To ensure success, entrepreneurs need to understand the industry and the market.

1. The Main Idea To ensure success, entrepreneurs need to understand the industry and the market. They should define areas of analysis and conduct effective industry and market research.

2. Defining Areas of Analysis In order to satisfy current customers or attract new ones, an entrepreneur must conduct market analysis. The entrepreneur will want to understand the nature of the industry he or she is analyzing. industry a collection of businesses with a common line of products or services

3. Defining Areas of Analysis Thorough market analysis requires: • Identifying prospective customers and determining their buying habits • Analyzing your industry and assessing your chances for success within it

4. Industry There are four factors that are useful in understanding the nature of an industry: • carrying capacity • uncertainty • complexity • stage of life cycle

5. Industry carrying capacity the ability of industry to support new growth You will want to find an industry that has carrying capacity so that your new business can expand and prosper. Uncertainty is the degree of stability or instability in an industry. Many high-tech ventures are in industries with uncertain climates.

6. Complexity Some businesses must learn to deal with complexity in many industries. Firms that operate in complex industries have more suppliers, customers, and competitors than firms in other industries. complexity the number and diversity of contacts with which a business must deal

7. Stage of Life Cycle There are four stages to the life cycle of an industry. 1 Birth 2 Growth 3 Maturity 4 Decline 7

8. Target Market and Customer market a group of people or companies who have a demand for a product or service and are willing and able to buy it target market a specific group of customers whom a business wishes to reach After first identifying your market, you will then need to select a target market to be the focus of your company’s efforts.

9. Target Market and Customer Consumer market segmentation is based on geographics, demographics, psychographics, and buying characteristics. A business can select and serve multiple market segments. market segmentation the process of grouping a market into smaller subgroups defined by specific characteristics market segments subgroups of buyers with similar characteristics, segmented by geographics, demographics, psychographics, and buying characteristics

10. geographics demographics buying characteristics psychographics Target Market and Customer Market Segmentation 10

11. Target Market and Customer geographics the study of the market based on where customers live, including region, state, country, city, and/or area Information about the geographicsof the target market can help an entrepreneur decide on a geographic area to focus marketing efforts.

12. Target Market and Customer psychographics the study of consumers based on social and psychological characteristics, including personalities, values, opinions, beliefs, motivations, attitudes, and lifestyle elements An entrepreneur can study psychographics to learn about target customers’ feelings.

13. Target Market and Customer industrial markets customers who buy goods or services for business use Businesses that cater to industrial markets must consider customers’ individual situations.

14. Target Market and Customer The target market for your product or service should be: 1 Measurable 2 Large enough to be profitable 3 Reachable 4 Responsive 14

15. Conducting Market Research Once you know the areas of the market that you need to analyze, you are ready to begin market research. The marketing research process can be used to identify potential markets, analyze demand, and forecast sales. market research the collection and analysis of information aimed at understanding the behavior of consumers in a certain market

16. Select the Type of Market Research There are three types of market research exploratory research descriptive research historical research 16

17. Select the Type of Market Research A good way to start exploratory research is to read government or industry publications. exploratory research the initial collection and analysis of information used when very little is known about a subject; it forms a foundation for later research focus group a group of people whose opinions are studied to determine the opinions that can be expected from a larger population Another way to gather information is to form a focus group.

18. Select the Type of Market Research descriptive research the collection of information to determine the status of something, such as in developing a customer profile Descriptive research can be gathered through questionnaires, interviews, or observation.

19. Select the Type of Market Research historical research the study of the past to explain present circumstances and predict future trends You can use historical research to forecast your business’s future potential.

20. Start the Research Process The Five Steps of an Effective Research Plan 5 Analyze the data. 4 Organize the data. 3 Collect primary data. 2 Obtain secondary resources. 1 Identify your information needs. 20

21. Start the Research Process secondary data information that has already been collected by someone else Research secondary data before researching primary sources because it is easily obtained and inexpensive.

22. Start the Research Process primary data information that is collected for the first time, is current, and relates directly to the collector’s study • The most common methods of gathering primary data about customers are: • observation • interviews • surveys

23. The Main Idea Studying a company’s industry and market helps an entrepreneur create a product or service that people want. It also helps the entrepreneur develop a customer profile, estimate demand, and increase the chances for success.

24. Researching the Industry Look Look at trends and patterns of change. Understand Understand industry forces that affect your business. Study Study industry demographics. Analyze Analyze the competition. 24

25. Industry Forces That Affect Your Business barriers to entry threats from substitute products sources of supply buyers’ ability to bargain technology 25

26. Industry Forces That Affect Your Business barriers to entry conditions or circumstances that make it difficult or costly for outside firms to enter a market to compete with established firm or firms In established businesses, the dominant businesses have advantages that are barriers to entry to smaller, new ventures.

27. Industry Forces That Affect Your Business economies of scale situations where the cost of producing one unit of a good or service decreases as the volume of production increases; the decrease of production costs relative to the price of goods and services Established businesses have achieved economies of scale in production, marketing, and distribution.

28. Industry Forces That Affect Your Business brand loyalty the tendency to buy a particular brand of a product Customers with brand loyalty do not easily switch to a new company that enters the industry.

29. Issues in Entrepreneurship mass marketing the attempt to reach all customers with a single marketing plan In the past, businesses used mass marketing to sell products with universal appeal and few features to differentiate them from competitors’ products.

30. The Competition market share a portion of the total sales generated by all competing companies in a given market Usually, competing products are already established in the market. To succeed, you must be able to capture market share by differentiating your business.

31. The Competition Many entrepreneurial companies succeed by studying the competition to define a niche in the market. niche a small, specialized segment of the market based on customer needs discovered in market research An entrepreneur who wishes to capture market share can use market positioning. market positioning the act of identifying a specific market niche for a product

32. The Competition competitive advantage a feature that makes a product more desirable than its competitors You can create a competitive grid to help define your competitive advantage.

33. Researching the Target Customer Create Create a customer profile. Evaluate Evaluate customers’ needs. Forecast Conduct research to forecast demand. 33

34. Creating a Customer Profile customer profile a complete picture of a venture’s prospective customers, including geographic, demographic, and psychographic data Creating a customer profile is the first step in targeting your marketing efforts.

35. Evaluating Customers’ Needs customer needs analysis a study that pinpoints the features and benefits of goods or services that customers value In order to provide what the customer wants, you should prepare a customer needs analysis.

36. Forecasting Demand Several methods can be used to forecast demand: • Use historical analogy. • Interview prospective customers and intermediaries. • Go into limited production.