Conducting Market Research and Analysis
Customer Analysis
Group the customer base into categories defined by geographies (where customers are located), demographics (age, sex, occupation, marital status, and income levels), and psychographics (lifestyle characteristics, including frequency of purchasing products or services, method of payment, leisure and reading preferences).
General customer analyses may be obtained from local chambers of commerce, media computer services and surveys, or business and industry publications. Reference materials are also available through the MDECD library. Specific psychographic data changes frequently and should be obtained through professional survey techniques.
The customer base is never static, but constantly grows, diminishes, and further segments itself. The successful entrepreneur constantly analyzes the market and makes adjustments based on customers’ changing needs, perceived benefits, and emotional satisfaction.
Market Potential Analysis
Market potential is the total of all sales you plan to capture in units or dollars. Published sources can provide excellent data for many industries, but information is not plentiful for new or unique products and services. Professional surveys are often necessary to support market potential data and to make the best prediction of annual sales.
Estimating what percentage of total market sal
es your company might capture from the competition is very important. Use every source possible in making the “guesstimate,” then continue to track market share not only in geographical areas but also by product line. Slow growth areas must be recognized and corrected.
Sales assumptions in a new business should be projected for at least two years, and allowances must be made for seasonal fluctuations. Sales increase projections for additional years may be estimated by multiplying sales by a reasonable percentage such as the gross national product (GNP) or other economic activity indicator.
Conducting Market Research and Analysis
Competitive Analysis
Compare your own product to that of your competition. Know the similarities, the differences, and the ways in which your product is unique. Develop reasons why customers should choose your product over that of another company.
An effective marketing strategy cannot be developed without a thorough knowledge of the competition. Read all annual reports, newspaper articles, advertising, company literature, and published statistics related to the competition. Question suppliers and attend trade shows and business fairs. Continually seek information on competitors’ products, research and development activities, production methods and costs, organizational designs, financial status, marketing strategies, and general strengths and weaknesses. If the business is a retail establishment, remember that location is a prime consideration.
Use information about the competition as a tool for bettering your own business. Look for trends in their advertising, pricing, or promotion, and for variances from the usual which could indicate new strategies or test marketing. Do not overreact to a change in operations by the competition, but always be prepared to make adjustments based on their actions if necessary.
Developing Goals and Tactics
All of the information gathered in the economic, social, product, customer, market, and competitive analyses is used to develop business goals and tactics.
Both immediate and long-range goals should be detailed and measurable, identifying actual end results, and should be attainable within a specific time frame. Goals and objectives should address profit, sales volume, and market share penetration, and be based upon what is learned through the market research. For example, one goal might be to increase sales volume by 15 percent by the next year’s end.
Tactics are the active ways in which you plan to accomplish the business goals you have set. They are a combination of efforts that work together to position your product for maximum customer benefits and sales. For example, tactics to increase sales volume by 15 percent might involve redesigning packaging and increasing magazine advertising in selected areas.
Statement of Overall Strategy
Begin with a statement of your company’s basic business philosophy and general strategy for accomplishing that philosophy. Strategy constitutes the action part of the marketing plan and is based on a combination of product packaging, price, advertising, sales organization, promotion, and distribution. Sub-strategies should address all these areas and reflect what the target customer is looking for in the product or service.
Packaging
Packaging refers to the presentation of goods or services. Proper packaging attracts the customer effectively communicates product attributes, identifies the brand and seller, list ingredients, and makes the product easier to handle. Effective package design decreases cost associated with storage, labor, shipping, and pilferage. Poor packaging, however, creates an impression of inferiority and significantly lessens sales.
Developing Goals and Tactics
Pricing
The pricing of a product or service is the determining factor for profit amount and volume control. Pricing strongly affects the marketing effort. Price changes–increases or reductions–are often an integral part of test marketing or of competition with another business.
To determine price, calculate production cost and add a percentage for profit. Consider overhead, promotional and advertising expenses, and delivery cost. Remember that inherent price limitations in the marketplace, as well as variations of internal costs, weigh heavily in determining price. Pricing must be in line with that of major competitors offering similar products and services.
There is a distinct difference between value and price. While some customers do not look beyond a price tag, others also consider service, dependability, and convenience value. You must know what motivates the customer to buy before determining what he is willing to pay for merchandise or services.
Distribution
Identify the strengths and weaknesses of various methods of reaching customers. Analyze the effectiveness of everything available within the sales system. Traditional channels include salespeople, agents, distributors, direct mail services, and dealers. Additional distribution methods involve warehouse clubs, electronic shopping, telemarketing, trade shows, temporary space in shopping malls, vending machines, franchising, or large volume sample sales to hotels for free distribution to guests. Offering discounts to wholesalers or dealers who assist in distribution is also an effective channel.
Each distribution method must be evaluated as to cost, coverage, and performance. Many of these channels are geared only to large or very small volume, or lend themselves only to specialized merchandise. Choose what works best for your particular business and maintain an awareness of developing sales methods.
Selective distribution is the key to effective distribution. Most start-up businesses are most successful when operating out of one location or geographic area, even though they may employ several sales techniques.
Developing Goals and Tactics
Advertising and Promotion
Though distinctly different functions, advertising and promotion work hand-in-hand to generate sales. Both are communication strategies designed to affect buyers’ behavior patterns and habits. Advertising concentrates on delivering a message through print and electronic media, while promotion relies on direct customer involvement and response. In both advertising and promotion, it is important to narrow the target audience, concentrating as specifically as possible on the group most likely to purchase the product or service advertised or promoted.
The key to a large return from a small advertising budget lies in the media chosen. Cost varies according to locale and competition among media sources. For example, a 30-second radio spot may cost $25 on one station and $50 at another station in the same town. The same size ad might cost three or four times as much in one newspaper as another. Rates for cable television and independent stations might be very affordable for small busines
ses that cannot buy expanded network programming. Each advertising situation is different, and rates vary from town to town and from region to region.
To select the best media for the business and to effectively negotiate rates, it is important to examine the advantages and disadvantages of each type. Selection should never be based on price alone, but on what that media can do for your business image and sales. A more expensive station or newspaper might very well hit your target customer exactly and be well worth the investment. On the other hand, some businesses do quite well with strong customer service, great location, and little purchased advertising. The needs of each business are unique.
Developing Goals and Tactics
| MEDIA | ADVANTAGES | DISADVANTAGES |
| Newspaper | Broad market coverage Immediacy Short lead time Flexible ad size Visibility of product Color Use of coupons to measure direct results People believe what they read |
Inconsistent reproduction One-day life span Limited demographic selection “Lost in the crowd” placement Lack of movement and sound |
| Radio | Demographic selection High frequency Immediacy Sound reinforcement Cluttered placement Quick flexibility |
Restrictive message length Need for repetition Short recall factor Sound reinforcement |
| Television | Use of sight, sound, motion, color Mass coverage Immediacy Demographic selection |
Short exposure Expensive production Expensive air time Cluttered placement Viewing time drops as income rises |
| Direct Mail | Demographic selection Unlimited message length Consistent reproduction Direct response by order form or coupon |
Expensive Difficulty in obtaining “pure” mailing lists Long lead time Negative reaction to “junk” mail |
| Outdoor | Reaches large audience Long-term exposure Color and graphics Forms include billboards, posters, illuminated signs, moving vehicle signs, bench ads |
Limited message length Expensive to produce and place Difficulty in obtaining the best locations Legal restrictions for use |
