Effective Market Analysis Strategies for Business Success

Image Source: Jolene Roelofse, Head Cyclist at Bludoor Market

I. Market Analysis: The Foundation for Product Commercialization

In recent years, the consumer Internet traffic has reached its peak. Both top Internet companies and related industries that once relied on traffic dividends have experienced sluggish growth, and some have even witnessed a decline.

Meanwhile, fueled by advancements in technologies like AI, big data, cloud computing, IoT, and 5G, numerous leading Internet companies, traditional industry giants, and startups are actively venturing into industrial Internet-related businesses. They are prioritizing digitization and intelligence to develop products and solutions that offer fresh value to industry, commerce, finance, government affairs, and more. These endeavors aim to enhance product competitiveness, drive business model innovation, and reduce operational risks.

At this pivotal juncture of industrial transformation, the landscape of customers, products, technology, and supply chains significantly differs from the conventional 2C (business-to-consumer) operations. For instance, while online methods are typically sufficient to acquire 2C customers, most 2B (business-to-business) customers require offline visits to establish the trust necessary for collaboration. This difference arises from the inherent complexity of 2B customers' decision-making processes.

Another contrast lies in the roles of product managers. 2C product managers typically prioritize user needs and platform-based product development, striving to deliver the ultimate user experience. In contrast, 2B product managers often assume commercial responsibilities and must possess a deep understanding of business elements such as customer scenarios, market competition, pricing, channels, services, costs, and marketing. Interaction design, while still important, plays a smaller role in their overall workload. Some companies even delegate interaction design and user experience tasks to UED teams, ensuring that commercial product managers can dedicate ample time to pivotal tasks crucial for commercial success.

Clearly, the success of 2B businesses hinges on considering numerous factors. A single misstep can lead to failure or cause us to miss a valuable window of opportunity for development. Amidst these considerations, systematic, accurate, and timely market analysis emerges as the linchpin of all endeavors. Only by conducting thorough market analysis can product managers align their strengths and weaknesses with business strategies, product strategies, market strategies, technical strategies, and more. Furthermore, comprehensive analysis allows for a reasonably accurate evaluation of the business's return on investment (ROI), providing reliable support for high-level decision-making.

Market analysis helps us understand the context of venturing into new fields and provides insight into the current state of the business and future trends for the upcoming years. It sheds light on the distribution of major customers, offering valuable guidance for strategic decision-making.

If we consider the business as a battlefield, market analysis acts as our topographic map, revealing the terrain and enabling us to formulate realistic objectives, favorable strategies, and effective tactics.

II. Common Sources and Challenges of Market Data

When relying solely on data obtained from public channels without actively participating in market research, numerous issues often arise, leading to overly optimistic assessments. For instance, let's consider a product related to video AI. You come across a research report from a reputable global or domestic consulting firm, indicating that the video industry has an annual market size in the tens of billions. It claims a compound annual growth rate (CAGR) of 35% in recent years and expects the CAGR to remain above 30% for the next five years.

This data suggests that the industry is thriving, and there should be ample sales opportunities for your product. However, once you invest considerable effort into product development and enter the market, you discover that more than half of the potential customers have no demand for video AI. Many customers express interest but remain skeptical about the business value and are reluctant to invest. Some customers indicate a willingness to use the product but only if it's free or comes at a minimal cost. Additionally, certain customers emphasize compliance requirements, stating their adoption depends on meeting regulatory standards in their industry.

After a year, your sales team has only secured three customers, generating an annual income of less than one million. This starkly contrasts with the optimistic consulting report from a year ago. The business faces significant losses and sluggish growth, potentially leading to its eventual closure and disbandment due to mounting pressure.

Why do data from reputable consulting firms fail to provide accurate guidance for businesses?

Many individuals responsible for market analysis may not grasp the underlying reasons. The issue arises because each consulting company publishes industry-specific reports for different purposes, utilizing distinct statistical methods and dimensions. Moreover, there are concerns regarding data accuracy and its relevance to your specific business.

The business models of consulting companies vary. Some primarily generate revenue by selling industry reports. These firms are generally authoritative, with their reports compiled by seasoned industry experts, ensuring relatively reliable data. However, other consulting companies may be commissioned by industry players to publish reports, focusing on expansive industries experiencing rapid growth, aiming to boost the market recognition of the client company. Additionally, each company adopts different statistical methods and dimensions for their reports. While some provide explanations within the report, such as including various products at different layers (IaaS, PaaS, SaaS) in the video industry, accounting for hardware-based products or manual services, these variations can lead to significant differences in size estimates from different consulting firms within the same industry.

Furthermore, data accuracy poses a challenge. Consulting firm analysts often rely on interviews with senior practitioners or renowned industry companies for data sources. However, interviewees frequently exaggerate market size and growth rates to bolster their own market position, unintentionally creating an illusion of a larger market with faster growth rates for the consulting analysts. These inaccuracies in the source data contribute to inflated market size and growth rate estimations.

Using such data as the basis for business decisions may only reveal the reality's misalignment with the initial report during implementation. At that stage, significant resources have already been invested in product development, research, marketing, and supply chains, making it exceedingly difficult to abandon the endeavor.

Finally, it is crucial to assess whether the market covered in an industry report is directly relevant to your competitive landscape. In the previous example, the market size and customer base within the video industry might encompass network traffic costs (where video traffic accounts for a substantial percentage), various video technologies (transcoding, distribution, storage, compliance auditing, AI intelligence), and supporting SaaS systems, hardware, and services. However, your video AI product might only cater to a mere 1% of the customer base.

Moreover, if you exclusively offer public cloud services, customers from the financial and government sectors must be excluded due to regulatory compliance issues, as they tend to utilize private clouds. By eliminating these factors, the remaining market space becomes the relevant scope for estimation. Consequently, the scale may have decreased from the initial tens of billions to billions, representing a reduction of two orders of magnitude.

In addition to consulting reports, market analysts also acquire data from other public channels. However, data from these sources often present various challenges, including:

• Reports from fund companies: These reports primarily serve as investment recommendations. While the analysts employ professional report writing methodologies, many of them are non-industry practitioners with limited understanding of industry history, technological trends, current situations, and future projections. These reports frequently reference consulting company reports and may even include outdated data, giving a patchwork-like impression.
• Financial reports of publicly listed companies: Financial reports typically provide accurate data regarding the company's own operations, as required by regulatory authorities. However, one must pay attention to the statistical dimensions behind the data. For example, some companies may include hardware sales revenue within platform revenue, presenting an inflated revenue scale to create the illusion of a thriving platform, often using new terminologies to repackage old business models.
• Industry reports released by prominent Internet companies: Information released by companies with a vested interest in the industry often serves commercial purposes and, while potentially accurate, may be one-sided. These reports might aim to attract more channel providers to sell their products or increase market influence. In pursuit of these goals, one-sided data could replace comprehensive data, potentially distorting the overall picture.

III. Obtaining Accurate Market Data

Accurately obtaining market data is a critical task, yet it remains a challenge for many products, leaving them without a clear understanding of the market's landscape, growth patterns, customer distribution, and company market shares. It is akin to navigating in the dark without a topographic map. Drawing from past experience, the author provides some methods for market size analysis that can serve as a reference.

Market size analysis is typically included in the initial stages of product project approval or in annual/semi-annual business planning materials. Those familiar with the "five-looking and three-determined" model or the "BLM" (Business Leadership Model) will recognize its significance. The following key pieces of information are usually required to understand the market environment in which a business operates:

• Market size and growth rate: This includes determining the size of the global or domestic market in which the business can compete, examining historical growth trends, and making projections for the future.
• Major competitors and their market shares: Identifying the key companies participating in the competition, understanding their revenues, growth rates, and market shares. This data can help assess whether the market is concentrated or decentralized, often evaluated using measures such as CR3 (Concentration Rate), CR5, or CR10 market share.
• Distribution of main customer groups: Analyzing customer groups based on industry, scale, sales form, sales channel, region, etc. For example, finance accounts for 25% while the Internet accounts for 15%.
• Industry trends: Examining factors such as the impact of significant events like the COVID-19 pandemic, the entrance of numerous companies into a specific industry (e.g., cloud video conferencing), or the influence of policies on online education. Models like PESTEL (Political, Economic, Sociocultural, Technological, Environmental, Legal) can aid in conducting a comprehensive analysis.

Regarding market analysis, personal experience suggests that practitioners often possess a deeper understanding of the industry, customers, and business compared to analysts from consulting agencies and securities companies. As a result, I place more trust in research reports from my own team, a method that has proven to be effective. In addition to conventional industry reports from consulting firms, securities companies, and industry company earnings reports, I rely on the following approaches to obtain reliable information:

• Customer interviews: Conducting interviews with customers from different regions, industries, and scales is crucial. Engaging with key decision-makers, including users and purchasers, allows us to gather insights into their current situation, their perceptions of our product (willingness to use and ability to pay), their knowledge of competing products, and the industry's scale, development, and competition. This helps estimate the purchasing potential, competitive landscape, and product advantages and disadvantages across various industries.
• Industry communication: Engaging with vertical industry media, industry associations, and industry community organizers provides valuable information. Some industry media founders are seasoned industry practitioners with extensive industry contacts and information. Collaborating with these organizations can yield significant industry insights.
• Industry chain analysis: Analyzing the industry chain can provide valuable market data. For example, if we want to understand the market size of a specific smart hardware segment with multiple brands, accurately tallying the total amount and growth trend might be challenging. However, focusing on the few chip manufacturers in the upstream segment who provide chips for smart hardware can indirectly deduce the market's size and trend. Similarly, to determine the market size of a time series database, analyzing the available options for customers (e.g., open-source self-built, A cloud, H cloud, T cloud) and assessing the scale and proportion of each option helps derive the overall market size.
• Consulting companies: Engaging specialized market research consulting firms, which operate on a paid basis, can provide valuable insights. As a customer, you can designate a specific company as the research target. These consulting firms take responsibility for conducting interviews and gathering relevant information from target companies.

By employing the aforementioned methods, we can acquire the necessary market information for our business. However, it is crucial to validate this raw data since inaccuracies may still exist. In situations where data from different channels significantly differ, relying on our industry knowledge becomes essential to determine which data to utilize.

One More Thing

Lastly, I would like to underscore the importance of conducting systematic market analysis on a regular basis. While it is typically done every six months or once a year, it is imperative to update this information on a daily basis. For instance, we should update the analysis of industry trends after attending each industry conference and revise our competitive analysis after each customer collaboration or loss. By integrating market analysis into our daily work, we can cultivate confidence in our business endeavors and strive to achieve the strategic objective of understanding both our competitors and ourselves. Armed with this knowledge, we can engage in a multitude of battles without fear of defeat.