Market research - Why?
No matter how good your product and your service,
the venture cannot succeed without effective marketing. And this begins with
careful, systematic research. It is very dangerous to assume that you already
know about your intended market. You need to do market research to make sure you’re
on track. Use the business planning process as your opportunity to uncover data
and to question your marketing efforts. Your time will be well spent.
Market research - How?
There are two kinds of market research: primary and
secondary.Secondary research means using published information such as industry
profiles, trade journals, newspapers, magazines, census data, and demographic
profiles. This type of information is available in public libraries, industry
associations, chambers of commerce, from vendors who sell to your industry, and
from government agencies.
Start with your local library. Most librarians are
pleased to guide you through their business data collection. You will be amazed
at what is there. There are more online sources than you could possibly use. Your
chamber of commerce has good information on the local area. Trade associations
and trade publications often have excellent industry-specific data.
Primary research means gathering your own data. For
example, you could do your own traffic count at a proposed location, use the
yellow pages to identify competitors, and do surveys or focus-group interviews
to learn about consumer preferences.
Professional market research can be very costly, but there are many
books that show small business owners how to do effective research themselves. In your marketing plan, be as specific as possible;
give statistics, numbers, and sources. The marketing plan will be the basis,
later on, of the all-important sales projection.
Economics
Facts about your industry:
- What is the total size of your market?
- What percent share of the market will you have?(This is important only if you think you will be a major factor in the market.
- Current demand in target market.Trends in target market—growth trends, trends in consumer preferences,and trends in product development.
- Growth potential and opportunity for a business of your size
- What
barriers to entry do you face in entering this market with your new company?Some typical barriers are:I. High capital costsII. High production costsIII. High marketing costsIV. Consumer acceptance and brand recognitionV. Training and skillsVI. Unique technology and patentsVII. UnionsVIII. Shipping costsIX. Tariff barriers and quotas
- And of course, how will you overcome the barriers?
- How could the following affect your company?
II. Change in government regulations
III. Change in the economy
IV. Change in your industry
Product
In the Products
and Services section, you described your products and services as
you see them. Now describe them from your customers’ point of view.
Features and Benefits
List all of your major products or services.
For each product or service:
- Describe the most important features. What is special about it?
- Describe the benefits. That is, what will the product do for the customer?
Note the difference between features and benefits,
and think about them. For example, a house that gives shelter and lasts a long
time is made with certain materials and to a certain design; those are its
features. Its benefits include pride of ownership, financial security,
providing for the family, and inclusion in a neighborhood. You build features
into your product so that you can sell the benefits.
What after-sale services will you give? Some
examples are delivery, warranty, service contracts, support, follow-up, and
refund policy.
Customers
Identify your targeted customers, their
characteristics, and their geographic locations, otherwise known as their demographics. The description will be completely different
depending on whether you plan to sell to other businesses or directly to
consumers. If you sell a consumer product, but sell it through a channel of
distributors, wholesalers, and retailers, you must carefully analyze both the
end consumer and the middleman businesses to which you sell.
You may have more than one customer group. Identify the
most important groups.
Then, for each customer
group, construct what is called a demographic profile:
II. Gender
III. Location
IV. Income level
V. Social class and occupation
VI. Education
VII. Other (specific to your industry)
VIII. Other (specific to your industry)
For business customers, the demographic factors
might be:
II. Location
III. Size of firm
IV. Quality, technology, and price preferences
V. Other (specific to your industry)
VI. Other (specific to your industry)
Competition
What products and companies will compete with you?
List your major competitors:
(Names and addresses)
Will they compete with you across the board, or just
for certain products, certain customers, or in certain locations?
Will you have important indirect competitors? (For
example, video rental stores compete with theaters, although they are different
types of businesses.)
How will your products or services compare with the
competition?
Use the Competitive
Analysis table below to compare your company with your two most important
competitors. In the first column are key competitive factors. Since these vary
from one industry to another, you may want to customize the list of factors.
In the column labeled Me,
state how you honestly think you will stack up in customers' minds. Then check whether
you think this factor will be a strength or a weakness for you. Sometimes it is
hard to analyze our own weaknesses. Try to be very honest here. Better yet, get
some disinterested strangers to assess you. This can be a real eye-opener. And
remember that you cannot be all things to all people. In fact, trying to be
causes many business failures because efforts become scattered and diluted. You
want an honest assessment of your firm's strong and weak points.
Now analyze each major competitor. In a few words,
state how you think they compare.
In the final column, estimate the importance of each
competitive factor to the customer. 1 =
critical; 5 = not very important.
Niche
Now that you have systematically analyzed your industry, your product, your customers, and the competition, you should have a clear picture of where your company fits into the world.
In one short paragraph, define your niche, your
unique corner of the market.
Strategy
Now outline a marketing strategy that is consistent
with your niche.
Promotion
How will you get the word out to customers?
Advertising: What media, why, and how often? Why
this mix and not some other?
Have you identified low-cost methods to get the most
out of your promotional budget?
Will you use methods other than paid advertising, such
as trade shows, catalogs, dealer incentives, word of mouth (how will you
stimulate it?), and network of friends or professionals?
What image do you want to project? How do you want
customers to see you?
In addition to advertising, what plans do you have
for graphic image support? This includes things like logo design, cards and
letterhead, brochures, signage, and interior design (if customers come to your
place of business).
Should you have a system to identify repeat
customers and then systematically contact them?
Promotional
Budget
How much will you spend on the items listed above?
Before startup? (These numbers will go into your startup
budget.)
Ongoing? (These numbers will go into your operating plan
budget.)
Pricing
Explain your method or methods of setting prices. For
most small businesses, having the lowest price is not a good policy. It robs
you of needed profit margin; customers may not care as much about price as you
think; and large competitors can under price you anyway. Usually you will do
better to have average prices and compete on quality and service.
Does your pricing strategy fit with what was
revealed in your competitive analysis?
Compare your prices with those of the competition. Are
they higher, lower, the same? Why?
How important is price as a competitive factor? Do
your intended customers really make their purchase decisions mostly on price?
What will be your customer service and credit
policies?
Proposed
Location
Probably you do not have a precise location picked
out yet. This is the time to think about what you want and need in a location.
Many startups run successfully from home for a while.
You will describe your physical needs later, in the Operational Plan section. Here,
analyze your location criteria as they will affect your customers.
Is your location important to your customers? If
yes, how?
If customers come to your place of business:
Is it convenient? Parking? Interior spaces? Not out
of the way?
Is it consistent with your image?
Is it what customers want and expect?
Where is the competition located? Is it better for
you to be near them (like car dealers or fast-food restaurants) or distant
(like convenience-food stores)?
Distribution
Channels
How do you sell your products or services?
Retail
Direct (mail order, Web, catalog)
Wholesale
Your own sales force
Agents
Independent representatives
Bid on contracts
Sales Forecast
Now that you have described your products, services,
customers, markets, and marketing plans in detail, it’s time to attach some
numbers to your plan. Use a sales forecast spreadsheet to prepare a
month-by-month projection. The forecast should be based on your historical
sales, the marketing strategies that you have just described, your market
research, and industry data, if available.
You may want to do two forecasts: 1) a "best
guess", which is what you really expect, and 2) a "worst case"
low estimate that you are confident you can reach no matter what happens.
Remember to keep notes on your research and your
assumptions as you build this sales forecast and all subsequent spreadsheets in
the plan. This is critical if you are going to present it to funding sources.