Market research - Why?
No matter how good your product and your service, the
venture cannot succeed without effective marketing. And this begins with
careful, systematic research. It is very dangerous to assume that you
already know about your intended market. You need to do market research to
make sure you’re on track. Use the business planning process as your
opportunity to uncover data and to question your marketing efforts. Your
time will be well spent.
Market research - How?
There are two kinds of market research: primary and
Secondary research means using published information such as
industry profiles, trade journals, newspapers, magazines, census data, and
demographic profiles. This type of information is available in public
libraries, industry associations, chambers of commerce, from vendors who
sell to your industry, and from government agencies.
Start with your local library. Most librarians are pleased
to guide you through their business data collection. You will be amazed at
what is there. There are more online sources than you could possibly use.
Your chamber of commerce has good information on the local area. Trade
associations and trade publications often have excellent industry-specific
Primary research means gathering your own data. For example,
you could do your own traffic count at a proposed location, use the yellow
pages to identify competitors, and do surveys or focus-group interviews to
learn about consumer preferences. Professional market research can be very
costly, but there are many books that show small business owners how to do
effective research themselves.
In your marketing plan, be as specific as possible; give
statistics, numbers, and sources. The marketing plan will be the basis,
later on, of the all-important sales projection.
Facts about your industry:
• What is the total size of your market?
• What percent share of the market will you have?
(This is important only if you think you will be a major factor in the
• Current demand in target market.
• Trends in target market—growth trends, trends in
consumer preferences, and trends in product development.
• Growth potential and opportunity for a business of
• What barriers to entry do you face in entering this
market with your new company? Some typical barriers are:
acceptance and brand recognition
technology and patents
barriers and quotas
And of course, how will you overcome the barriers?
How could the following affect your company?
in government regulations
in the economy
in your industry
Products and Services
section, you described your
products and services as you see them. Now describe them from your
customers’ point of view.
Features and Benefits
List all of your major products or services.
For each product or service:
- Describe the most important features. What is
special about it?
- Describe the benefits. That is, what will the
product do for the customer?
Note the difference between features and benefits, and think
about them. For example, a house that gives shelter and lasts a long time is
made with certain materials and to a certain design; those are its features.
Its benefits include pride of ownership, financial security, providing for
the family, and inclusion in a neighborhood. You build features into your
product so that you can sell the benefits.
What after-sale services will you give? Some examples are
delivery, warranty, service contracts, support, follow-up, and refund
Identify your targeted customers, their characteristics, and
their geographic locations, otherwise known as their demographics.
The description will be completely different depending on
whether you plan to sell to other businesses or directly to consumers. If
you sell a consumer product, but sell it through a channel of distributors,
wholesalers, and retailers, you must carefully analyze both the end consumer
and the middleman businesses to which you sell.
You may have more than one customer group. Identify the most
important groups. Then, for each customer group, construct what is called a
For business customers, the demographic factors might be:
- Industry (or portion of an industry)
- Size of firm
- Quality, technology, and price preferences
- Other (specific to your industry)
- Other (specific to your industry)
What products and companies will compete with you?
List your major competitors:
(Names and addresses)
Will they compete with you across the board, or just for
certain products, certain customers, or in certain locations?
Will you have important indirect competitors? (For example,
video rental stores compete with theaters, although they are different types
How will your products or services compare with the
Use the Competitive Analysis table to compare your company with your two most
important competitors. In the first column are key competitive factors.
Since these vary from one industry to another, you may want to customize the
list of factors.
In the column labeled Me,
state how you honestly think you will stack up in customers' minds. Then
check whether you think this factor will be a strength or a weakness for
you. Sometimes it is hard to analyze our own weaknesses. Try to be very
honest here. Better yet, get some disinterested strangers to assess you.
This can be a real eye-opener. And remember that you cannot be all things to
all people. In fact, trying to be causes many business failures because
efforts become scattered and diluted. You want an honest assessment of your
firm's strong and weak points.
Now analyze each major competitor. In a few words, state how
you think they compare.
In the final column, estimate the importance of each
competitive factor to the customer. 1 = critical; 5 = not very important.
Now, write a short paragraph stating your competitive
advantages and disadvantages.
Now that you have systematically analyzed your industry,
your product, your customers, and the competition, you should have a clear
picture of where your company fits into the world.
In one short paragraph, define your niche, your unique
corner of the market.
Now outline a marketing strategy that is consistent with
How will you get the word out to customers?
Advertising: What media, why, and how often? Why this mix
and not some other?
Have you identified low-cost methods to get the most out of
your promotional budget?
Will you use methods other than paid advertising, such as
trade shows, catalogs, dealer incentives, word of mouth (how will you
stimulate it?), and network of friends or professionals?
What image do you want to project? How do you want customers
to see you?
In addition to advertising, what plans do you have for
graphic image support? This includes things like logo design, cards and
letterhead, brochures, signage, and interior design (if customers come to
your place of business).
Should you have a system to identify repeat customers and
then systematically contact them?
How much will you spend on the items listed above?
Before startup? (These numbers will go into your startup
Ongoing? (These numbers will go into your operating plan
Explain your method or methods of setting prices. For most
small businesses, having the lowest price is not a good policy. It robs you
of needed profit margin; customers may not care as much about price as you
think; and large competitors can under price you anyway. Usually you will do
better to have average prices and compete on quality and service.
Does your pricing strategy fit with what was revealed in
your competitive analysis?
Compare your prices with those of the competition. Are they
higher, lower, the same? Why?
How important is price as a competitive factor? Do your
intended customers really make their purchase decisions mostly on price?
What will be your customer service and credit policies?
Probably you do not have a precise location picked out yet.
This is the time to think about what you want and need in a location. Many
startups run successfully from home for a while.
You will describe your physical needs later, in the
section. Here, analyze your location criteria as they will affect
Is your location important to your customers? If yes, how?
If customers come to your place of business:
Is it convenient? Parking? Interior spaces? Not out of the
Is it consistent with your image?
Is it what customers want and expect?
Where is the competition located? Is it better for you to be
near them (like car dealers or fast food restaurants) or distant (like
convenience food stores)?
How do you sell your products or services?
Direct (mail order, Web, catalog)
Your own sales force
Bid on contracts
Now that you have described your products, services,
customers, markets, and marketing plans in detail, it’s time to attach some
numbers to your plan. Use a
sales forecast spreadsheet to prepare a
month-by-month projection. The forecast should be based on your historical
sales, the marketing strategies that you have just described, your market
research, and industry data, if available.
You may want to do two forecasts: 1) a "best guess", which
is what you really expect, and 2) a "worst case" low estimate that you are
confident you can reach no matter what happens.
Remember to keep notes on your research and your assumptions
as you build this sales forecast and all subsequent spreadsheets in the
plan. This is critical if you are going to present it to funding sources.