Marketing:
Analysis & Understanding
Session 4
Date:
Due:	Section III: Parts A and B
Class Opener (10 min.)
Articles of interest, best / worst news, brainteaser, etc.
Instructor Topics (60 min.)
(10 min.)	1.	Expanding Your Market Research
(15 min.)	2.	Describing Your Product
Features and Benefits
(35 min.)	3.	Market Analysis
Customer Analysis
Competitive Analysis
Market Potential
Guest Speaker (30 min.)
Marketing consultant or marketing manager
Break (20 min.)
Refreshments
Networking activity
Work Period (60 min.)
Exercise: Taste Test
Homework Review—Session 3
Workbook Preview—Session 4
Assignment for Session 5
WORKBOOK	Complete the worksheets in Workbook Session 4. WRITE	After completing the Session 4 worksheets, follow the instructions on the Writing Your Business Plan page at the end of the worksheets to write Section IV. Marketing Plan: A. Products and Services and B. Market Analysis. TEXT	Read Chapters 9 through 12 (Product, Price, Promotion and Placement).

Learning Objectives
Understand common market research methods. Understand how to describe product features and benefits. Understand the importance of gathering primary data when conducting customer research. Distinguish between direct and indirect competition. Learn how to use customer and competition profiles to calculate and analyze market potential.

Additional Instructor Notes
Session 4
Expanding Your Market Research
NOTE: Although we started our discussion of marketing and market research in Sessions 1 and 2, we need to backtrack and review definitions relating to market analysis in this session.
As we learned earlier, marketing includes all the actions you take to design your product, and manufacture it, and promote it, and sell it, and deliver it, and service it.
In other words, marketing is everything you do that affects your customers. From a marketing perspective, anything that affects your customers affects your bottom line. That’s why it’s necessary to create a marketing plan that explains how all the different parts of your business will work together to communicate your company’s message consistently.
In Session 2, we began the process of market research by looking at your industry. That research will now serve as the basis for gathering additional information about your customer, your competitors and your market potential.
Use OHD 4-1 to talk about the purpose of market research. Then, use OHD 4-2 to highlight important market research tips.
At every step of the research process, approach your data—and your own 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!
Use OHD 4-3 to identify good sources of market data.
Describing Your Product
Before trying to research your customers and competitors, it’s important to define the features and benefits of your product from your customers’ point of view. Otherwise, you may not identify your likeliest customers or your strongest competitors.
We use the term “product” to refer to anything you sell. It could be a product, a service or a mixture of the two. And in fact, most products are mixtures. There’s a “service” side to selling products and a “product” side to selling services.
Have students turn to the Product Description Worksheet on page 4-63 of the WORKBOOK. Read through the questions, explaining concepts where necessary. In particular, be prepared to answer questions about the product life cycle (see OHD 4-4). Why is this important? Because the product’s stage in this cycle indicates its potential for sales, profit and growth. It can also affect the cost, content and effectiveness of your marketing strategies, as we’ll see in Session 5.
Features and Benefits
What is a feature? It’s a characteristic of your product. Examples: Ease of use, eco-friendly ingredients, low price, color, size, shape, weight, money-back guarantee, delivery time.
What is a benefit? It’s what a feature does for or gives to the customer. Examples: If a product is easy to use, its benefit to the customer is time savings and convenience. If a product has a money-back guarantee, its benefit is security and confidence.
To put it another way, features have to do with the qualities of the product, while benefits have to do with customer feelings and emotions about the product.
Ask students to think name the features and benefits of common products and services. Example: A feature of lipstick might be “bright, long-lasting color.” But what is the benefit of this feature to consumers? What is the company really selling?
What’s the lesson here? People buy benefits, not features! (See OHD 4-5.)
OPTIONAL EXERCISE: Have students turn to the Features and Benefits Worksheet on page 4-66. Divide them into groups of three or four. Ask each group to identify the features and benefits of the products offered by each business in the group. Students should each fill in their worksheet for their product only.
Ask the groups to report on the features and benefits of their products. Be alert! Some students are sure to focus only on features without clearly stating the benefits.
Market Analysis
As we learned earlier, the Market Analysis section of your business plan has three parts:
Customer analysis. Who are your customers, where do they live, what problems do they have and how will your business solve them?
Competitive analysis. Who are your competitors? How is your product better? How is it inferior? What features are similar or identical?
Market potential. How many customers in your target market will buy from you?
Use OHD 4-6 to emphasize the goals of market analysis. One of the biggest marketing mistakes is assuming you have a product everyone will want. There’s no such thing—you can’t be all things to all people! That’s why you must analyze your market and find your niche.
Customer Analysis
As we explained in Sessions 1 and 2, developing an accurate customer profile enables you to decide which customer type is most likely to buy your product. Then, you can measure how many of those customers live in your trade area.
Learning about the wants, needs, motivations, demographics (OHD 4-7), psychographics (OHD 4-8) and expectations of your customers is the key to understanding your target market.
EXERCISE: Write the following questions on the board to enhance your discussion.
Needs: What does the customer need? (Reliable transportation—an inexpensive subcompact car.)
Wants: What does the customer want? (A luxury sports car.)
Motivations: Why do customers buy one product vs. another? (To save money—subcompact car; to reflect status or improve self-image—luxury car.)
Demographics: What information identifies your target customer? (Consider age, income level, occupation, education level, marital status, etc. Have students consider how these factors might affect a car purchase: Who is more likely to buy an economy car? Who is more likely to buy a luxury sports car? Don’t let students focus solely on income. Education level, marital status and occupation are also good topics for discussion.)
Psychographics: What beliefs, values and lifestyles do your target customers share? (Consider culture, behavior, interests, group affiliations, media preferences, recreational choices, political alignment, entertainment preferences, etc. Again, discuss these categories as they relate to car choices. For instance, think about the typical user profile of a jacked-up pickup versus an electric car or hybrid; the vehicles may have a similar price tag, but the people who buy them may have very different cultural and political values, as well as very different perceptions of risk and reward. If we just looked at income and other demographics, we’d overlook these crucial factors.)
Customer expectations: What do your customers expect from you and your product? (Possibilities include fast service, high quality, money-back guarantee, good corporate citizenship, privacy, local sourcing of materials. What kind of services and add-ons would a luxury buyer expect compared to an economy buyer? How do manufacturers and retailers meet these expectations? Example: A no-pressure, hassle-free buying process for economy buyers vs. complementary 24-hour roadside assistance for luxury buyers.)
Also, emphasize the importance of technology to marketing. For instance, Internet marketing varies depending on whether your customers buy online and whether they have computers or Internet connections that can actually load your site.
Conducting customer research
Discuss various methods of researching your customer. In Session 2, we discussed many secondary data sources. Review the sources that are available online and in the library.
Secondary research is important. However, it’s no substitute for collecting primary data. For a small business, few things are more important than getting feedback directly from potential customers. Knowing what your customers want—and how much they’ll pay for it—is a basic requirement of doing business. Talking directly to as many target customers as you can is the easiest, fastest way to get this information. Too many business owners overlook this vital step!
Discuss primary sources, including:
Phone surveys (short questionnaire conducted by interviewer)
In-person interviews
Online surveys through services like SurveyMonkey.com
Intercept (brief survey of randomly selected visitors to shopping centers, etc.)
Surveys handed out in person, or sent to homes with a self-addressed, stamped envelope
Inserts (cards inserted into magazines and newspapers, requesting customer’s opinion)
Use OHD 4-9 to discuss gathering customer data through personal interviews. The basic steps: Ask for honest comments and listen to them carefully. Pay attention to body language, too. When people love your product, ask for specifics. Then, ask them more questions about themselves. These are your true target customers.
Have students turn to the Customer Analysis Worksheets on page 4-67. Remind them that market research takes time and effort. There’s always a temptation to go with what you think you know, based on assumptions or wishful thinking. That’s not an option in market research!
Again, it’s important to challenge your prejudices, assumptions and beliefs. Approach data with an open mind. Remember: Things aren’t necessarily true just because you want them to be!
As your students do their research, encourage them to revisit the customer profile they created in Session 1, so that they check their initial answers against what they’ve learned since then.
Have students look at the Individual Customer Analysis Worksheet. Explain any categories you think need explaining. Be prepared to answer questions like, “How do I find that out?”
If you have students who will be selling to other businesses, have them look at the Business Customer Analysis Worksheet. Again, explain its categories and use.
Last, use OHD 4-10 to discuss basic targeting strategies for market segments.
Competitive Analysis
Ask the question: How many of you think you have no competition? The answer: There’s no such thing! Also, your obvious competitors may not be your only competitors.
Example: Suppose a student is starting a quick lube shop. The direct competition would be other quick lube shops, as well as gas stations and car dealerships that offer the same service.
But you also need to look at indirect competition. The do-it-yourself person who changes the oil in her own car is indirect competition, as are stores that sell oil and filters. All these outlets should be factored into your competitive analysis.
Indirect competition can increase in economically hard times, when many people can’t or won’t pay for a service they can perform themselves, or when premium products may be passed up in favor of cheaper equivalents. It may take special offers or incentives to attract such customers.
Seasonality can also affect indirect competition. A cold winter may increase business in a quick lube shop, whereas a warm summer may make waiting for your oil to drain a lot more appealing.
Ask the question: Is competition always bad? (No! Examples: In some towns, you’ll find many restaurants or antique stores in a single area. This attracts more customers to the area, which potentially benefits all the businesses. Also, if you have a restaurant that’s a couple of doors down from a popular place with a long waiting list, you may get some of their overflow.)
This would be a good time to discuss how students think the Internet is affecting the competitive side of their business. Ask them to name some examples of online competition.
Ask the question: Why is it so important to learn about your competition?
Analyzing the competition may tell you more about what the customer wants.
You may discover niche markets that current competitors aren’t serving.
You may get new or better ideas for marketing, merchandising, pricing and products.
You need to know how competitors are responding to new laws, trends and technology.
Remote competition (similar businesses outside your trade area) may offer advice and support you can’t get locally. Networking with remote competition can be invaluable.
Ask the question: What should you know about your competition? Use OHD 4-11 to discuss.
Ask the question: Why is it important to be honest with yourself when you compare your business to competing business?
Unless you have a competitive advantage over existing competitors, there’s no motivation for customers to change their buying habits.
Your strengths are the basis for your advertising and marketing plans. You must know what those strengths are before you can use them.
Your strengths may justify charging a higher price for your product, but you need to be sure you’re superior enough to merit a higher price.
Recognizing your competitive advantage may make it easier to penetrate the market and take market share from your competition.
As with customer analysis, it’s dangerous to rely on preconceptions about your competitors. To compete effectively, you must know who and what you’re competing against. 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!
EXERCISE: Have students look at the Competitive Analysis Worksheet on page 4-70. Ask them to fill in the names of three important competitors.
Comparison factors are defined on the worksheet page. Explain how to use the worksheet, and then go through each factor and have students fill it out as you go. Tell them that if they don’t know an answer, they can leave it blank and research it later. The point of this exercise is to demonstrate that you need to conduct research to do the worksheet properly.
Next, go through the “prioritizing” step. Ask the question: Why is it important to prioritize these competitive factors from the customer’s perspective? Discuss.
Market Potential
Once you’ve identified your target customers, you must find out if there are enough of them to make your business idea viable. Many factors affect your market potential, from the total population of your trade area to the number and quality of your competitors. Economic conditions, and regional population and income trends, also influence market potential.
Calculating your 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 each year. This is your total market potential.
Have students turn to the Market Potential Worksheet on page 4-74 and ask them to follow along as you discuss each question in turn.
Question 1: What is the geographic territory of your trade area?
How big is your trade area? Is it your neighborhood? Everything within a 20-mile radius? Your entire state? Or are you selling to national customers online? Obviously, how you define your trade area has a huge impact on the number and type of your customers and competitors.
It’s often wise to target a smaller trade area at first, as costs and service problems increase with market size (unless the smaller territory doesn’t have enough target customers, of course).
Last, note that geographic area also affects customer needs. Weather, climate, and the presence of oceans or mountains can all affect buying patterns. Example: Could you make a living selling snowshoes in Florida? Probably not!
Question 2: How many people (or businesses) in this area are in your target market?
At this point, we have to figure out how many people—or businesses, if you’re a B2B venture—in your trade area match your customer profile.
You can use U.S. Census and other data to determine the total number of potential customers in your trade area. Remember: The total number of people in an area does not equal the total number of potential customers.
Example: Suppose I live in a small city of 50,000 people. Industry information suggests that roughly 2 percent of the population will buy my product. I could conclude from this that I have 1,000 potential customers in my city. But that may not be realistic. My customer profile tells me that my primary market is females aged 21 to 35 with an average income of $45,000. In my city, the median age is 50 and the average income is $30,000. Given these statistics, am I likely to find 1,000 target customers in my territory? If not, I may need to expand its boundaries.
The same kind of analysis is necessary if you’re selling to other businesses.
As we learned earlier, the process of narrowing customers in your trade area down to the groups who are most likely to buy from you is called market segmentation. Very few businesses have the time or money to market to every segment of the public, nor would that be wise.
The 80/20 rule of marketing says that 80 percent of a typical company’s business comes from 20 percent of its customers. If you know where that critical 20 percent is, it stands to reason that you’d aim most of your marketing efforts at them. Market analysis helps you do this.
Question 3: Is your target market growing, staying the same or getting smaller?
Ask the question: Why are trends relating to the size of your target market an important issue? Discuss.
Question 4: How many members of your target market do you expect to buy per year?
Now, we’re ready to take a first look at whether your business idea can generate enough sales to stay afloat and become profitable. Of course, what counts as “enough sales” depends partly on your growth plans and partly on the amount of income you need from the business.
Making an accurate estimate of annual sales volume depends mainly on the accuracy of your market research. Who will buy from you, given your customer profile, your competition, the size of your trade area, and your location? Use OHD 4-12 to discuss common forecasting methods.
Question 5: What is the average dollar amount each customer will spend per year on your products? How did you estimate this amount?
The goal here is to calculate buying activity in your trade area for your type of product. This typically requires careful digging for industry data, and—in many cases—a bit of educated guesswork to bring the numbers from the national or regional level to the local level. You might start with national numbers, and then calculate your state’s percentage of that total and your county’s or city’s share of that percentage. From there, you would estimate the percentage of the local market you expect to capture through specific, realistic marketing and sales efforts.
Question 6: What are the primary monthly expenses for your business, per year?
Expense categories listed on the worksheet include rent, utilities, inventory, equipment and owner’s draw. For now, have students take an informed guess at these costs. Assure them that as they proceed through the upcoming sessions, they will be better able to answer these questions. At this point, the goal isn’t to come up with accurate numbers, but to understand the basic calculations and to consider how rising or declining sales will affect certain business expenses (and vice versa). This is an example of budgeting, which is an essential operational activity.
Question 7: How many products can you produce—or units of service can you deliver—per year? How did you estimate this amount?
This question requires an honest look at your time, equipment and resources. If it takes an hour to do a job well, can you realistically complete 12 jobs per day? Be conservative when estimating the amount of work you can complete, because unexpected problems can always arise. You also need to consider the amount of time it takes each day to handle other necessary business tasks, such as marketing, sales and accounting.
Question 8: What barriers to entry affect your ability to compete in this market? How will you overcome them?
Typical barriers to entry include high startup costs, a need for skilled labor or special technology, lack of access to distribution channels, and strict regulatory requirements. If your research identified such barriers, list them here. Then, estimate their overall impact on your market potential and explain your plan to overcome them.
Question 9: Estimate your annual sales amount.
Answering the previous questions will prepare students to complete the Annual Sales Volume Projection Worksheet. Use sample numbers to show students how to use the worksheet before asking them to fill in their own estimated numbers.
Guest Speaker
Marketing Consultant or Marketing Manager
Prepare some questions you want your guest speaker to address in 20 minutes of talking, plus 10 minutes of questions. Give them to your guest well in advance.
Suggestions
Is it really necessary to do all this research on customers?
How important is it to check out what competitors are doing? What information should you look at when analyzing the competition?
What steps should you always take when designing and conducting market research?
How do you research and analyze online competition?
How do you make sure your results are accurate? How do you avoid bias? How do you recognize bias if it creeps into your data or analysis?
Work Period
Exercise: Taste Test (30 min.)
Bring in three brands of the same type of cookie. Divide your class into two groups: Researchers (Rs) and Customers (Cs).
Group the Rs together and give them the cookies. Have the Rs set up a display of cookie samples numbered 1, 2 and 3. Use cards to number the samples without showing the brand names (you can write the brand names on the back of the cards). Then, have the Rs write a list of questions to ask the Cs (e.g., questions on flavor, quality and quantity of chips or nuts, texture, appearance, etc.). Be sure the Rs tell the Cs the price of the cookies.
Next, group the Cs and tell them to look for quality, taste, texture, size and price. Have the Cs taste the cookies, and allow the Rs and Cs to interact. Have the Cs discuss the kinds of things they look for when buying a cookie.
Which product did the Cs like best? What did the Rs learn? And what could the Rs have done differently to get better market research? After this discussion, ask the question: Looking at your own products, how could you run a similar test? What would you do?
Homework Review—Session 3
Ask if there are any questions or problems related to completing the Session 3 worksheets. Then, collect the Writing Your Business Plan assignment. If you sense that people are having difficulties getting the assignment done, be prepared to offer suggestions for outside help.
Ask the questions: What did you learn about managing risk while researching insurance options? Did working on the management team worksheets change any of your thoughts about costs or how you’ll manage your business? Allow time to discuss these issues.
NOTE: Be alert to any absence of costs or cost estimates; students must gather or estimate this information for the financial work that will begin in Session 7. Make sure they’re keeping up with this all-important aspect of planning.
Workbook Preview—Session 4
Several of the worksheets for this session were worked on in class. Remind students that the following worksheets must be completed as homework:
Customer Analysis Worksheets
Competitive Analysis Worksheet
Market Potential Worksheet (including the Annual Sales Volume Projection Worksheet)
Briefly review the Customer Analysis Worksheets, again pointing out that there is one worksheet for individual customers and one for business customers. Explain again how to gather the data needed to fill out the worksheets and why that information is important.
Make sure participants understand the prioritizing column on the Competitive Analysis Worksheet. Then, review the questions following the worksheet that relate to competitive advantage. Stress personal observation as a valid research technique.
Students will probably have additional questions on the Market Potential Worksheet. Consider using some fictitious numbers to illustrate the calculations, so you can demonstrate how to interpret the answers. Also, discuss determining market potential when the primary marketing tool is the Internet. (Can this traditional worksheet approach be used? Or must we look at the business’s capacity to produce, rather than the number of customers anticipated?)
Assignment Review—Session 5
NOTE: This session has a fairly long Writing Your Business Plan assignment. Review how you want students to write these sections (including whatever guidelines you’ve developed for this class). Take special care to explain this assignment thoroughly!
Have students look at the Assignment for Session 5 at the bottom of the Session 4 Student Outline page. Stress the importance of reading the Session 5 text before the next class.
Use OHD 1-13 to show the first half of the NxLeveL® Business Plan Outline, so students understand how the written assignment fits into Section IV, Parts A and B. Use the NxLeveL® sample business plans to show examples of how this section can be written.
Overheads for Session 4
OHD	4-1	The Purpose of Market Research
OHD	4-2	Market Research Tips
OHD	4-3	Market Data Sources
OHD	4-4	The Product Life Cycle
OHD	4-5	Features and Benefits
OHD	4-6	Goals of Market Analysis
OHD	4-7	Demographics
OHD	4-8	Psychographics
OHD	4-9	Gathering Customer Data
OHD	4-10	Targeting Strategies
OHD	4-11	Researching Your Competition
OHD	4-12	Sales Forecasting Methods
Suggested Supplemental Materials for Session 4
SBDC or SBA brochures about customers and competition
Current articles about market segmentation techniques
Samples of customer surveys
Sample questionnaires and surveys
NxLeveL® sample business plans
You have the option of finding reputable articles and publications for use in class, or suggesting that students search them out on their own and share what they find with the rest of the class. Keep track of supplemental materials you used by making notes below. (This will be helpful if you choose to teach this course again.)
Supplemental materials used for Session 4
Notes