Part IV: Marketing and Sales

Chapter 8
Market Research AND ANALYSIS

IN This Chapter
Market research
Conducting market research
Describing your product
Market analysis

Introduction
Market research is the process of gathering the information you need to make intelligent strategic decisions. What product should you produce, and in what quantity? Which stores should you target? Where should you locate your retail shop? What should you charge for services?
Market analysis tells you how attractive the environment is for your chosen industry. Who are your competitors? How strong are they? On what basis do they compete? What technology do they use? How and where do they advertise?
Your marketing plan is the road map for your business, so it must be based on accurate information. Your market research and analysis should be thorough, reliable and representative of your target markets.
Market Research
Market research allows you to identify opportunities, test alternative strategies, evaluate marketing performance and predict changes in your market. It also gives you feedback so you can challenge your assumptions and fine-tune your plans.
Effective market research requires planning, collecting and analyzing data about your customers, industry, competitors and trends. It’s an ongoing process of understanding the changing environment in which your business operates.
Demographic and Psychographic Trends
As we noted in Chapter 2, demographic data describe specific characteristics of an individual such as age, level of education, occupation, income, marital status, and address. Businesses gather demographic data to discover who and where their customers are.
Psychographic data describe consumer preferences, interests, opinions, activities and beliefs. They give marketers insight into how prospective customers live, make buying decisions and plan for the future.
These data are particularly useful for small businesses, who usually offer more personal customer service than larger competitors.
Let’s look briefly at some current demographic and psychographic trends.
Three Demographic Trends
Trends like these (and the countertrends that form as reactions to them) present a tremendous opportunity for entrepreneurs, and not just for businesses in large cities. Even the smallest rural communities may be affected by such trends.
The Aging U.S. Population
In the United States, 77 million baby boomers (people born between 1946 and 1964) make up one-third of the population, and represent more than one-fourth of the economy’s purchasing power. The size of the youth market (people aged 12 to 19) is expected to continue decreasing, but their spending is increasing. The mature market (50 years old and up) commands half of the discretionary income in the United States and holds 77 percent of its assets. Within 30 years, one-third of all Americans will fit into this group. Obviously, this will affect the market for products and services tailored to seniors. But because many older Americans are working longer or launching post-retirement careers, it will also affect the competitive landscape for businesses.
Rural Rebound
Studies show that America’s rural and suburban areas continue to gain population. High consumer debt, the volatile price of gasoline, ever-lengthening commutes, and new communications technology have caused many American suburbanites to stop commuting to metropolitan areas.
Many small towns are trying to rejuvenate their struggling commercial areas, having found that an increasing number of residents prefer to look for the things they need closer to home. Some areas that previously had few services outside of a mall or shopping complex have seen an influx of entrepreneurial retail shops, and have become more self-sustaining, diverse and pedestrian-oriented.
Growing Diversity
By 2042, minority groups are expected to make up more than half of the US population. As minority populations rise, many businesses are altering products and marketing strategies to attract them.
The influx of minority groups into rural America has also led to new business opportunities, as well as new competitive threats to existing businesses from entrepreneurial immigrants.
Three Psychographic Trends
Local, Artisanal & Handmade Goods
In many markets around the country, the demand for locally created or sourced, handmade or artisanal products is booming. Often, these products cost more than standard supermarket products, but consumers are willing to pay more for what they see as a more authentic or better-quality product. Manufacturers of these products are often seen as more careful, honest or accountable than traditional retailers; they are able to reinforce this impression by delivering more attentive and personal service. At the same time, the Internet gives them the ability to sell “local” products all over the world.
The Sharing Economy
As we’ve mentioned elsewhere, businesses are increasingly selling the functions of products rather than the products themselves. This is part of a broader trend away from ownership and toward sharing, trading and reuse. Although this business model isn’t new—video stores and car rental agencies have relied on it for decades—the variety of products that turn out to be suitable for this approach is growing, as is the ability to coordinate sharing through peer-to-peer networks online. In particular, social networking has led toward a decentralized market in which consumers provide services to each other. Where a car rental agency must maintain a fleet of cars, a sharing-oriented business can use networking technology to facilitate connections between people who need cars and people who are willing to rent them.
Personalization
Although successful businesses have always strived to meet changing consumer needs, online business has drastically shortened the timeframes involved and intensified the competitive pressure on the average business. Even if you don’t make a personalized or customizable product, consumers may expect you to offer highly individualized service, promotional messages, price breaks or delivery options.
The growth of personalization depends to a huge extent on trust, which in turn depends on the security of stored data and payment systems, but also on the public perception of a business as trustworthy and transparent.
…
Seems like everyone was always asking me for advice. Every time I turned around, someone wanted to know what hairstyle suited them best or what dress to wear on Saturday.
Technically, none of that was my job. But sometimes it felt like that was all I did anymore. So after a time I started thinking, “Maybe this is my job after all. And maybe I better start getting paid for it.”
Clarissa Parsons had been working for three years in a beauty shop in Brooklyn, New York, where she specialized in manicures and pedicures.
Her clients loved her cheerful, bright attitude. She was very different from workers in other nail salons, who simply tried to get customers in and out as quickly as possible. And because she read all the magazines and knew all the latest products and styles, they often came to her for advice on what to wear to job interviews or how to dress up for a big date.
That’s what gave Clarissa the idea of opening a combination nail salon and fashion consultancy.
She’d offer the usual manicure services, but she’d do it at a leisurely, luxurious pace, and she’d also offer fashion consultations to mothers and young women who wanted advice on how to look their best. Competition was fierce, and many salons were offering lower prices and faster turnaround, even if they had to break labor laws or use illegal chemicals to do it. Clarissa decided to go the opposite route: She’d see fewer clients and charge a higher price.
The more she thought about it, the better it sounded. She knew about fashion and she had a warm personality. Better yet, she had lots of regular customers, and she was fairly sure they’d keep coming to her if she left and started her own business.
…
CONDUCTING Market Research
Large corporations have the budget to create entire market research departments or hire research consultants to test their ideas, but smaller businesses have to be more creative. Quality market research can be gathered for little or no money, but it does take effort.
At every step of this process, you should approach your data—and your opinions—with a healthy dose of skepticism. Instead of trying to confirm your beliefs, try to disprove them.
That way, you’ll learn what you need to know, instead of what you want to know. If you don’t learn things that surprise you and challenge your assumptions, your research probably wasn’t thorough enough.
Expanding Your Research
In Chapter 4, you learned how to collect primary and secondary data. You also researched your industry and completed the Industry Analysis Worksheet. Now, we’ll focus on your customers and competitors.
The first step is to set clear research objectives. Start by writing down the information you need to fill the gaps in your knowledge. When defining your objectives, create a realistic budget and a timetable for each of them. If you don’t place financial and time boundaries on this process, it can easily spiral out of control.
Setting realistic objectives requires clear thinking, and clear thinking requires putting preconceptions aside.
Preconceptions are ideas we have about things or people before we learn more about them. When new information doesn’t fit our preconceptions, we sometimes reject it. It often seems easier to go on believing what we’re used to believing—or would like to believe—than to adapt to new facts. In some cases, facts may even challenge our deepest feelings about who we are and what we value. Given the choice between rejecting a fact or questioning our personal identity, we sometimes take the easier, more comfortable path of not listening to things we don’t want to hear.
This is a luxury business owners can’t afford. If you think you know what your customers want before you research them, you may try to make the facts fit your beliefs. This is very dangerous. Wishful thinking often leads to poor planning, and poor planning often leads to failure.
Start out with an open mind, and expose yourself to viewpoints that differ from your own. Remember that no one is always wrong or always right, and that things aren’t necessarily true just because you want them to be.
Describing Your Product
Before researching your customers and competitors, try to define the features and benefits of your product from your customer’s point of view. Otherwise, you may not identify your likeliest customers or your strongest competitors.
Here’s an example. Joe Camporesi owns a pizza restaurant. His pizzas are made from organic ingredients. A large two-topping pizza is 16”; it has 10 slices (two more than most large pizzas) and costs less than competing pizzas. His restaurant is open 24 hours a day, and it offers 25-minute delivery anywhere in town. If the delivery is late, the pizza is free. Consider the benefits of these features:
Features | Benefits
Organic ingredients | Perceived as healthy and environmentally friendly
16” size and 10 slices | Customers get more for their money
Open 24 hours | Convenience
25-minute delivery | Time savings
Free delivery if pizza is late | Trust and reliability
As you can see, Joe isn’t simply selling a pizza. Instead, he’s set himself apart from other local pizzerias by offering unique features and benefits. If you want an extra-large organic pizza at 3 a.m., delivered within 25 minutes, you have to call Joe.
The Product Description Worksheet will help you explain the important aspects of your product.
The Product Life Cycle
It’s also helpful to consider what stage of the product life cycle your product is in:
Introduction. The product is new and entering the market for the first time. Customers are generally unaware of the product. Sales and competition are low.
Growth. Sales and public awareness begin to increase. Competitors take note and enter the market.
Maturity. Many competing products are on the market. Businesses vie for market share through branding, redesign, packaging improvements, new colors and other marketing strategies. Sales and prices tend to peak or decline.
Decline. The market is saturated. Sales, profits and prices are low enough that many businesses are forced to discontinue the product.
Your product’s stage in this cycle indicates its potential for sales, profit and growth. It can also affect the cost, message and effectiveness of your marketing strategies, as we’ll see in later chapters.
MARKET ANALYSIS
As we learned in Chapter 4, the Market Analysis section of your business plan defines and explains the following aspects of your market:
Customer analysis. Who are your customers, and where do they live? What problems do they have, and how will your business solve them?
Competitive analysis. What makes your product better than or different from competing brands?
Market potential. How many customers in your target market will buy from you?
Customer Analysis
Learning about the wants, needs, motivations, demographics, psychographics and expectations of your customers is the key to understanding your target market. Let’s take a look at each of these categories.
Needs
Here are some basic human needs, along with some no-frills products that meet them:
Transportation (a cheap subcompact car)
Shoes (rubber thongs)
Nutrition (fast-food burgers)
Wants
What do consumers want, beyond the basic needs listed above?
A high-performance sports car
Nike running shoes
A steak dinner
Motivations
Why do customers want more than they need?
Self-image. They believe the product will make them feel more attractive, fashionable, caring or powerful.
Health, comfort and security. They feel the product is better for them, either because it does something good for them, or doesn’t do something bad to them.
Rewards. On a special occasion, they want to treat themselves or someone else to the very best.
Social concerns. They believe the product helps people, the environment, animals or the nation.
Demographics
What statistical information describes your target customers?
Income level
Age
Occupation
Education level
Family status (married, single, divorced, children at home)
Home owner versus renter
Ethnic origin
Psychographics
What worldview, opinions, behaviors and preferences do your target customers share?
Beliefs (cultural, religious, political)
Values (spiritual, environmental, traditional, progressive)
Behavior (spending patterns, buying behavior, social activities)
Interests (hobbies, pastimes, group affiliations)
Media preferences (TV, magazines, radio, Internet)
Recreational preferences (parks, beach, mountains, hiking, camping, sports)
Transportation choices (car, bicycle, bus, train, motorcycle, SUV, RV)
Entertainment choices (music, books, movies, nightclubs)
Customer expectations
Once you’ve identified your target customers, there’s one more important question to consider: What do your customers expect from you and your product?
When thinking about this question, remember that your end user may not be the person who buys your products. Suppose you make cookie dough to sell to a bakery. The bakery then sells the baked cookies to a restaurant, and the restaurant sells them to its customers.
You need to think about the needs, wants and expectations of each link in this chain. In other words, your cookie dough must satisfy the bakers, the restaurant and the restaurant’s customers.
…
Near Atlantic Avenue, there was an old barbershop that had been there for Clarissa’s entire life. The shop was old-fashioned in a good way, with chrome and porcelain fixtures from the days when barber shops were expected to be elegant. The chairs were perfect for manicures, and the front windows faced a couple of beautiful old sycamores across the street.
Now, it was closing down. The owner had announced his plans to retire. Clarissa talked to him and found that he was more than willing to lease her the shop.
That’s when I knew the time had come to stop daydreaming. The problem was, I didn’t have any business experience, so I started taking some business courses at Kingsborough Community College. I liked the classes, but I got the most benefit out of talking to the instructors one on one. Everyone has their own way of learning, and I’m the kind of person that needs to make a personal connection and talk things over.
One of Clarissa’s most helpful instructors was Dana Morris. Dana was able to give her advice on everything from setting up as an LLC, to conducting market research, to dealing with the environmental laws and health codes that apply to nail salons. Most important, she gave Clarissa an outline of a business plan, and explained how the information would fit into it. Clarissa studied it until she knew it backwards and forwards, and began researching and writing her first business plan.
It all came down to needing facts. I felt like I was bragging talking to Dana, because everything else she told me I needed to have to be an entrepreneur, I said I had it already.
But it was true. My life proved I knew how to communicate with people. I already knew how to improvise and adapt and do things new ways. I already had self-reliance and confidence and planning skills. I was ready to go, except for needing some education. That’s why I was sitting in school at the end of a long day, instead of relaxing at home!
…
Collecting Primary Data
When you researched your industry, you probably relied heavily on secondary research—that is, research gathered by other people. Although secondary research is also important when researching your customers, it’s no substitute for primary data. Whether you’re launching a new business, introducing a new product line, or expanding into a new market, few things are more important than getting feedback directly from prospective customers.
Knowing what your customers want, and how much they’ll pay, is a basic requirement of doing business. Talking directly to target customers is the easiest, fastest and—in many cases—most pleasant way to get this information.
Be aware that in some cases, there’s a disconnect between what customers say they want and what they actually buy. For example, customers routinely claim to want green products, but studies of their buying behavior show that they don’t always put their money where their mouth is. If the results of a survey seem too good to be true, try comparing them with studies of buying behavior from your secondary sources.
Surveys
Surveys are the most widely used means of collecting primary qualitative and quantitative information, including facts, opinions and attitudes.
The first step in creating a survey is to decide who should receive it. This group, chosen from the target population (i.e., the people whose opinions, behavior, preferences and attitudes influence your marketing strategy), is known as a sample.
Random sampling ensures that each member of the target population has an equal chance of being included. These samples have more validity, but they can be time-consuming, expensive and complex to design and execute.
Non-random sampling is usually done to save time or money. However, it’s often hard for a researcher to calculate the degree to which a non-random sample represents the larger population.
Businesses that use non-random samples try to choose respondents who represent their target customer base, in that they live in the same geographic region; routinely buy similar products; or fall into a similar age, income or lifestyle bracket. This is most often done through qualifying questions that weed out respondents who are not in the market for a given product.
Which sampling method you choose depends on the type of research you’re conducting, and the amount of time and money you budget. Because your business is small, you’ll probably opt for the convenience of non-random sampling. This may include a list of current customers, people who fit your customer profile, members of your church, or people who shop at your local grocery store.
As you create your list of respondents, make sure they represent a cross-section of your customer base; too many of any type of respondent will skew your findings.
Remember, your goal is to gather reliable, relevant and accurate information. Be careful not to taint your respondents’ answers by asking leading questions or offering feedback. Always ask open-ended questions with an open mind. The most valuable answers are usually spontaneous, unprompted and free-form.
Printed surveys can be mailed or handed out in person. Either way, you may have to send out a very large number of surveys to get a useful number of responses.
Online surveys are usually free or low-cost, and can generate a lot of valuable data in a very short time. Although the response rate is often low, the cost of conducting the survey is low enough to make it worthwhile. However, remember that online surveys target people with a certain level of technological knowhow. If you’re targeting older people in a rural area, your online respondents may be very different from your target customers. If you do use online surveys, be sure to include a space for the subject to add additional comments; this can bring in information you don’t expect. You can use sites like SurveyMonkey.com to create free surveys. To improve your response rate, keep your average survey length under 10 minutes.
Focus groups convene a group of eight to 12 prospective customers for a moderated discussion of general needs, preferences, attitudes and behaviors. They usually run for an hour or two and are most often used to identify popular and unpopular features of a product or marketing campaign. They can also be used to uncover reasons for observed consumer behavior.
Personal interviews typically last 15 to 60 minutes and use open-ended questions to gather detailed information on needs, experiences, likes, dislikes and so forth. Although they can provide a great deal of information, the small sample size and large amount of time required often make them impractical for smaller businesses.
Telephone interviews work best when they’re very short (five minutes or less). They can be more economical and time-effective than personal interviews, but it’s getting hard to find people who are willing to interrupt their at-home time to participate. Keep your questions short and concise!
Product Tests
Having customers try out your product is one of the best ways to gather information and opinions.
If you have something to eat, ask people to taste it.
If you have a service, ask people to try it.
If you have something to wear, ask people to try it on.
If you have something to sit on, ask people to sit down on it.
You can also set up a blindfold test, where customers sample your product and a rival product without knowing which is which.
After they’ve tested your product, ask them what they think. Ask for honest comments and listen to them carefully. Pay attention to their body language, too. When people love your product, ask for specifics. Then, ask them more questions about themselves. These are your true target customers.
If someone doesn’t like your product, don’t be defensive. Remember, you’re looking for honest feedback. Try to get enough information about the person to decide if you should change your product to meet her needs. If you make strawberry jam, and the person doesn’t like strawberries, there’s no reason to take her opinion to heart.
But if the person absolutely loves strawberry jam, and says “that was the worst strawberry jam I’ve ever had,” you may have a problem. And if you hear this again and again from people who love strawberry jam, you definitely have a problem.
Remember to ask questions that won’t simply get a yes or no answer. Don’t ask “Did you like this jam?” Instead, ask questions like “What did you think about this jam? What did you like best—and least—about it?” The idea is to get as much information as you can from as few questions as possible. Keep in mind that you aren’t selling your product. Ask unbiased questions so that you don’t influence respondents with a sales pitch.
Collecting Secondary Data
Typical information sought through secondary research includes market size, location and growth patterns. You can also use it to get a better quantitative understanding of your customers: where they live, how numerous they are, their income brackets, educational level and buying patterns.
The sources of quality secondary data are almost limitless. For more information, check out Harris Interactive (www.harrisinteractive.com). Be sure to subscribe to all of their free electronic newsletters on emerging trends. You should also visit SourceLink (www.sourcelink.com).
Here’s a condensed resource list for collecting secondary data:
Public libraries
University libraries
Government agencies
Trade and industry associations
Chambers of commerce
Business periodicals
Online reviews can also give you some idea of how customers feel about businesses and products like yours. Service is the obvious factor to look at, but you can also look for comments about location, ease of parking, cleanliness, guarantees, return policies, price and anything else that affects the customer’s perceptions and experience. Although there’s a definite limit to the amount of trust you should put in online commentary, reviews that confirm what you’re hearing elsewhere may be helpful, especially if the commenter is not anonymous and goes into more detail.
DRAWING CONCLUSIONS
After gathering primary and secondary data on your customers, you should be able to answer most of the following questions:
Who are your target customers?
Where do they live?
What are their numbers by city, county and state?
How much do they earn?
What are their spending patterns?
What do they spend monthly and annually on products like yours?
What amount of your product do they buy annually/per sale?
Do they buy online, offline or both?
During what time of year do they buy?
What motivates them to buy (status, security, altruism)?
What are their saving patterns?
What’s their family structure?
What’s their educational level?
What are their leisure activities?
What media do they read, watch or listen to?
What sort of technology do they own, and how do they use it? What are their Internet and mobile usage patterns? Are they early adopters of new technology, or are they slow to catch on to emerging tech trends?
Who are your best prospects?
Should you emphasize yourself, your quality offerings, your selection, your price or merely the existence of your business?
Look back at the Customer Profile Worksheet from and see if your thoughts about your primary and secondary customers have changed since you filled it out.
In this session, you’ll work on the Individual Customer Analysis Worksheet. This will help you sort out this information for two target customer groups. (If you sell to other businesses, the Business Customer Analysis Worksheet will help you identify your primary business customers.)
Targeting Segments
Once you’ve identified your target markets, you can decide how to target them. Here are some common strategies:
Single-segment targeting goes after a single market segment with a single marketing mix. This strategy is most often pursued by businesses with very limited resources or a very narrow niche.
Market specialization serves a single market segment with a variety of different products.
Product specialization customizes a single product to meet the needs of different market segments.
Selective specialization targets multiple segments with a variety of customized marketing mixes.
Full market coverage. As you’ve probably guessed from the name, this strategy involves targeting your entire market with a single marketing message. This is a costly strategy that is usually beyond the reach of small businesses and may also be inappropriate for their products and services.
…
Clarissa decided to give herself one month to gather her marketing data. She began by researching her industry online. What were the sales trends? Was the industry dominated by smaller entrepreneurial businesses like hers or by large chains? What regulations were pending? Who were the main suppliers and vendors?
Next, she looked at salons and similar service providers in her area. She used the SBA’s SizeUp tool to check the competitive landscape, and she used U.S. Census data to build up a demographic picture of the neighborhood within three miles of her salon. She also looked up competing businesses online and in the Yellow Pages, read their online consumer reviews, and looked at their advertisements, coupons and other promotional campaigns.
Last, she pretended to be a customer, and visited each one to find out what services they offered and what they charged. She even asked for the names of past clients as references. While she talked, she took careful note of her surroundings. She considered factors like lighting, cleanliness, decorations, amenities like coffee and reading material, the appearance and behavior of workers, and all the other factors that might affect a customer’s experience. Out in the street, she looked at the signage. Some businesses were visible from half a block away, while others seemed to fade into the background even when you were right next to them.
Some of the people in my class, they acted like market research is this big chore. But for me, it was a lot of fun. Don’t get me wrong—I know it’s work. But when you’re interested in your business like I am, learning more about it is exciting. A lot of times, you might say to yourself, “I like this business better than that one,” but you don’t always think about all the factors that go into that feeling. Doing market research helps you understand why we feel the way we do. And then you can take what you learned and use it to create the kind of a place where people want to be.
You do this because you need to run your business right. But if you go in with the right attitude, you learn a lot about people, including yourself. For me, it was the best part of all the planning work I had to do.
…
Competitive Analysis
There are two types of competition: direct competition and indirect competition.
The difference is easy to explain. Suppose you sell cookies. Your most obvious direct competition would be other people who make cookies, like other small businesses or larger regional bakeries.
You also face direct competition from stores that sell factory-made cookies, like supermarkets and convenience stores. And of course, there are many online and mail-order businesses that sell cookies. If you make traditional Danish butter cookies, you may be competing with cookie companies actually located in Denmark!
When you look at indirect competition, things get more complicated. In the case of cookies, you need to think about things people might eat instead of cookies, such as brownies, chocolate bars and ice cream. Each of these products competes with yours for the attention of people who are looking for sweets.
It’s very important to look at online competitors when you’re thinking about direct and indirect competition. Just as the Internet allows you to compete in markets all over the world, it allows competitors from all over the world to compete in your market. It’s essential to consider how this affects your business.
What Should You Know About Your Competition?
As with customers, it’s dangerous to rely on preconceptions about your competitors. In order to compete effectively, you must know who and what you’re competing against. Remember to look not just at products, but also at features and benefits. You and a competitor may be selling the same product, but with very different features and benefits.
Here are some of the main factors to look at when researching competitors:
Names of competitors. List your current competitors and any that might enter the market in the next year.
Customers. Who are their customers? Don’t just assume they’re the same as yours; two firms selling the same product can have very different target markets.
Product. What are your competitors’ products? How are they unique? What needs do they meet? What types of packaging do they use? How much personalization do they allow? What service enhancements do they offer? In what stage of their life cycle are they? How green are they?
Price. Are their prices in line with customer expectations and value? How do they compare with competing brands?
Placement. Where and how do they sell their product?
Promotion. What type of promotions do they run? In what media, and to what audience? Do they seem to be effective?
Location. Are they local, regional, national or international? Is their location convenient for their customers? Can you offer greater convenience?
Company image. What’s their reputation? What are people saying about them online? Are they popular, or are people looking for an alternative?
Weaknesses and strengths. What do they do best? In what ways are they weak? Compare the way they represent their service to the service you actually get as a customer. How will you take advantage of their weaknesses? How will you compete with their strengths?
Goals. What are their stated goals? What are their long-term plans? What strategies and tactics are they using to achieve those goals? Online “About Us” and “FAQ” pages can be good sources for this information, as can interviews, articles and annual reports.
Differentiators. What features, benefits and messages make the competitor stand out in the marketplace? What aspects of their business do they emphasize most?
The best way to assess competing businesses is to think like a customer. Therefore, the Competitive Analysis Worksheet asks you to rate three direct competitors as you think their customers would rate them.
Your Competitive Advantage
As we explained in Chapter 4, your business’s competitive advantage comes from offering your customers more value than your competitors do. Your advantage might lie in being able to produce your product at a lower cost and offer it for a lower price, or it may come from offering better features, quality or services. Whatever the case, you need to pinpoint your advantage and assess whether it’s truly unique and sustainable.
Stay Connected
Competitive analysis isn’t a one-time-only event. Once your business is up and running, it’s just as important to keep tabs on your current and emerging competitors. In addition to following your known competitors’ social media channels and promotional mailings, you should survey the competitive landscape every quarter.
What are your current competitors doing? Have they improved their products or packaging? Changed their messaging? Expanded or reduced a product line? Offered a new service? Reached out to a new market, or turned away from an old one? Raised or lowered their prices?
What new competitors are on the scene? Are they direct or indirect? Are they tiny startups or large, established businesses? What are their strengths and weaknesses? What is their marketing mix? How does their online presence compare to yours? How will you maintain your position against them?
…
After making a list of her main expenses (tools and materials, nail dryers, an airbrush, foot spas, a computer, a sound system, window decoration and painting, signage, some interior paneling, and business licensing fees), Clarissa added them up, put them in her business plan, and took them to Dana. After suggesting some changes, Dana got Clarissa an appointment with a microfinancing firm that had an interest in protecting Brooklyn’s architectural heritage, as well as in helping first-time entrepreneurs.
They were impressed with Clarissa’s business plan, her high energy and her determination. What they weren’t sure about was whether her personalized service would really be enough to make her stand out from the competition, and justify her higher prices. After doing some market research of their own, they suggested that she avoid acrylic nails and the chemicals associated with them, and switch to safer materials. They explained the benefits:
None of her competitors were using nontoxic products, which would give her a large competitive advantage, especially because asthma rates were on the rise in her neighborhood.
Using less toxic materials would reduce her regulatory issues.
The lack of strong odors and toxic dusts would enhance the salon’s soothing atmosphere.
Avoiding strong chemicals would lower her insurance rates and protect her health.
The use of a premium product would help to justify a premium price for her services.
Clarissa happily agreed to this. She revised her business plan, taking the cost of alternative nailcare products into account, and resubmitted it. This time, the loan was approved right away.
…
Market Potential
Once you’ve identified your target customers, you need to find out if there are enough of them to make your idea viable.
Suppose high-income homeowners with children are your target customers. Do you know how many of them live in your area? Do you know where they live? If only 30 percent of these people are likely to buy from you, is that enough to support your business? What about 20 percent? Census data, maps and assessor office statistics can help you answer these questions.
Here’s an example. Andy Rush wanted to start an on-call transportation service for the elderly. Through his job at the fire department, he often saw older women and men waiting for the bus after hospital visits or doctor appointments. Sometimes they waited for an hour or more. Andy thought he could offer safer, more reliable service.
By doing some research, Andy confirmed that there was indeed an unmet need for an on-call transportation service.
Next, he needed to figure out how to find his customers and promote his service. He didn’t have a lot of money, so he chose to focus on a small part of the city.
He used census data to identify parts of the city where a lot of seniors lived. He drew these areas onto a city map. Then, he circled all of the hospitals and large medical offices on the map. Last, he traced the city bus routes onto his map.
Common sense told him he should start by promoting his business in areas with a high percentage of seniors, limited bus service, and long distances to medical offices, hospitals and grocery stores. In these areas, it was likely that elderly people on fixed incomes would need affordable, reliable transportation.
As this story shows, many factors affect your market potential, from the total population of your targeted geographic area to the number and quality of your competitors. General economic conditions, and regional population and income trends, can also influence your market potential.
Calculating Market Potential
Calculating your market potential takes three steps:
Estimate how many potential customers you have.
Estimate how much they spend on your type of product in a year.
Multiply the number of potential customers by the average amount they spend per year. This is your total market potential.
Once you know your market potential, the next step is to figure out how many customers will actually choose your business. To do this, you must consider your direct and indirect competition.
Let’s look at how one entrepreneur figured out his market potential.
John wants to open a bicycle and skateboard shop in a community of 50,000 people. He knows that roughly 1,000 people are potential customers, and that they typically replace their equipment every three years. The average cost for replacement equipment is about $300 per person, so John could theoretically sell about $300,000 worth of equipment over three years (1,000 people x $300 per person).
However, not everybody buys new equipment at the same time. John predicts that his community will spend about $100,000 per year on his product. In other words, he’s assuming that a third of his potential customers will need to replace their equipment in any given year.
There’s one other bike and skate shop in town, and they have gross annual sales of $75,000. They carry only a few brands and have very few accessories. John assumes that the other $25,000 of sales goes to online businesses and other out-of-town retailers.
What’s John’s market potential? He thinks he can lure about half of the existing business away from the other local shop by offering a bigger selection at competitive prices. Therefore, he estimates his market potential at $37,500 (half of $75,000).
According to his industry information, he should be able to sell an additional 30 percent in accessories. That gives him another $11,250 in accessory sales, for a total of $48,750 in retail sales.
John’s inventory cost would be $24,375 (half of the retail price). Retail space would be another $1,000 per month, or $12,000 per year. Also, John needs to pay himself a minimum monthly salary of $1,500, which comes to $18,000 per year.
Looking at these very basic costs, is there enough market potential for John to consider this business? Let’s find out.
Inventory | $24,375
Rent | 12,000
John’s salary | 18,000
Basic costs | $54,375
Anticipated sales | 48,750
Basic costs | -$54,375
Shortfall | ($5,625)
John hasn’t looked at his other business costs yet—or his taxes—but he already knows that he doesn’t have enough market potential. As you can imagine, he’s glad he found this out before putting a deposit on a retail space or buying inventory!
We’ll use the Market Potential Worksheet to figure out a projected annual sales volume for your business, so don’t worry about understanding the math right now. The main concept to remember is that you need to learn everything you can about your customers and competitors.
Barriers to Entry
When considering your market potential, think about barriers to entry that may prevent you from competing in this market. Typical barriers include high startup costs, a need for skilled labor or special technology, lack of distribution channels, and strict regulatory requirements. If your research identified such barriers, list them in the Market Potential Worksheet, and explain your plan to overcome them and compete successfully in this market.
…
Clarissa began her marketing efforts with personal phone calls to every client she’d ever served, followed by a mailer offering 20 percent off the first visit to her new salon. Her years of good advice, skillful service and cheerfulness soon paid off in a substantial core clientele.
Today, Clarissa’s salon combines high-end manicure and pedicure services with expert fashion consulting. The walls are decorated with fashions and personal coiffures taken from the leading style magazines, and Clarissa recommends appropriate colors, fabrics and styles to her customers. She’s built up a loyal following, and has even hired a couple of assistants.
I’m doing great, but that doesn’t mean I’ve stopped researching my market. I still want to know what the trends are, who’s moving into the neighborhood, what new products are available. Lucky for me, I’m in a business where people want to come in and talk to me for an hour at a time. Dana said one time maybe I should do a focus group. I said, “Honey, my salon is a focus group!” There was a competitor opening up over on Flatbush , and I heard about it before the lease was ever signed. My customers are my eyes and ears, a lot of the time. And on top of that I have all my online tools, so I feel very well informed, always.
Some businesspeople, they reach a certain level and say their work is done. That has never even occurred to me. I think it’s because I deal with fashion. If you think about what fashion is, it’s markets, it’s trends, it’s how people’s needs evolve. And like they say, the one thing that never changes about fashion is that it’s always changing. If you stop paying attention, you fall behind very, very quickly. But if you can see even a little ways ahead, you have the advantage. Whether it’s fashion or business, you need to be ready when change comes.
…
Check Your Work!
The purpose of market analysis is to interpret and draw conclusions from the data you’ve collected. The more completely you wish to understand your market or survey findings, the more rigorous your research design and data analysis must be. The most comprehensive form of data analysis uses statistical models to test the validity of the findings. (Inexpensive computer software packages can help you perform this type of analysis.)
However, for most small businesses it suffices to gather the data and draw reasonable conclusions. Here are some additional tips:
Challenge the validity of your findings.
Doublecheck your information for completeness and timeliness.
Make sure sample groups are representative of the larger population.
Assign value and weight to the findings.
Review your findings with a mentor or industry expert.
That last recommendation is especially important. You should always seek insight and feedback from an experienced businessperson. It’s also a good idea to write a brief, informal summary of your findings that explains your conclusions and your action plan. Revisit this summary frequently, and as you move forward, compare it to new conditions in your market. At the end of the market research process, you should be able to incorporate your findings into a market strategy.
Conclusion
Market research and analysis provide the information you need to identify marketing opportunities and problems, understand buyer behavior, and develop marketing strategies.
The more competitive your industry, the better you’ll have to be at finding ways to create value for your customers and exploit the weaknesses of your competitors.
This is an ongoing process, because your competitors, your industry and your business’s strengths are continually changing.
You don’t have to rely solely on your intuition, or spend thousands of dollars on market research and analysis; there’s plenty of free and low-cost market information available to you. Your task is to define what you need to know, and seek answers in an organized and creative manner.
The first step in marketing is understanding what you sell. Good marketers define the features and benefits of their products, because they know that customers buy benefits.
As you prepare to launch your new idea, understanding market research and analysis gives you a huge advantage. As your business grows, ongoing market research will keep you on track by preventing you from basing your decisions on outdated information or wishful thinking.

Corerem volupta tinctur as aut laccumenit doluptae. Nem enet perro es quo dolupta

Random Sampling Techniques | Non-Random Sampling Techniques
Computer programs can select random samples from electronic lists of names (telephone books or customer lists). | Select targets on the basis of convenience, or referrals from other respondents.
Using a list of people (e.g., telephone list), assign a number to each name, select numbers from a table of random numbers, and choose the numbered entries on the list that correspond to those random numbers. | Use qualifying questions to determine who is best to include in the sample on the basis of how well the person represents your targeted population.
Decide on a “skip interval” (e.g., select every third or fourth name). | Use a quota system that designates how many respondents of each gender, income bracket, geographic location, education level or other criteria you will sample.

Survey Tips Keep questions short, simple and clear. Make it very easy for the respondent to complete. Use a rating scale of 1-5 (1 = strongly disagree; 5 = strongly agree). Surveys should take no more than 5 to 10 minutes to complete. Be careful not to bias the answers with your questions. Try out your survey on your mentor, family and friends first, and get their feedback. Offer respondents some reward for completing the survey (coupon, discount, simple gift, prize). Say thank you!

| NxLeveL® TECH TIP BUSINESS RESOURCES AND THE WEB
Secondary Data Sources SizeUp. This SBA website allows you to map your customers, competitors and suppliers, and helps you pinpoint regions with many target customers and few competitors. www.sba.gov/tools/sizeup FedStats is a one-stop portal to all the statistical data compiled by the U.S. government. In addition to business data, you can get stats on transportation, education, wages, population trends, foreign markets and hundreds of other topics. fedstats.sites.usa.gov U.S. Economics and Statistics Administration (ESA) provides monthly economic indicators, including retail sales and manufacturing figures. Your state’s government websites may have additional data. www.esa.doc.gov U.S Census Bureau. The Census Bureau compiles an incredible amount of statistical data—ranging from household income to Internet access—and makes it easy to create comparisons and maps of your desired data, whether you want to look at the entire U.S. population or a single city block in your hometown. www.census.gov U.S. Bureau of Labor Statistics publishes income and earnings information for workers by region, occupation, sector, demographics and other parameters. www.bls.gov

Researching Competitors Visit your competitors’ business as a customer. Note the appearance of their space; the range, price and quality of their products; and the behavior and attitude of their employees. Read online reviews on Yelp, Google Places and similar sites to see what customers are saying about them. Keep tabs on their social media messages. Follow them on Twitter, become a fan of their Facebook page and read their blog. Note how many followers they have, and the type of comments they get. Sign up for their mailing or email list. Use Google Alerts to track online mentions of them. Look at their print and online ads. How do they portray themselves? What selling points do they emphasize? What kind of customers do they target? Are they reviewed or profiled in business publications or newspapers? Search online and in the library to learn more. Visit their websites. Whose site has the best features? Whose is easiest to use? What are their shipping and return policies? What security features do they offer? Was the site updated recently, or is most of the content six months or more out of date? Ask friends, neighbors, family members and potential customers if they’ve done business with the competitor. Find out how they felt about location, convenience, price, quality and so forth.