Chapter 7
Section
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The world changes rapidly and frequently
Means each business must stay informed
about its Market
◦ A group of potential customers – people or
businesses – who are willing and able to purchase a
particular product or service.
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Market research is an organized way to
gather and analyze information needed to
make business decisions
◦ can help you decide to start a new business
◦ Not just used when starting a business, needs to be
an ongoing activity
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Market Research tends to focus on 3 main
areas
◦ Business environment refers to any social,
economic, or political factors that could impact
your business. This includes global, national, and
industry-related factors
◦ Customers – can be individuals or businesses. Need
to satisfy customers while making a profit. Need to
know who they are and what they want.
◦ Competition – helps identify them and how they
operate – helpful in planning sales efforts
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Making incorrect guesses can lead to wrong
decisions. You may want to use M.R. to test a
prototype
May also want to find the carrying capacity of
the industry you want to enter
◦ Carrying Capacity refers to the maximum number
of companies an industry can support based on its
potential customer base.
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Easier to attract people, banks, or companies
to invest in your company if you have done
thorough market research
Most wont back you if you don’t have
evidence to back up your concept
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You may try to sell your product or service to
as many customers as possible. This is called
a mass market.
◦ Not best for most small businesses
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Most entrepreneurs focus on identifying a
target market, or a limited number of
customers who are more likely to buy the
products or services.
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One of the goals of Market research is
developing a customer profile. This is a
detailed description of your target market’s
characteristics.
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• Consumers – a company who sells to
individuals is sometimes referred to as
a business-to-consumer
(B2C)company.
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Customer profile might include age, gender,
occupation, neighborhood, hobbies, etc.
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A company who sells to other companies is
sometimes called a business-to business
(B2B) company.
Customer profile might include company
size, type of industry, geographical location,
etc.
Don’t have to pick just one!!
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A market segment is a grouping of
consumers or businesses within a particular
market that has one or more things in
common.
Target market often includes more than one
different segment.
Some ways to group, which influence buying
patterns areon the next slide.
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Demographics – objective social and
economic facts about people.
◦ Age, gender, marital status, family size, ethnic
background, education, occupation, annual income,
own vs. rent, etc.
◦ For businesses: industry type, number of
employees, annual sales
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Geographics – market segments based on
where people live or businesses are located.
Could be local, country, climate, state, etc.
Psychographics – psychological
characteristics of consumers such as
attitudes, opinions, beliefs, interests,
personality, lifestyle, political beliefs,
personal; preferences. etc.
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Types of Research
◦ Secondary Data – Existing informationthat
was previously gathered for a purpose other
than the study at hand. Examples – economic
forecasts by financial organizations,
demographic data by the government, etc.
Secondary data is cheap and easy to obtain
◦ Primary Data – new information that is
collected for a particular purpose. Obtained
directly from potential customers. Useful
because it is up to date and aimed at your
target market. More time consuming and
expensive to collect.
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Government organizations
Trade groups and journals
Business magazines and reports
Local community resources
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Interviews and surveys – develop a survey to
give in person, on the phone, or by email.
◦ A list-rental company provides lists of names and
addresses for targeted markets, typically allowing
you to use the list for a single mailing
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Focus groups – small number of people
brought together to discuss a particular
problem, product, or service.
Observations – watch which stores people like
or offer a sample for free with products and
see how they react.
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When gathering data, watch for potential
problems. Data could be presented in a
biased way. Four questions to evaluate your
data
1. Is the source well known and reliable?
2. How relevant is the data to my industry area and
target market?
3. Is this set of data collected and updated on a
regular basis
4. Have I confirmed the research results with more
than one source or method?
Section 2
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In addition to your target market, another
area of market research involves competition
Data you collect about your competitors is
called competitive intelligence
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Direct competitors are businesses in your
market that sell a product or service similar
to yours.
◦ i.e. McDonalds and Burger King
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Indirect competitors are businesses that sell a
different product or service that yours but fill
the same customer need or want.
◦ i.e. Taco Bell and McDonalds
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Customers may also decide to cook at home
rather than buying a meal. Usually,
ingredients at a grocery store are less
expensive than buying the finished product.
In tough economic times, people might
choose to provide a service on their own
rather than buying it. Manicures, lawn
mowing, changing oil, etc.
Are flower shops and candy stores
competition around valentines day?
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Competitive intelligence enables you to
compare your competitors’ strengths and
weaknesses with your potential business.
During this process you will be looking for
ways to get ahead of the competition.
Your competitive advantage is something that
puts your business ahead of the competition.
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Secondary data sources will help you gather
competitive intelligence. Consider all the
places your customers can get their product.
Stores, as well at the internet!!
One way is to pose as a customer. Go to
competitors store at different times of the
day, week. Note busy times and types of
people there. Ask these questions:
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What products do they carry? How are the
products display? How much do they cost?
What is their customer service like? Did the staff
offer to assist me? Were they friendly and
helpful?
How many other potential customers are in the
store? What do other customer demographics
look like? (age, gender, etc.) Psychographics,
geographics, buying patterns
Does the competitor offer any special purchasing
terms, such as credit with no interest? Do they
provide any other services like delivery? Returns?
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It is not enough to simply gather information.
Data needs to be organized and analyzed.
Usually indirect competition outnumbers
direct competition. Group them and rank
them rather than listing them.
Using a competitive matrix can help
◦ A grid that compares characteristics with those of
your direct competitors
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Competitive Matrix shows holes and missing
information in your research. It will include
differentiators, or unique characteristics that
distinguish your business from others.
Questions help identify differentiators
◦ What product or service (or mix of products or
services) can you provide that your competitors
don’t?
◦ What specialized selling or delivery method can give
your business a competitive edge?
◦ In what unique ways can your business meet
customers’ wants or needs?
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Just because you currently have an
advantage, doesn’t mean it will always be
there.
◦ Competitors could see it and adjust
◦ New competition could start
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Continue to monitor competition!
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Add your competitors
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The following slides review the six basic steps
of market research. This would make a
preliminary go/no go decision on starting a
business.
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Before gathering data, list what you want to
find out. What info do you need? What are
you trying to solve? What questions do you
have?
Make a checklist of the info you need. Could
include
◦ Industry Data
◦ Customer Data
◦ Competitive Data
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Based on Objectives, decide which research
methods will be best to help you find the
info.
◦ Secondary research, primary research, or a
combination?
◦ Which secondary sources?
◦ Which primary techniques?
 Do you need a survey, etc? create it.
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As you collect the data, you may find more
things you need to research.
◦ Usually have to adjust as you go
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Make sure secondary data is relevant to your
industry. Use multiple sources if possible
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Group indirect competitors by industry,
product, or service
Select the three of four direct competitors
who seem to be strongest. Create a
competitive matrix with them
Look for areas where data is missing and
collect more if necessary
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Compare competitors characteristics.
Identify potential differentiators. What could
you do or create to set your business apart
from competition
Create an expanded SWOT that includes
competitors
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Decide whether to proceed with your business or
stop. Be as objective as you can. Look at the
following:
◦ Target Market – is there one for your product or service? Is
there room?
◦ Market size and demand – how large is the target market?
How often do they buy your thing, how satisfied are they?
◦ Carrying Capacity – based on the number and strength of
your competitors, can your business be supported?
◦ Expanded SWOT analysis – do your strengths outweigh your
weaknesses? How do you minimize threats and expand
opportunities?