what is market analysis and its functions
- 1. C H A P T E R 6 MARKET ANALYSIS
- 2. Doing Market Research Defining Areas of Analysis to succeed and make a profit a business must satisfy the needs of its customers You must know who your customers are and what they want You must conduct market analysis
- 3. Market Analysis Analyze the Industry Industry - is a collection of businesses that are categorized by a specific business activity, such as transportation, electronics or food services Value Chain – within the industry are value chains/distribution channels that support a common line of G/S that satisfy market demands. Includes: raw material producers, manufacturers, suppliers, distributors, retailers and anyone else who deals with other businesses in the industry Deliver maximum value for the least possible total cost Identify prospective customers and determine their buying habits
- 4. Industry Learn what the industry’s current status is and where it is going. Ideas for new ventures comes from understanding and having experience within the industry 4 broad factors are useful in understanding the nature of an industry: Carry Capacity Uncertainty Complexity Stage of Life Cycle
- 5. Industry Carry Capacity: way to understand the industry’s ability to support new growth. Can the industry support new growth and expansion? Uncertainty: degree of stability or instability in an industry. An industry that is fast-changing presents a high degree of uncertainty – more risk and potential for greater rewards. High-tech ventures
- 6. Industry Complexity: number and diversity of contacts with which you must deal to do business. Complex industries have more suppliers, customers, and competitors than firms in other industries. Also often global in nature, are very competitive and costly to enter. Stage of Life Cycle: know the stage your industry in in you can design a business strategy. Birth, growth, maturity and then decline if R&D do not produce innovations that spur growth
- 7. Target Market A Market is a group of people or companies who have a demand for G/S and are willing and able to buy it. Target Market a group of customers who will be the focus of your company’s efforts. Know as much as you can about your Target Market. Customize its product offerings and marketing strategies to specific groups of potential customers.
- 8. Target Market Market Segmentation: the process of grouping a market into smaller subgroups defined by specific characteristics. Market segments or subgroups of buyers with similar characteristics. Geographics Demographics Psychographics Buying Characteristics
- 9. Target Market Market Segments Geographics: where they live; region, state, county, city, and/or area Demographics: personal characteristics of population include age, gender, family size, family life cycle, income, occupation, education, religion, race, nationality, and/or social class Psychographics: social and psychological characteristics- personality, values, opinions, beliefs, motivations, attitudes, and lifestyle activities and interests Buying Characteristics: knowledge of and personal experiences with the actual G/S
- 10. Target Market Industrial Markets: Products for business use, they are goods or components produced for sale to manufacturers and used in the production of other goods. These markets are segmented differently. Variables include: Type of business, size, goods or services sold, geographic location, and products needed.
- 11. Target Market Target Market: after you identify all market segments, you select your target market. Guidelines to use when segmenting the target market Market segment should be measurable, you need to know how many potential buyers are in the market. Segment should be large enough to be potentially profitable. Segment should be reachable. 1. get information about your product and its availability to interested buyers. 2. be able to reach potential customers physically, deliver product Segment should be responsive, do you know that people in segment are interested and willing to buy your product?
- 12. Conducting Market Research Once you know the areas of the market you need to analyze, you can begin investigating them. MARKET RESEARCH: is the collection and analysis of information aimed at understanding the behavior of consumers in a certain market. Identify potential markets Analyze demand Forecast sales Make other decisions
- 13. Conducting Market Research The Market Research process is the same whether you are doing research for an existing business or a new venture. 1. 1. Identify the Focus of the Research 2. 2. Select the Type of Market Research 3. 3. Start the Research Process
- 14. Conducting Market Research 1. Identify the Focus of the Research Focus your research so you do not waste time gathering useless information. 2. Select the Type of Market Research Once you have research question you select a research approach. Ways to structure research are called Research Designs The information you require will determine the design you use.
- 15. Conducting Market Research 2. Select the Type of Market Research 1. Exploratory Research: used when you know very little about the subject. It forms foundation for later research when you are more focused. A good place to start is government or industry publications. You can also talk to people who are knowledgeable about your field. You can organize Focus Groups – a group of people whose opinions studied
- 16. Conducting Market Research 2. Select the Type of Market Research 2. Descriptive Research: When you want to determine status. Collect data through questionnaires, interviews, or observations 3. Historical Research: Involves studying the past Patterns from the past can then be used to explain present circumstances and predict future trends. Trade associations and trade publications are 2 sources of useful historical information. And owners in similar business.
- 17. Start the Research Process An effective plan includes five steps: 1. Identify Your Information Needs 2. Obtain Secondary Resources 3. Collect Primary Data 4. Organize the Data 5. Analyze the Data
- 18. Start the Research Process An effective plan includes five steps: 1. Identify Your Information Needs: what kind of information do you need to know about your customer, industry…. 2. Obtain Secondary Resources: information that has already been collected by someone else. It is easily obtained and inexpensive. A good source is on the Internet. Government and community organizations are good sources. U.S. Census Bureau’s – source for demographics. Chamber of Commerce keeps statistics on local trends and economic issues.
- 19. Start the Research Process 3. Collect Primary Data: Information you collect yourself. Its current and relates directly to your objectives. Common methods are observation, interview, and surveys. Surveys may be by telephone, through the mail or online. In-person surveys will achieve the highest level of success, and high response rate than other methods. Focus Groups are more efficient than one-on-one interviews.
- 20. Start the Research Process 4. Organize the Data: Categorize the data based on the research question it answers. Working on each question, note how many of your sources supported a particular conclusion and how many did not. Create charts and graphs to depict your findings and record your results in report form. 5. Analyze the Data: ask some basic questions Is there a market for the product/service? How big is the market? Will the industry support such a business? What do substitute products reveal about demand for the product? What do customers, end users, and intermediaries predict the demand will be?
- 21. Industry and Market Analysis Researching the Industry Trends and Patterns of Change: find opportunities in an industry by looking at trends and patterns of change. Is it difficult or easy for new companies to enter the industry? Has the rate of sales growth slowed? How volitile is the industry?
- 22. Industry and Market Analysis Researching the Industry 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 or compete with the established firm or firms. Economies of Scale: the cost of producing one unit of a good or service decreases as the volume of production increases. Established businesses have achieved economies of scale in production, marketing and distribution. Brand Loyalty: customers who are brand loyal do not easily switch to a new company that enters the industry. Government regulates many industries and this results in higher costs.
- 23. Industry and Market Analysis Researching the Industry Industry Forces that Affect Your Business Sources of Supply: need access to affordable sources of inventory, raw materials, and goods. Also consider where your suppliers are located, the trade discounts they offer, and the availability of alternate sources. These can affect your costs, pricing, and sales. Buyer’s Ability to Bargain: when existing businesses have bargaining power, a new business may have difficulty gaining a foothold. Large discount buyers (WalMart) have enormous bargaining power Technology: enables companies to improve their business processes, operate effectively and efficiently are more likely to stay competitive
- 24. Industry and Market Analysis Researching the Industry Industry Demographics-Industry characteristics The number of companies, annual revenues, and average size of the companies by number of employees Is industry growing, shrinking, or remaining stable
- 25. Industry and Market Analysis Researching the Industry The Competition – to succeed you must capture market share by differentiating your business. Market Share - portion of total sales generated by all competing companies in a given market Study the competition to define an unserved niche in the market. Niche – a small, specialized segment of the market based on customer needs discovered in market research Market Positioning – is the act of identifying a specific market niche for a product or service Create a Competitive Matrix - do a thorough analysis of the competition. Identify what is unique about your business and define your Competitive Advantage, a feature that makes a product more desirable than it competitor’s products.
- 26. Industry and Market Analysis Researching the Target Customer You must know your customer and have a market penetration strategy. Market Penetration Strategy - is a plan to reach initial customers and grow. Creating a Customer Profile: prospective customer’s market segments. Who are my customers? What do they generally buy, and how do they hear about the product? How often do they buy? How can my product meet their needs, or what value can I provide?
- 27. Industry and Market Analysis Researching the Target Customer Evaluating Customer’s Needs – a customer needs analysis pinpoints the features and benefits of your goods or services that customers value. Forecasting Demand – need to know how much of your product will they buy and how often they will buy it. Difficult to forecast with any degree of certainty Various methods to forecast: Project: use analogous products, base demand for your product based on demand for another one. Interview prospective customers and intermediaries. Talking with people who work in industry- customers, distributors, wholesalers, and retailers can give you a good estimate of demand Limited production to test the market. Use a kiosk gauge demand