SECTION
6.1
Doing Market
Research
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTION
6.1
Doing Market
Research
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
industry
a collection of
businesses with a
common line of products
or services
SECTION
6.1
Doing Market
Research
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
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTION
6.1
Doing Market
Research
Industry
There are four factors that are useful in
understanding the nature of an industry:
carrying capacity
uncertainty
complexity
stage of life cycle
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTION
6.1
Doing Market
Research
Industry
You will want to find an
industry that has carrying
capacity so that your new
business can expand and
prosper.
carrying capacity
the ability of industry to
support new growth
Uncertainty is the degree of stability or instability in an
industry.
Many high-tech ventures are in industries with uncertain
climates.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTION
6.1
Doing Market
Research
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
complexity
the number and diversity
of contacts with which a
business must deal
Stage of Life Cycle
There are four stages to the life cycle of
an industry.
1
Birth
2
Growth
3
Maturity
4
Decline
7
SECTION
6.1
Doing Market
Research
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
market
target
market
a group of people or companies
a specific
groupfor
ofa product
who
have a demand
or
service and are
willinga and able
customers
whom
to buy it
business wishes to reach
SECTION
6.1
Doing Market
Research
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
market
marketsegmentation
segments
the
process of
a market
subgroups
of grouping
buyers with
into smaller subgroups defined by
similar characteristics,
specific characteristics
segmented by geographics,
demographics,
psychographics, and
buying characteristics
Target Market and Customer
Market Segmentation
geographics
demographics
buying
characteristics
psychographics
10
SECTION
6.1
Doing Market
Research
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
geographics
the study of the market based on
where customers live, including
region, state, country, city, and/or area
SECTION
6.1
Doing Market
Research
Target Market and Customer
An entrepreneur can
study psychographics
to learn about target
customers’ feelings.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
psychographics
the study of consumers based
on social and psychological
characteristics, including
personalities, values,
opinions, beliefs, motivations,
attitudes, and lifestyle
elements
SECTION
6.1
Doing Market
Research
Target Market and Customer
Businesses that cater
to industrial markets
must consider
customers’ individual
situations.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
industrial markets
customers who buy goods or
services for business use
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
SECTION
6.1
Doing Market
Research
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
market research
the collection and analysis of
information aimed at
understanding the behavior of
consumers in a certain market
Select the Type of Market Research
There are three types of market research
exploratory research
descriptive research
historical research
16
SECTION
6.1
Doing Market
Research
Select the Type of Market Research
A good way to start
exploratory research
is to read government
or industry
publications.
Another way to gather
information is to form a
focus group.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
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
SECTION
6.1
Doing Market
Research
Select the Type of Market Research
Descriptive research
can be gathered
through
questionnaires,
interviews, or
observation.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
descriptive research
the collection of information to
determine the status of
something, such as in
developing a customer profile
SECTION
6.1
Doing Market
Research
Select the Type of Market Research
You can use historical
research to forecast
your business’s future
potential.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
historical research
the study of the past to explain
present circumstances and
predict future trends
Start the Research Process
The Five Steps of an Effective Research Plan
5
4
3
2
1
Analyze the data.
Organize the data.
Collect primary data.
Obtain secondary resources.
Identify your information needs.
20
SECTION
6.1
Doing Market
Research
Start the Research Process
Research secondary
data before
researching primary
sources because it is
easily obtained and
inexpensive.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
secondary data
information that has already
been collected by someone
else
SECTION
6.1
Doing Market
Research
Start the Research Process
The most common
methods of gathering
primary data about
customers are:
• observation
• interviews
• surveys
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
primary data
information that is collected for
the first time, is current, and
relates directly to the
collector’s study
SECTION
6.2
Industry and
Market Analysis
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
Researching the Industry
Look at trends and patterns of change.
Understand industry forces that affect your business.
Study industry demographics.
Analyze the competition.
24
Industry Forces That Affect Your Business
barriers to entry
threats from substitute products
sources of supply
buyers’ ability to bargain
technology
25
SECTION
6.2
Industry and
Market Analysis
Industry Forces That Affect Your
Business
In established
businesses, the
dominant businesses
have advantages that
are barriers to entry
to smaller, new
ventures.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a 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
SECTION
6.2
Industry and
Market Analysis
Industry Forces That Affect Your
Business
Established
businesses have
achieved economies
of scale in production,
marketing, and
distribution.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a 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
SECTION
6.2
Industry and
Market Analysis
Industry Forces That Affect Your
Business
Customers with brand
loyalty do not easily
switch to a new
company that enters
the industry.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
brand loyalty
the tendency to buy a
particular brand of a product
SECTION
6.2
Industry and
Market Analysis
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
mass marketing
the attempt to reach all
customers with a single
marketing plan
SECTION
6.2
Industry and
Market Analysis
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.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a 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
The Competition
Many entrepreneurial
companies succeed by
studying the
competition to define a
niche in the market.
niche
An entrepreneur who
wishes to capture
market share can use
market positioning.
market positioning
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
a small, specialized segment of
the market based on customer
needs discovered in market
research
the act of identifying a specific
market niche for a product
SECTION
6.2
Industry and
Market Analysis
The Competition
You can create a
competitive grid to help
define your
competitive
advantage.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
competitive advantage
a feature that makes a product
more desirable than its
competitors
Researching the Target Customer
Create a customer profile.
Evaluate customers’ needs.
Forecast research to forecast demand.
Conduct
33
SECTION
6.2
Industry and
Market Analysis
Creating a Customer Profile
Creating a customer
profile is the first step
in targeting your
marketing efforts.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
customer profile
a complete picture of a
venture’s prospective
customers, including
geographic, demographic,
and psychographic data
SECTION
6.2
Industry and
Market Analysis
Evaluating Customers’ Needs
In order to provide
what the customer
wants, you should
prepare a customer
needs analysis.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business
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
Forecasting Demand
Several methods can be used to forecast demand:
Use historical analogy.
Interview prospective customers and intermediaries.
Go into limited production.
Chapter 6 Market Analysis
Glencoe Entrepreneurship: Building a Business