Market Analysis Entrepreneurship & Small Business Management.

Chapter 6

Market Analysis

Entrepreneurship & Small Business Management

Doing Market Research

If a business is to succeed and make a profit, it must satisfy its customers.Every business starts with this basic marketing concept. However, you cannot satisfy your customers (or potential customers) if you don’t know who they are and what they want.To find out, you conduct market analysis.A thorough market analysis requires that you examine your market from two entirely different perspectives.On the other hand you will need to analyze your field of endeavor, or industry, and rate your prospects for success within it.


Industry

An industry is a collection of businesses with a common line of products or services. It includes manufacturers, suppliers, distributors, and others who deal with businesses in that industry.You’ll want to learn the state of an industry before you enter it.In other words, find out its current status and where it is going.You will also want to find out who the major players are and how business is typically conducted in that industry.


Target Market & Customer

A market is a group of people or companies who have a demand for a product or service and are willing and able to buy it.The particular group you are interested in, the target market, will be the focus of all your company’s efforts.You will want to know everything about them – and in as much detail as possible.


Market SegmentationGetting the detail you need usually involves breaking down the total market into smaller groups of buyers with similar needs and interests.These are called market segments.Customer markets (customers who buy for personal use) are usually segmented on the following bases:

Geographics –region, state, country, city, and/or areaDemographics – age, gender, family size, family life cycle, income, occupation, education, religion, race, nationality, and/or social classPsychographics – personality, opinions, and lifestyle elements, including activities and interestsBuying characteristics – knowledge of actual goods or services, personal experience with them, and/or responses to them

Customers who buy goods or services for business use make up the industrial markets.They are segmented differently.Variables include type of business, size, goods, or services sold, geographic location, and products needed.Businesses that cater to industrial markets must also consider the customers’ individual situations and preferred contractual arrangements.When you divide the total market, you create profiles of the customers you are considering.


Target MarketingAfter all the segments within your range of consideration have been identified, you are ready to select your target market.This is the specific market segment on which you are going to concentrate your efforts.Within this segment you will find your first customer.Here are some guidelines to use in segmenting your market:

The market segment should be measurable – If you have no idea how many potential buyers there are in the market, you cannot know if it is worth pursuing. The segment should be large enough to be potentially profitable – You will have to spend money to market your product. The segment you select must be big enough to enable you to recover your costs and make a profit.The segment should be reachable – First, you must be able to reach potential customers with words. You must be able to get information about your product and its availability to interested buyers in the segment. Second, you must be able to reach potential customers physically. You must be able to deliver your product to their homes or businesses or to the places where they shop.The market segment should be responsive – You should have some indication from your research that people in the segment would, in fact, be interested in your product and willing to buy it. Do they care about the healthiness of their food?

It is possible for a business to select and serve multiple market segments, but that doesn’t usually happen in the start-up stage.If you have identified more than one target market – for example, the preteen set, you will need to decide which market will be the easiest to enter first.In which market will you find it easiest to make sales?Those “easy” sales will give you the foundation you need to explore other markets as your company grows.


Conducting Market ResearchOnce you know the areas of the market you need to analyze, you are ready to begin investing them.The process is called market research.The steps involved in the process are the same whether you are doing research for an existing business or a new venture.


Define The Research QuestionThe first step is extremely important because it helps you focus your research.It reduces the chances that you will spend time gathering information you won’t use.For example, if high school students in your area have never been exposed to healthy snacks, you will want to se if the industry will support a business of this type.You will want to find data to support customer acceptance of the new product or service.


Types of Market ResearchOnce you have defined your problem, you can select a research approach.There are several basic ways to structure your research.These are called research designs.The kind and amount of information you require will determine which design you use.

Exploratory Research is used when you know little about a subject. A good place to start might be government or industry publications. You might also talk to people who are knowledgeable about your field or organize focus groups. These are interviews with small groups of potential customers or business people in your field.Descriptive Research is done when you want to determine the status of something. You might want to find out the age, gender, occupation, income, or buying habits of potential customers. Such information can be collected through questionnaires, interviews, or observation.Historical Research involves studying the past. The idea is that patterns from the past can be used to explain present circumstances and predict future trends. Trade associations and trade publications are two sources of useful historical data. Owners in similar businesses can also provide you with historical information. You can use these findings to help you predict your business’s potential.


The Research ProcessTo successfully research your industry and market, it’s important to have a plan of attack.An effective plan will include the following five steps.

1. Look At Your Information Needs2. Start With Secondary Resources3. Collect Primary Data4. Organize Your Data5. Analyze Your Data


Look At Your Information NeedsBefore you collect data on your market, find out what you need. For example, before opening a healthy snack shop, you need to find out what customers want.Survey your target market.Gather information about the competitors.Do you provide for a need that they can’t meet.Their deficiencies are your opportunities.


Start With Secondary ResourcesInformation that has already been collected is called secondary data. It is easily obtained and inexpensive.Government and community organizations are good sources.Also refer to trade associations, trade publications, and commercial research agencies.A good place to begin your search is the Internet.Good sites include the Wall Street Journal, Thomas Register, Securities and Exchange Commission, the Department of Commerce, and CNN’s financial news.Check the sources you find carefully. Just because information is on a Web page doesn’t mean it’s true.


Collect Primary DataPrimary Data is information obtained for the first time and used specifically for your study.It is the most important data you can collect because it’s current and relates most directly to what you’re looking for.The most commonly used methods of gathering such data about customers are observation, interviews, and surveys.In surveys, individuals answer questions in person, by telephone, or through the mail.Focus groups, the group discussions described earlier, can also be used.Whichever data you collect, use several reputable sources. Relying on only one source is not wise.


Organize Your DataCollect primary and secondary data.Then set up charts and record results in report form.The results will help you assess your venture’s feasibility.If you decide to start your venture, put your market analysis in the marketing section of your business plan.As you continue the entrepreneurial process, you can refer to this information or add to it.This data will help you refine your market analysis and can eventually serve as the basis for a market plan.


Analyze Your DataNow that your information has been organized, ask yourself some basic questions.

1. Is there a market for your product or service?2. How big is that market?3. Will the industry support a business like yours?

The answers to these questions will help you judge your potential for having a successful business.


Looking At The IndustryOnce you have identified your market, it’s time to evaluate your prospects for success in it.Those prospects will depend largely on two factors – the sales potential of your product and your competition.To find this information, do industry research.This section will help you look at the trends and patterns of change in the industry.It will also show you how to look at the demographics of the industry and the competition.


Trends And Patterns Of ChangeOpportunity in an industry is found by looking at trends patterns of change.For example, is it becoming more difficult for new companies to enter to industry?Has the rate of sales growth slowed?Does the government heavily regularly the industry?How volatile is the industry?Volatility refers to how quickly things change in the industry. The high tech industry (computer components, software, and accessories) changes rapidly, so its companies need to design products quickly and move rapidly in the marketplace.Understanding where the industry is headed and how it works will help you determine your entry strategy.


Your Company And The IndustryHow will your products and services compare to others in the industry?How much of your product can you realistically expect to sell?The answer – the projected or estimated figure – is called sales potential.You can determine sales potential by considering three variables:

1. The Nature Of Your Product2. Industry Trends3. Sources Of Supply


The Nature Of Your ProductWhat you sell influences how much you can sell?Products and services that are well matched to their markets have potential for success.Also, relatively new products and services are resistant to the ups and downs of the economy. Old ones that are given a new look can be winners, too.


Industry TrendsIdentifying trends can also help you predict your products or service’s sales potential.Look for projected sales figures for your industry.Past and current sales levels, if graphed or charted, can help as well.They can be visually or mathematically extended to provide a basis for prediction.Try to project current trends 3-5 years into the future.


Sources Of SupplyYour suppliers will have an impact on your sales.You must have access to affordable sources of inventory, raw materials, and goods.Otherwise, you will not be able to offer your product or service at prices that will generate interest or sales.You should also consider where your suppliers are located, the trade discounts they offer, and the availability of alternate sources.These can affect your costs, your pricing, and sales.


DemographicsEach industry has basic characteristics or demographics.These include the number of companies and amount of revenue produced annually.Demographics also include the average size of the companies by number of employees and annual revenues.These facts indicate if the industry is growing, shrinking, or remaining stable.


Barriers To EntryBarriers to entry keep new businesses either from entering an industry or succeeding in that industry.


The CompetitionOutstanding sales potential for your product does not guarantee success.Products are seldom offered to consumers in a vacuum.Usually there are competing products already established in the market.To succeed, you must be able to capture market share from other companies in the field.Market share is simply a portion of the total sales generated by all the competing companies in a given market.Most entrepreneurial companies choose to succeed by defining a niche in the market.A niche is simply a small segment of the market, usually based on customer needs that you’ve discovered in your market research.To succeed in the face of competition, you must do a thorough analysis of your competition.

Identity Of CompetitorsStrengths And Weaknesses Of CompetitorsYour Competitive Advantage


Identify Of CompetitorsDetermine the names and locations of your direct and indirect competitors.Direct competitors are those with products or services like yours.Indirect competitors are products and services that may not be like yours but compete for the same dollars from customers.


Strengths And Weaknesses Of Competitors

Obtain information on your competitor’s products, prices, quality, and selection, advertising, personnel, customer service, and distribution methods.You can get some of this information by actually buying their goods or services.You can also ask customers about them.Evaluate each of the companies on the basis of determine their responsiveness to changing market conditions.In other words, can they respond quickly when the tastes and preferences of customers change?If possible, try to determine their responsiveness to changing market conditions.In other words, can they respond quickly when the tastes and preferences of customers change?It’s also a good idea to make note of similar companies that have recently gone out of business, and try to determine why.

Your Competitive AdvantageIdentify those things about your proposed business that are clearly unique and would enable you to take business away from your competitors.For example, you develop a recipe for a mango bar that no one else has.

What Do We Want To Know About The Customer?

A customer profile is a complete picture of a venture’s prospective customers.It includes geographic, demographic, and psychographic data.This profile will help you make decisions about your product or service.When you are creating your customer profile, ask yourself four questions:

Who are my customers?What do they generally buy and how do they hear about it?How often do they buy?How can my business meet their needs?

If you do a thorough job of studying your customer, you ought to be able to describe that customer in detail.Once you have the demographics in place, you can move on the look at customer needs.

What Do My Customers Need?

A customer needs analysis is a way to pinpoint exactly which features and benefits of your goods or services your customers value.Suppose you’re proposing to sell a new type of cookie.What kinds of features and benefits do your customers prefer?Perhaps you learn that more students like crunchy cookies than soft ones.Because they are hungry right after school, they want food that is easily accessible.The first is a feature of the product, while the second is a benefit to the customer.You want to be sure that you’re providing the features and benefits the customers want so they’ll choose your product or service over the competition.

References

Allen, K. & Meyer, E. (2000). Entrepreneurship and Small Business Management. Retrieved August 25, 2012, from Glenco McGraw-Hill.

Market Analysis Entrepreneurship & Small Business Management.

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Transcript of Market Analysis Entrepreneurship & Small Business Management.