PlusOne – Marketing Musings » Business Tip #1 Discovering Your Market

A primary reason for many businesses failing to succeed can be attributed to a failure by the business owner or manager to correctly identify who their target market really is and if that market is the same as it was a year ago. Too often a business is started or bought because the prospective business person felt within themselves that because they liked to products or services, so would everyone else.

For established business, failure can come about because the market has changed due to economic or political reasons, but the business has remained oblivious to the shift. However, by following some basic steps, not only can a business survive, it can prosper.

It is never too late to initiate change within an organisation, but it is important not to wait until the impending closure of the business to take these steps, which form the first layer of questions for which you will seek answers.
Gain an overview of the market

1. “Is my product or service (still) in demand?”

While this may appear an outrageous question, it can be useful in qualifying upfront if there is demand for what you sell or do. By looking at company records, an established firm can soon tell which items are declining in popularity and which are increasing. Items to be looked at include the type of item or service most in demand, the value of purchases and the changing demographics of your customers.

The shift by many hotels away from the traditional ‘front bar and lounge’ pub to a more upmarket and trendy watering hole is evidence of one market segment recognising the shift in demand.

2. “How many competitors provide the same product or service?”

Competition can be both a good and bad thing. The mere fact that there is competition out there indicates there is demand. Before quickly identifying other businesses as competitors or non-competitors, look closely at what they offer or do. Market segmentation could mean that another dealer or service provider who, on the surface is providing the same as you is not a competitor, because they are focused on a different market segment.

3. “Can I create a demand for my product or service?”

This is perhaps the most crucial question to ask yourself. If your product or service is in demand, then people must know that you offer it, but more importantly, want to buy it from you. In most suburbs or large towns, there is normally more than one place to acquire the product or service you are seeking. The key to making your business work is to get your customers to stay with your business and attract competitor’s customers. Some businesses do this very well, even sourcing customers from other suburbs, towns or even cities. When asking yourself “Can I create a demand for my product or service?” think about some of the marketing alternatives you will use.

4. “Can I effectively compete in price, quality and delivery?”

Examining how the competitors deliver their products and services can provide you with a benchmark against which to work. Many businesses have had long relationships with suppliers and may be purchasing at a cheaper price than you can obtain. However it may be that there is a market niche for a different quality of goods, offered at a different price or delivered in a different fashion. In the case of cookware, not everyone wishes to buy high quality stainless steel cookware, when the local demographics indicates that a market for lower quality steel or even aluminum cookware could be in demand.

5. “Can I price my product or service to give me the projected profit?”

Pricing of products and services is the bane of many competing businesses. All too often price discount wars lead to the failure of one business and threat the ongoing viability of the survivor. The easiest way to compete on price is to offer a different ‘product’ from your competitor. This will allow you to set your prices at levels sufficient to allow sales targets to be met.
What does market research provide?

By conducting market research many things that may not have been obvious can be brought into the decision making process. It can identify alternative methods of approaching a market which on the surface may not have shown much promise. These are often the “Why didn’t I think of that” products or services that are regularly seen and can lead to many aspiring entrepreneurs venturing into business themselves.

Market research can also provide hard data upon which to make assumptions. For example, a business person may think there is an opportunity to provide goods to the youth market because there are a lot of young people in the local area. Market research may show that the intended business venture may be unviable because of high rates of youth unemployment, resulting in a low level of spending power.

The same market research may show, however, that an area has a high incidence of a particular demographic group that could indicate a possible market niche for a product or service not presently catered for. In this regard, market research will then allow for the development of marketing plans to tap into this market.

Market research will also allow you to identify the boundaries of your pricing structure. It will provide no benefit to charge prices higher than your market can afford, or attempt to provide goods or services outside the tastes of the market.

One of the main dangers of market research is gathering great quantities of information, which is difficult to collate and provide a meaningful result. For this reason it is important to approach the task in a logical and organised manner. Identifying the most useful types of questions can also reduce the seemingly enormous task of discovering the market. The same can also be said of not asking enough questions, because too little information will provide a distorted view of the market.

One of the best ways to maintain a controlled area for information is to buy a specific book to enter all results of the market survey. This need not be expensive and could be as simple as a school excercise book. A manila file or large envelope is also useful for storing loose sheets such as photocopies of statistics or other material that may arrive by post. For longer-term statistical analysis, a computer with basis programs will also prove invaluable.
What sort of questions should I be asking?

Your business can be affected by a variety of inputs. The purpose of the following questions is to determine which are the most important and can also lead to discovery of opportunities previously not identified.

1. Who are your customers?

While at first this may seem a very basic question, seeking the answer can lead to confirmation of an assumption, or bring about surprising results. Finding out who your customers are can take many forms, and these are determined by the categories they can be divided into. These include: age, sex, income level, ethnic origin, married, if they have children, pay cash or credit card, if they smoke, when they shop (including time of day, day of week, seasonal), hobbies etc. The list can be quite long, and needs to be modified to suit the type of business you are in.

Collecting this type of data can take may forms. For example, I was at a restaurant recently and despite being a walk-up diner, several things were written on the booking sheet. These included the number of diners and whether we wanted smoking or non smoking. The time of our arrival was also noted. The owner had gathered some useful data. Through analysing these sheets over a number of days and weeks, he could determine if he needed to expand his non smoking area, he could estimate how many people would arrive for lunch on a Wednesday, seating numbers per table and booked v. non booked diners. Through looking at the meal orders he could see what was most popular, most popular drinks, average amount spent and if the staff were observant, how long we stayed. By maintaining lists of names from bookings and credit cards, the frequency of diners visiting the establishment can also be established.

From all this data TRENDS can be determined. This can assist with planning and identify early, customers changing preferences so the business can move to meet the demand.

2. Where are they located?

Do people travel to visit your store, or do most customers live within a few kilometers of your business. Depending on the type of business you are running either could be the case. Knowing where your customers are, however, can greatly assist in planning promotional activities. By knowing who they are, you can then target a message to the right people and send it to the right suburb or region.

3. What are their needs?

If you do not provide a specific service or stock an item that a customer asks for, they are clearly communicating their needs to you. Always keep a record of what you could not provide, over a period of time a clearer picture will begin to emerge, which might just help identify opportunities for new products or services. The same picture can be established through careful analysis of items which are in greatest demand.

While individually they may tell you what to order more of, by looking at them as a group, it can indicate not only trends, but also how customers perceive your store. An example of this is a store stocking both expensive quality items and cheaper, just as useful items selling more of one than the other. This would indicate the future direct the store should take in stocks and promotional efforts.

4. Is your service or product essential to everyday activity?

Typically it is the needs which are met before the greeds Essential items such as clothes and tax returns will always be in demand, while luxury items are at the mercy of the economy and changing fads. It is better to provide goods or services that people must have either on a regular or even day-to-day basis unless sufficient demand can be created for higher priced items. This could be why my barber is always smiling. When the economy is dragging and the frequency of haircuts is less, it is only the size of the smile that changes.

5. Can the customer afford your services or goods?

By knowing who your customer is and getting a good feel for their needs, there should be no excuse for not providing what they want at a price they can afford. Unless you are doing business by mail order, setting up shop to sell expensive clothes in an area where the average income and only allows people to meet their mortgage or rents is not good planning.

6. Where can you create a demand for you product or service?

This is a fantastic question because it opens up a whole to topic of discussion, which will be examined in detail in later Business Tips, but the quick answer is in your own backyard. Market research will help you identify where people who are like your present customers are located. They can then be target marketed according to your present customers needs and wants.

Do not forget, however, that your greatest method of creating extra demand is to use the biggest sales force you can muster – your present customers. Reward them for introducing new customers with tokens for discounts if people they introduce spend over a certain level. Offer special deals if they spend over a certain amount themselves. Do whatever it takes to get them talking favourably about your business without cutting into profits. In this regard, it is better to spend $1,000 rewarding clients, than spending it on advertising, because those clients will do more verbal advertising as a result of your recognition.

7. What areas within your business are declining or growing?

Several times under previous points we have mentioned keeping track of what is selling and what is not. Your own sales are you best barometer. Look at you figures and recognise the story they tell and act on it. Invest in promoting the things that sell rather than pushing slow items. It is better to sell slow stock at cost and invest in fast moving items than having money sitting on the shelves.
What about information that cannot be gained from my own business?

There are a number of sources of information to assist in gaining an understanding of your market. The following list includes many, but by no means all sources:
* Libraries; look for trade associations or other organisational lists
* Local planning authorities; indications of future growth trends
* Progress associations; they often have comprehensive statistical data from a number of sources
* Real estate organisations and financial organisations sometimes have public domain information
* Newspapers; often publish stories on your competitors or publish topical articles
* Competitors; look at what they are stocking or obtain copies of services promotional material
* Chambers of Commerce; often have survey material for sale
* Australian Bureau of Statistics; have developed a highly effective demographic mapping service
* Australia Post; have assistance services available for direct mail, also demographic mapping etc.

In Conclusion

Developing an awareness of who your market is essential to not only the successful planning for a new business, but also the growth of existing businesses. Collection of information should be an ongoing process which involves all staff members.