year-end, providing a robust foundation for fundraising in 2024 and 2025. A recent spate of infrastructure GP acquisitions signal multi-asset managers’ long-term conviction in the asset class, despite short-term headwinds. Global megatrends like decarbonization and digitization, as well as revolutions in energy and mobility, have spurred new infrastructure investment opportunities around the world, particularly for value-oriented investors that are willing to take on more risk.

Private markets make measured progress in DEI

Diversity, equity, and inclusion (DEI) has become an important part of the fundraising, talent, and investing landscape for private market participants. Encouragingly, incremental progress has been made in recent years, including more diverse talent being brought to entry-level positions, investing roles, and investment committees. The scope of DEI metrics provided to institutional investors during fundraising has also increased in recent years: more than half of PE firms now provide data across investing teams, portfolio company boards, and portfolio company management (versus investment team data only). 4 “ The state of diversity in global private markets: 2023 ,” McKinsey, August 22, 2023.

In 2023, McKinsey surveyed 66 global private markets firms that collectively employ more than 60,000 people for the second annual State of diversity in global private markets report. 5 “ The state of diversity in global private markets: 2023 ,” McKinsey, August 22, 2023. The research offers insight into the representation of women and ethnic and racial minorities in private investing as of year-end 2022. In this chapter, we discuss where the numbers stand and how firms can bring a more diverse set of perspectives to the table.

The statistics indicate signs of modest advancement. Overall representation of women in private markets increased two percentage points to 35 percent, and ethnic and racial minorities increased one percentage point to 30 percent (Exhibit 6). Entry-level positions have nearly reached gender parity, with female representation at 48 percent. The share of women holding C-suite roles globally increased 3 percentage points, while the share of people from ethnic and racial minorities in investment committees increased 9 percentage points. There is growing evidence that external hiring is gradually helping close the diversity gap, especially at senior levels. For example, 33 percent of external hires at the managing director level were ethnic or racial minorities, higher than their existing representation level (19 percent).

Yet, the scope of the challenge remains substantial. Women and minorities continue to be underrepresented in senior positions and investing roles. They also experience uneven rates of progress due to lower promotion and higher attrition rates, particularly at smaller firms. Firms are also navigating an increasingly polarized workplace today, with additional scrutiny and a growing number of lawsuits against corporate diversity and inclusion programs, particularly in the US, which threatens to impact the industry’s pace of progress.

Fredrik Dahlqvist is a senior partner in McKinsey’s Stockholm office; Alastair Green  is a senior partner in the Washington, DC, office, where Paul Maia and Alexandra Nee  are partners; David Quigley  is a senior partner in the New York office, where Connor Mangan is an associate partner and Aditya Sanghvi  is a senior partner; Rahel Schneider is an associate partner in the Bay Area office; John Spivey is a partner in the Charlotte office; and Brian Vickery  is a partner in the Boston office.

The authors wish to thank Jonathan Christy, Louis Dufau, Vaibhav Gujral, Graham Healy-Day, Laura Johnson, Ryan Luby, Tripp Norton, Alastair Rami, Henri Torbey, and Alex Wolkomir for their contributions

The authors would also like to thank CEM Benchmarking and the StepStone Group for their partnership in this year's report.

This article was edited by Arshiya Khullar, an editor in the Gurugram office.

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5 highest paying skills for project managers in 2024, from research.

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To remain competitive and gain an edge as a project management professional, it helps to learn one ... [+] or more of these five critical skills this year

Within a competitive job market in which 25 million project managers are projected to be in demand over the next few years, it's critical for aspiring and existing project management professionals to stay ahead of the curve so they can secure the highest-paying roles. While the project management profession in itself is a well-remunerated industry, with U.S. median salaries jumping to as high as $120,000, that doesn't necessarily mean that you can sit back, relax, and assume you're worthy of a six-figure salary.

There are things that lie within your power, which you can do to dramatically skyrocket your earnings.

When exploring how to increase and even multiply your salary as a project manager, it's best to look into what are the highest-paying, in-demand skills within the project management industry, so that you can position yourself as best suited for a promotion, or as a star candidate when job-searching.

Highest-Paying In-Demand Skills For Project Managers

The compensation and salary data company, PayScale, compiled a list of high-paying skills which include a combination of hard, technical skills, and soft or power skills for those within the project industry.

It's worth noting that there are some industries in which the impact of these skills on your pay increase will be more visible than others. For example, considering programme/project management within the technology industry, you can expect to earn more for your skill set, as the tech industry is renowned for offering the highest salaries to project and program management professionals. As such, some of the skills listed below are more specific to the technology industry.

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However, many of these skills are equally in demand in other industries as well, so they can still be applicable and relevant to you.

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1. Agile Software Development

Using the agile software development approach for building and delivering software products entails prioritising flexibility responsiveness and adaptability to change as well as collaboration. Following this framework, you and your team would be working in sprints, (short iterations) which allows you to make incremental progress and quickly respond to stakeholder requirements and feedback to meet their needs.

This is the highest-paying skill for project managers, with Payscale data revealing that it can boost your earnings by 47%. Coursera and Skillsoft are two of the amazing resources that are available for you to learn this skill.

The tech industry offers the highest salaries for PMs

2. Business Analysis

Analytical thinking is listed in the World Economic Forum's Future of Jobs Report 2023 as the number one skill needed by professionals over the next few years.

Business analysis, in simple terms, is when you identify business needs and research solutions for them. This skill comes handy in your PM role, as you will naturally be working with stakeholders on a regular basis to gather and analyze data on their needs and define requirements, and then propose the best solution with your program or project. This skill improves salary prospects by up to 43%.

3. Engineering Design

Next on the list is engineering design, which is of course more specifically focused on the technology industry. This involves taking the results of your business analysis, and creating detailed plans and specifications, including prototyping and testing, to ensure you deliver a high-quality product that satisfies your stakeholders' needs. This skill is more relatable to product managers, and provides a 14% uptake in salary.

4. Risk Management/Risk Control

With all the changes that are occurring to disrupt industries in 2024, it's no wonder that risk management and risk control are highly in-demand skills for project and program managers to possess. This skill also has the potential for a 14% salary boost, according to Payscale analysis.

You can learn more about how to comprehensively manage and plan for risk by undertaking courses and certifications such as those offered by the Institute of Risk Management, which are globally recognized.

5. Strategy

Strategic thinking is a trademark of leadership, and of exceptional program and project management. You need to be able to steer your project team in the right direction to achieve successful project outcomes, and this means you'll need to have a solid strategy that is clearly articulated so that everyone is on the same page. Setting clear goals and objectives, and assigning the right team members to fulfil each task according to their strengths requires some practice to get it right, but it can be achieved if you're persistent and intentional. Possessing and showcasing this skill results in a 12% salary increase.

Risk management skills helps ensure your project is prepared for worst-case scenarios and minimizes ... [+] negative outcomes, including those that could affect your job directly

By investing in yourself this year by upskilling in one or more of these five essential competencies, you can position yourself to successfully meet the evolving demands of your stakeholders and the project management industry, and unlock numerous career-building and salary-boosting opportunities.

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Oil Market Report - May 2024

About this report

The IEA Oil Market Report (OMR) is one of the world's most authoritative and timely sources of data, forecasts and analysis on the global oil market – including detailed statistics and commentary on oil supply, demand, inventories, prices and refining activity, as well as oil trade for IEA and selected non-IEA countries.

• Global oil demand is set to rise by 1.1 mb/d in 2024, 140 kb/d less than projected in last month’s Report as weak deliveries, notably in Europe, shifted first-quarter OECD demand into contraction. The outlook for 2025 is comparatively unchanged, with the pace of growth now marginally surpassing 2024 at 1.2 mb/d.
• World oil supply is projected to increase by 580 kb/d this year to a record 102.7 mb/d as non-OPEC+ output rises by 1.4 mb/d while OPEC+ production falls 840 kb/d, assuming that voluntary cuts are maintained. Global gains of 1.8 mb/d are expected in 2025 as non-OPEC+ adds a further 1.4 mb/d. In April, world oil supply fell 200 kb/d to 102 mb/d.
• Global refinery margins eased across all regions in April, as weaker-than-expected demand growth underpinned a collapse in middle distillate cracks and lower throughput levels. Annual growth in refinery activity is forecast to accelerate from just above zero in 1Q24 to 500 kb/d in 2Q24 and to 1.8 mb/d in 2H24.
• Global oil inventories surged by 34.6 mb in March, as oil on water swelled to a fresh post-pandemic high. On land stocks fell by 5.1 mb to their lowest level since at least 2016, as total OECD stocks declined by 8.8 mb to a 20-year low while non-OECD inventories built for the first time since November. According to preliminary data, global oil stocks rose further in April.
• Brent futures eased from a six-month high above $91/bbl in early April to around $83/bbl as concerns about a wider Middle East conflict subsided and softer macro sentiment weighed on prices. Amid heavy investor selling and weak demand, middle distillates led the decline, as the diesel forward curve slipped into contango after years of backwardation and cracks fell to one-year lows.

Spring sell-off

Benchmark oil prices corrected sharply lower over the course of April and early May, as concerns over the health of the global economy and oil demand fuelled a sell-off. Reports of progress towards a truce in Gaza also weighed on oil prices, although geopolitical tensions remain high. Brent crude futures traded at around $83/bbl at the time of writing, down nearly $8/bbl from a month earlier despite signs of tightness in the crude oil market.

The spring sell-off was most notable in middle distillate markets, as diesel and jet fuel cracks collapsed while the NYMEX ULSD front-month contract flipped into contango after years of backwardation. In the process, global refinery margins fell to near two-year lows, spurring talks of run cuts that could undermine the seasonal rebound in throughput rates. The slump in European refinery margins in April outpaced those seen in the US Gulf Coast and Singapore, reflecting its heavy reliance on diesel output and weak regional demand eroding the premium needed to attract long-haul imports from East of Suez.

Poor industrial activity and another mild winter have sapped gasoil consumption this year, particularly in Europe where a declining share of diesel cars in the fleet were already undercutting consumption. Following a 210 kb/d annual contraction in 2023, European gasoil demand declined by another 140 kb/d y-o-y in 1Q24. Combined with weak diesel deliveries in the United States at the start of the year, this was enough to tip OECD oil demand in the first quarter back into contraction. Global oil demand is now expected to rise by 1.1 mb/d in 2024, 140 kb/d less than projected in last month’s Report. Our global outlook for 2025 is largely unchanged, with the pace of growth now marginally eclipsing 2024 at 1.2 mb/d.

The health of global oil demand will likely be a key topic for discussion when OPEC+ ministers meet in Vienna on 1 June to chart production policy for the remainder of the year. Despite the recent weakness, our current balances show the call on OPEC+ crude oil at around 42 mb/d in the second half of this year – roughly 700 kb/d above its April output.

Next year, the market looks more balanced overall. Even if OPEC+ voluntary production cuts were to stay in place, global oil supply could jump by 1.8 mb/d compared with this year’s more modest 580 kb/d annual increase. Non-OPEC+ output is forecast to expand by 1.4 mb/d in both years, while OPEC+ output flips from an 840 kb/d decline this year to growth of 330 kb/d in 2025. The United States, Guyana, Canada and Brazil continue to dominate gains, even as the pace of the US supply expansion decelerates.

The June meeting may also look closely at global oil inventories as a gauge for the delicate balancing act of world oil demand and supply. Preliminary data show further stock builds in April as onshore inventories skyrocketed after oil on water was discharged. Increasing trade dislocations had pushed oil on water to a post-pandemic high in March, while onshore stocks were at their lowest since at least 2016. A return to historical average stock levels will be key to avoid renewed market volatility.

1. Includes extra voluntary curbs where announced. 2. Capacity levels can be reached within 90 days and sustained for an extended period. 3. Excludes shut in Iranian, Russian crude. 4. Angola left OPEC effective 1 Jan 2024. 5. Iran, Libya, Venezuela exempt from cuts. 6. Mexico excluded from OPEC+ compliance. 7. Bahrain, Brunei, Malaysia, Sudan and South Sudan.

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2024 Housing Market Forecast and Predictions: Housing Affordability Finally Begins to Turnaround

As we look ahead to 2024 , we see a mix of continuity and change in both the housing market and economy. Against a backdrop of modest economic growth, slightly higher unemployment, and easing inflation longer term interest rates including mortgage rates begin a slow retreat. The shift from climbing to falling mortgage rates improves housing affordability, but saps some of the urgency home shoppers had previously sensed. Less frenzied housing demand and plenty of rental home options keep home sales relatively stable at low levels in 2024, helping home prices to adjust slightly lower even as the number of for-sale homes continues to dwindle. 

Realtor.com ® 2024 Forecast for Key Housing Indicators

Home Prices Dip, Improving Affordability

Home prices grew at a double-digit annual clip for the better part of two years spanning the second half of 2020 through 2022, a notable burst following a growing streak that spanned back to 2012. As mortgage rates climbed, home price growth flatlined, actually declining on an annual basis in early 2023 before an early-year dip in mortgage rates spurred enough buyer demand to reignite competition for still-limited inventory. Home prices began to climb again, and while they did not reach a new monthly peak, on average for the year we expect that the 2023 median home price will slightly exceed the 2022 annual median.

Nevertheless, even during the brief period when prices eased, using a mortgage to buy a home remained expensive. Since May 2022, purchasing the typical for-sale home listing at the prevailing rate for a 30-year fixed-rate mortgage with a 20% down payment meant forking over a quarter or more of the typical household paycheck. In fact, in October 2023, it required 39% of the typical household income and this share is expected to average 36.7% for the full calendar year in 2023. This figure has typically ranged around 21%, so it is well above historical average. We expect that the return to pricing in line with financing costs will begin in 2024, and home prices, mortgage rates, and income growth will each contribute to the improvement. Home prices are expected to ease slightly, dropping less than 2% for the year on average. Combined with lower mortgage rates and income growth this will improve the home purchase mortgage payment share relative to median income to an average 34.9% in 2024, with the share slipping under 30% by the end of the year.

Home Sales Barely Budge Above 2023’s Likely Record Low

After soaring during the pandemic, existing home sales were weighed down in the latter half of 2022 as mortgage rates took off, climbing from just over 3% at the start of the year to a peak of more than 7% in the fourth quarter. The reprieve in mortgage rates in early 2023, when they dipped to around 6%, brought some life to home sales, but the renewed climb of mortgage rates has again exerted significant pressure on home sales that is exacerbated by the fact that a greater than usual number of households bought homes over the past few years, and despite stories of pandemic purchase regret , for the most part, these homeowners continue to be happy in their homes. 

This is consistent with what visitors to Realtor.com report when asked why they are not planning to sell their homes. The number one reason homeowners aren’t trying to sell is that they just don’t need to; concern about losing an existing low-rate mortgage is the top financial concern cited. Our current projection is for 2023 home sales to tally just over 4 million, a dip of 19% over the 2022 5 million total. 

With many of the same forces at play heading into 2024, the housing chill will continue, with sales expected to remain essentially unchanged at just over 4 million. Although mortgage rates are expected to ease throughout the course of the year, the continuation of high costs will mean that existing homeowners will have a very high threshold for deciding to move, with many likely choosing to stay in place.  Moves of necessity–for job changes, family situation changes, and downsizing to a more affordable market–are likely to drive home sales in 2024. 

Shoppers Find Even Fewer Existing Homes For Sale

Even before the pandemic, housing inventory was on a long, slow downward trajectory. Insufficient building meant that the supply of houses did not keep up with household formation and left little slack in the housing market. Both homeowner and rental vacancy remain below historic averages . In contrast with the existing home market, which remains sluggish, builders have been catching up, with construction remaining near pre-pandemic highs for single-family and hitting record levels for multi-family . 

Despite this, the lack of excess capacity in housing has been painfully obvious in the for-sale home market. The number of existing homes on the market has dwindled. With home sales activity to continue at a relatively low pace, the number of unsold homes on the market is also expected to remain low.  Although mortgage rates are expected to begin to ease, they are expected to exceed 6.5% for the calendar year. This means that the lock-in effect, in which the gap between market mortgage rates and the mortgage rates existing homeowners enjoy on their outstanding mortgage, will remain a factor. Roughly two-thirds of outstanding mortgages have a rate under 4% and more than 90% have a rate less than 6%.

Rental Supply Outpaces Demand to Drive Mild Further Decline in Rents

After almost a full year of double-digit rent growth between mid-2021 and mid-2022, the rental market has finally cooled down, as evidenced by the year-over-year decline that started in May 2023 . In 2024, we expect the rental market will closely resemble the dynamics witnessed in 2023, as the tug of war between supply and demand results in a mild annual decline of -0.2% in the median asking rent.

New multi-family supply will continue to be a key element shaping the 2024 rental market.  In the third quarter of 2023, the annual pace of newly completed multi-family homes stood at 385,000 units. Although absorption rates remained elevated in the second quarter, especially at lower price points, the rental vacancy rate ticked up to 6.6% in the third quarter. This uptick in rental vacancy suggests the recent supply has outpaced demand, but context is important. After recent gains, the rental vacancy rate is on par with its level right before the onset of the pandemic in early 2020, still below its 7.2% average from the 2013 to 2019 period.  Looking ahead, the strong construction pipeline– which hit a record high for units under construction this summer –is expected to continue fueling rental supply growth in 2024 pushing rental vacancy back toward its long-run average. 

While the surge in new multi-family supply gives renters options, the sheer number of renters will minimize the potential price impact. The median asking rent in 2024 is expected to drop only slightly below its 2023 level. Renting is expected to continue to be a more budget friendly option than buying in the vast majority of markets, even though home prices and mortgage rates are both expected to dip, helping pull the purchase market down slightly from record unaffordability. 

Young adult renters who lack the benefit of historically high home equity to tap into for a home purchase will continue to find the housing market challenging. Specifically, as many Millennials age past first-time home buying age and more Gen Z approach these years, the current housing landscape is likely to keep these households in the rental market for a longer period as they work to save up more money for the growing down payment needed to buy a first home. This trend is expected to sustain robust demand for rental properties. Consequently, we anticipate that rental markets favored by young adults , a list which includes a mix of affordable areas and tech-heavy job markets in the South, Midwest, and West, will be rental markets to watch in 2024.

Key Wildcards:

• Wildcard 1: Mortgage Rates With both mortgage rates and home prices expected to turn the corner in 2024, record high unaffordability will become a thing of the past, though as noted above, the return to normal won’t be accomplished within the year. This prediction hinges on the expectation that inflation will continue to subside, enabling the recent declines in longer-term interest rates to continue. If inflation were to instead see a surprise resurgence, this aspect of the forecast would change, and home sales could slip lower instead of steadying.
• Wildcard 2: Geopolitics In our forecast for 2023 , we cited the risk of geopolitical instability on trade and energy costs as something to watch. In addition to Russia’s ongoing war in Ukraine, instability in the Middle East has not only had a catastrophic human toll, both conflicts have the potential to impact the economic outlook in ways that cannot be fully anticipated. 
• Wildcard 3: Domestic Politics: 2024 Elections In 2020, amid the upheaval of pandemic-era adaptations, many Americans were on the move. We noted that Realtor.com traffic patterns indicated that home shoppers in very traditionally ‘blue’ or Democratic areas were tending to look for homes in markets where voters have more typically voted ‘red’ or Republican. While consumers also reported preferring to live in locations where their political views align with the majority , few actually reported wanting to move for this reason alone. 

Housing Perspectives:

What will the market be like for homebuyers, especially first-time homebuyers.

First-time homebuyers will continue to face a challenging housing market in 2024, but there are some green shoots. The record-high share of income required to purchase the median priced home is expected to begin to decline as mortgage rates ease, home prices soften, and incomes grow. In 2023 we expect that for the year as a whole, the monthly cost of financing the typical for-sale home will average more than $2,240, a nearly 20% increase over the mortgage payment in 2022, and roughly double the typical payment for buyers in 2020. This amounted to a whopping nearly 37% of the typical household income. In 2024 as modest price declines take hold and mortgage rates dip, the typical purchase cost is expected to slip just under $2,200 which would amount to nearly 35% of income. While far higher than historically average, this is a significant first step in a buyer-friendly direction.

How can homebuyers prepare? 

Homebuyers can prepare for this year’s housing market by getting financially ready. Buyers can use a home affordability calculator , like this one at Realtor.com to translate their income and savings into a home price range. And shoppers can pressure test the results by using a mortgage calculator to consider different down payment, price, and loan scenarios to see how their monthly costs would be impacted. Working with a lender can help potential buyers explore different loan products such as FHA or VA loans that may offer lower mortgage interest rates or more flexible credit criteria. 

Although prices are anticipated to fall in 2024, housing costs remain high, and a down payment can be a big obstacle for buyers. Recent research shows that the typical down payment on a home reached a record high of $30,000 .  To make it easier to cobble together a down payment, shoppers can access information about down payment assistance options at Realtor.com/fairhousing and in the monthly payment section of home listing pages. Furthermore, home shoppers can explore loan products geared toward helping families access homeownership by enabling down payments as low as 3.5% in the case of FHA loans and 0% in the case of VA loans .

What will the market be like for home sellers?

Home sellers are likely to face more competition from builders than from other sellers in 2024. Because builders are continuing to maintain supply and increasingly adapting to market conditions, they are increasingly focused on lower-priced homes and willing to make price adjustments when needed. As a result, potential sellers will want to consider the landscape for new construction housing in their markets and any implications for pricing and marketing before listing their home for sale.

What will the market be like for renters?

In 2024, renting is expected to continue to be a more cost-effective option than buying in the short term even though we anticipate the advantage for renting to diminish as home prices and mortgage rates decline. 

However, for those considering the pursuit of long-term equity through homeownership, it’s essential to not only stay alert about market trends but also to carefully consider the intended duration of residence in their next home. When home prices rise rapidly, like they did during the pandemic, the higher cost of purchasing a home may break even with the cost of renting in as little as 3 years. Generally, it takes longer to reach the breakeven point, typically within a 5 to 7-year timeframe. Importantly, when home prices are falling and rents are also declining, as is expected to be the case in 2024, it can take longer to recoup some of the higher costs of buying a home. Individuals using Realtor.com’s Rent vs. Buy Calculator can thoroughly evaluate the costs and benefits associated with renting versus buying over time and how many years current market trends suggest it will take before buying is the better financial decision. This comprehensive tool can provide insights tailored to a household’s specific rent versus buying decision and empowers consumers to consider not only the optimal choice for the current month but also how the trade-offs evolve over several years.

Local Market Predictions:

All real estate is local and while the national trends are instructive, what matters most is what’s expected in your local market. 

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