Chapter 6

2. Chapter 6 Market Analysis Doing Market Research 6.1 Industry and Market Analysis 6.2

3. 6.1 • Define areas of analysis for industry and market research. • Discuss how to conduct effective market research. Section 6.1 Doing Market Research

4. 6.1 To ensure success, the entrepreneur needs to understand the industry and the market. He or she should define areas of analysis and conduct effective industry and market research. Section 6.1 Doing Market Research

5. 6.1 industry carrying capacity complexity market target market market segmentation market segments geographics psychographics industrial markets market research exploratory research focus group descriptive research historical research secondary data primary data Section 6.1 Doing Market Research

6. 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 industryhe or she is analyzing. industrya collection of businesses with a common line of products or services Section 6.1 Doing Market Research

7. 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 Section 6.1 Doing Market Research

8. Industry There are four factors that are useful in understanding the nature of an industry: • carrying capacity • uncertainty • complexity • stage of life cycle Section 6.1 Doing Market Research

9. Industry You will want to find an industry that has carrying capacity so that your new business can expand and prosper. carrying capacitythe ability of industry to support new growth Section 6.1 Doing Market Research

10. Uncertainty Uncertainty is the degree of stability or instability in an industry. Many high-tech ventures are in industries with uncertain climates. Section 6.1 Doing Market Research

11. Complexity Some businesses must learn to deal with complexity in many industries. complexitythe number and diversity of contacts with which a business must deal. Firms that operate in complex industries have more suppliers, customers, and competitors than firms in other industries. Section 6.1 Doing Market Research

12. Stage of Life Cycle There are four stages to the life cycle of an industry. 1 Birth 2 Growth 3 Maturity 4 Decline Section 6.1 Doing Market Research 12

13. Target Market and Customer After first identifying your market, you will then need to select a target market to be the focus of your company’s efforts. marketa group of people or companies who have a demand for a product or service and are willing and able to buy it target marketa specific group of customers whom a business wishes to reach Section 6.1 Doing Market Research

14. Target Market and Customer Consumermarket segmentationis based on geographics, demographics, psychographics, and buying characteristics. market segmentationthe process of grouping a market into smaller subgroups defined by specific characteristics market segmentssubgroups of buyers with similar characteristics, segmented by geographics, demographics, psychographics, and buying characteristics A business can select and serve multiple market segments. Section 6.1 Doing Market Research

15. geographics demographics buying characteristics psychographics Target Market and Customer Market Segmentation Section 6.1 Doing Market Research 15

16. Target Market and Customer Information about the geographics of the target market can help an entrepreneur decide on a geographic area to focus marketing efforts. geographicsthe study of the market based on where customers live, including region, state, country, city, and/or area Section 6.1 Doing Market Research

17. Target Market and Customer An entrepreneur can study psychographics to learn about target customers’ feeling. psychographicsthe study of consumers based on social and psychological characteristics, including personality, values, opinions, beliefs, motivations, attitudes, and lifestyle elements Section 6.1 Doing Market Research

18. Target Market and Customer Businesses that cater to industrial markets must consider customers’ individual situations. industrial marketscustomers who buy goods or services for business use Section 6.1 Doing Market Research

19. 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 Section 6.1 Doing Market Research 19

20. Conducting Market Research Once you know the areas of the market you need to analyze, you are ready to begin market research. market researchthe collection and analysis of information aimed at understanding the behavior of consumers in a certain market The marketing research process can be used to identify potential markets, analyze demand, and forecast sales. Section 6.1 Doing Market Research

21. Select the Type of Market Research There are three types of market research exploratory research descriptive research historical research Section 6.1 Doing Market Research 21

22. Select the Type of Market Research A good way to start exploratory research is to read government or industry publications. exploratory researchthe initial collection and analysis of information used when very little is known about a subject; it forms a foundation for later research Section 6.1 Doing Market Research

23. Select the Type of Market Research Another way to gather information is to form a focus group. focus groupa group of people whose opinions are studied to determine the opinions that can be expected from a larger population Section 6.1 Doing Market Research

24. Select the Type of Market Research Descriptive research can be gathered through questionnaires, interviews, or observation. descriptive researchthe collection of information to determine the status of something, such as in developing a customer profile Section 6.1 Doing Market Research

25. Select the Type of Market Research You can use historical research to forecast your business’s future potential. historical researchthe study of the past to explain present circumstances and predict future trends Section 6.1 Doing Market Research

26. 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 Section 6.1 Doing Market Research 26

27. Start the Research Process Research secondary data before researching primary sources because it is easily obtained and inexpensive. secondary datainformation that has already been collected by someone else Section 6.1 Doing Market Research

28. Start the Research Process The most common methods of gathering primary data about customers are: primary datainformation that is collected for the first time, is current, and relates directly to the collector’s study • observation • interviews • surveys Section 6.1 Doing Market Research

29. 6.1 • Define areas of analysis for industry and market research. Areas of analysis for industry research include carrying capacity, uncertainty, complexity, and stage of life cycle. Areas of analysis for market research include identifying the target market through market segmentation and conducting target marketing. Section 6.1 Doing Market Research

30. 6.1 • Discuss how to conduct effective market research. First, identify the focus of the research. Next, select the type of market research—exploratory, descriptive, or historical. Finally, start the research process by identifying your information needs, obtaining secondary resources, collecting primary data, organizing the data, and analyzing the data. Section 6.1 Doing Market Research

31. 6.2 • Explain how to research an industry • Describe a customer profile and customer needs analysis. Section 6.2 Industry and Market Analysis

32. 6.2 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 his or her chances for success. Section 6.2 Industry and Market Analysis

33. 6.2 barriers to entry economies of scale brand loyalty mass marketing market share niche market positioning competitive advantage customer profile customer needs analysis Section 6.2 Industry and Market Analysis

34. 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. Section 6.2 Industry and Market Analysis 34

35. Industry Forces That Affect Your Business barriers to entry threats from substitute products sources of supply buyers’ ability to bargain technology Section 6.2 Industry and Market Analysis 35

36. Industry Forces That Affect Your Business In established businesses, the dominant businesses have advantages that are barriers to entryto smaller, new ventures. 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 Section 6.2 Industry and Market Analysis

37. Industry Forces That Affect Your Business Established businesses have achieved economies of scale in production, marketing, and distribution. 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 Section 6.2 Industry and Market Analysis

38. Industry Forces That Affect Your Business Customers with brand loyalty do not easily switch to a new company that enters the industry. brand loyalty the tendency to buy a particular brand of a product Section 6.2 Industry and Market Analysis

39. Issues in Entrepreneurship In the past, businesses used mass marketing to sell products with universal appeal and few features to differentiate them from competitors’ products. mass marketing the attempt to reach all customers with a single marketing plan Section 6.2 Industry and Market Analysis

40. The Competition Usually, competing products are already established in the market. To succeed, you must be able to capture market share by differentiating your business. market share a portion of the total sales generated by all competing companies in a given market Section 6.2 Industry and Market Analysis

41. 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 Section 6.2 Industry and Market Analysis

42. The Competition 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 Section 6.2 Industry and Market Analysis

43. The Competition You can create a competitive grid to help define your competitive advantage. competitive advantage a feature that makes a product more desirable than its competitors Section 6.2 Industry and Market Analysis

44. Researching the Target Customer Create Create a customer profile. Evaluate Evaluate customers’ needs. Forecast Conduct research to forecast demand. Section 6.2 Industry and Market Analysis 44

45. Creating a Customer Profile Creating a customer profile is the first step in targeting your marketing efforts. customer profile a complete picture of a venture’s prospective customers, including geographic, demographic, and psychographic data Section 6.2 Industry and Market Analysis

46. Evaluating Customers’ Needs In order to provide what the customer wants, you should prepare a customer needs analysis. customer needs analysis a study that pinpoints the features and benefits of goods or services that customers value Section 6.2 Industry and Market Analysis

47. Forecasting Demand Several methods can be used to forecast demand: • Use historical analogy. • Interview prospective customers and intermediaries. • Go into limited production. Section 6.2 Industry and Market Analysis

48. 6.2 • Explain how to research an industry To research an industry, look at trends and patterns of change, industry forces that affect your business, industry demographics, and the competition. Section 6.2 Industry and Market Analysis

49. 6.2 • Describe a customer profile and customer needs analysis. A customer profile is a complete picture of a venture’s prospective customers. It includes geographic, demographic, and psychographic data. A customer needs analysis pinpoints the features and benefits of your goods or services that customers value so you can provide them with what they want. Section 6.2 Industry and Market Analysis

50. Domain Names A company’s domain name is much more than the way customers can get to its Web site. Domain names have become a crucial component of companies’ marketing and branding plans. Section 6.2 Industry and Market Analysis 50