A market feasibility study is a critical first step in determining whether your business idea has real potential for success. Before investing significant time and money into a new venture, you need to thoroughly assess if there is sufficient demand for your product or service in your target market.
The study consists of several key components that work together to provide a comprehensive view of your market opportunity. Let’s explore each element and how to execute them effectively:
Secondary Market Research
Start by gathering existing data about your industry and market. Government sources like the U.S. Census Bureau provide valuable demographic and economic statistics. Trade associations, industry reports, and market research firms often have detailed information about market size, trends, and growth projections. While secondary research is cost-effective, remember that it may not be specific to your exact business concept or local market.
Primary Market Research
Primary research involves collecting new data directly from potential customers. Common methods include:
Surveys: Design carefully crafted questionnaires to gather quantitative data about customer preferences, buying habits, and price sensitivity. Online surveys can reach many respondents cost-effectively, while in-person surveys may yield more detailed responses.
Focus Groups: Assemble 8-12 potential customers for an in-depth discussion moderated by a trained facilitator. Focus groups excel at uncovering qualitative insights about customer needs, perceptions, and motivations. Multiple sessions help avoid “groupthink.”
Mystery Shopping: Visit competitors posing as a customer to analyze their operations, pricing, customer service, and overall experience. This provides valuable competitive intelligence and highlights potential opportunities.
Target Market Analysis
A common mistake is assuming “everyone” is your customer. Instead, segment your market into specific groups based on characteristics like:
Demographics: Age, income, education, occupation Geography: Location, urban/rural, climate Psychographics: Lifestyle, values, interests Behavior: Purchase frequency, brand loyalty, benefits sought
For example, a high-end coffee shop might target urban professionals ages 25-45 with disposable income who value premium products and care about ethical sourcing. The more precisely you can define your target market, the better you can serve their needs.
Competitive Analysis
Research both direct competitors (businesses offering similar products/services) and indirect competitors (alternative solutions to the same customer need). According to the U.S. Small Business Administration, about 20% of small businesses fail in their first year. Understanding your competitive landscape helps position your business for success.
Analyze competitors
- Products/services and pricing
- Target markets and positioning
- Strengths and weaknesses
- Marketing strategies
- Location and facilities
- Customer service approach
Financial Projections
Based on your market research, estimate your potential sales and market share. Be conservative in your projections. Consider:
- Market size and growth rate
- Percentage of market you can realistically capture
- Average transaction value
- Purchase frequency
- Seasonal factors
- Time to reach stable sales
The final step is synthesizing all this information to determine if sufficient market opportunity exists. Look for evidence of:
- Strong customer need/demand
- Viable target market size
- Competitive advantage
- Reasonable path to profitability
- Sustainable growth potential
A thorough market feasibility study requires significant effort but is invaluable in validating your business concept and reducing risk. The insights gained will strengthen your business plan and increase your chances of success.
Remember that market conditions change constantly. Regularly updating your market analysis helps you stay competitive and adapt your strategy as needed. Consider working with your local Small Business Development Center for guidance and access to market research resources.