Chapter 3 - Analyzing the Market, Customers, and Competition

These are notes from reading the excellent book Patterns of Entrepreneurship.

"You can never do too much research. In-depth knowledge of your market, your customer, and your competition will create a strong foundation to carry you from early startup through the rocky stage of growth and expansion."

Concentrate not on the idea, but on the market, competition, and potential customers.

Preparing the Marketing Analysis Plan


Answer these questions:

  • Is there a market to build a viable business?
  • Who are the competitors?
  • Will this venture be the first in the market or face competition?
  • Is governmental regulation an issue?
  • What new products are in the pipeline?
  • How much financial support will be needed to start up?


Step One: Identifying Customers
You first develop a profile of the customers.

Market Identification
Answer these questions:

  • How profitable are the existing company services?
  • Which of these services offer the most potential?
  • Which are inappropriate?
  • Which will customers cease to need in the future?
  • Who are the current customers?
  • Who are the potential customers? (can be geographic)
  • Any changing trends in demographics, economics, technology, cultural attitudes?


The plan is to select a niche market in which the new business can grow and gain a competitive advantage.

Target marketing is the strategy used by most successful businesses today.

A new venture or an early-stage business has a high degree of success in a niche market. Niche markets are too small to be attractive to large competitors.

Strategy Market Segmentation - developing tactics for each target market

Definition: One-to-One Marketing - learning the profile or details about individual customers, you can then use this knowledge to create and sell products and services to breed loyalty.

One to One Marketing Steps
1. Identify customers, or get them to identify themselves. Get names. Get names however you can.

2. Link customers' identities to their transactions.

3. Figure out what the customer is likely to spend over time. Use this to figure out which customers are most desirable and how much to invest in keeping them.

4. Practice "just in time" marketing - time your entry into the market to the customer's purchasing cycle. Time marketing material to meet the customer's needs rather than yours. Send handwritten postcards or marketing materials or use a new catalog for selling.

5. Strengthen a customer-satisfaction program. - survey questions can be tailored to a customer's wish list and buying preferences.

6. Treat complaints as an opportunities for additional business - follow up complaints immediately and correct the problem. Turn them into advocates

7. Survey customers to find "points of pain" - listen to their problems, create new products to solve them

8. Enhance product information - Build in some form of information that will keep customers coming back. (e.g. a $25 gift card when customers make purchases in excess of $200)

Attracting a new customer costs 5 times what it does to keep one

Potential ways to segment your customers

  • age, income, gender
  • geography
  • cultural groups (e.g. upscale suburban)
  • ethnicity


Remember that you are looking for ways to efficiently market to them. What is the best way to hit your segmented group?

Answer these questions

  • Do potential customer groups have different needs?
  • Does meeting customer needs require different capabilities than meeting the needs of other customers?
  • Can the customers that fit into a given segment be identified?
  • Are customers both willing and able to pay?
  • Is the segment large enough to be profitable?
  • Can the segment be reached in a cost-effective manner?
  • Can the segment be influenced to respond favorably?


Competitive Analysis
Who are your competitors? How do they compete for business in terms of product, service, location, and promotion?

  • How is the competitive product defined? (huh?)
  • How is it similar or different?
  • Does the competition cater to a mass or targeted market?
  • What features of the product are superior?
  • What strengths or weaknesses of the competition can be exploited?
  • What is the competitor's pricing strategy?
  • Is the competitor's price higher or lower?
  • What is the competitor's gross margin for similar products?
  • Does the competitor offer terms, discounts, or promotions?
  • Define the competition in terms of new, Internet, or potential threats of existing companies.
  • What are the strengths and weaknesses of each?
  • How will e-commerce companies affect the business?
  • How can the suppliers or buyers affect the competition?
  • How do the competitors advertise? Analyze their Web sites?
  • How much do the competitors spend on advertising, Web development, and promotions?
  • What marketing vision or plan are the competitors selling?
  • How strong is the competitor's management team?
  • What is the team's background or experience?
  • How does the company recruit new key employees?
  • How does the company compensate new employees?
  • Is the competitor profitable?
  • What volume sales and market shares?
  • Do they spend money for R&D, Internet and Web development?
  • Are the properly capitalized? How strong is their cash flow?


Ask yourself, which of these (high or low) does your product fall in?

Factors High Low
Competition Competition is minimal but intense The industry is declining and mature

Internet companies No competition defined on the Many companies are entering this market
Internet

Potential threats Complex barriers and costs are high Few simple entry barriers to enter the market
to enter the market


Given the competition, how will the product appeal to a specific niche market, if any?

Advice: Provide one simple, and consistent message

Price should not be based simply on cost + profit. Rather, it should be based on the value of the product to the customer. If the customer does not think the price is reasonable, then consider both a price change, and a new image for the product.

Write a marketing plan. Discuss the major competitors and note their strengths and weaknesses. Suggest how your company will vie within the competition, how it will serve an untapped niche.

Primary market research (collecting data yourself via surveys, focus groups, phone interviews, questionnaires) can be expensive for small companies. Two ways of doing low cost research:

Information focus groups - gather likely customers for 2-3 hours and ask pointed questions about the product. Ask open ended questions and probe responses. Use visual clues like competitor's products to gain reactions

Online survey - write questions about potential customer's thoughts and reactions to the proposed product. Consider a brief consultation with a statistician (um, really?) to ensure that the survey has reliability. (if it were repeated, would it have the same result). Purchase e-mail lists of potential customers and e-mail the survey with incentives to participate. Analyze the tabulated results for key findings.

Secondary Research - (collecting existing data from studies, books, journals, etc) Try and get:

  • Basic demographic information (age, sex, location, marital status)
  • Customer ideas and opinions - product quality preferences, motivators of buying decisions, and color preferences
  • Buying cycles or patterns. Do they buy weekly, monthly, yearly? Are the purchases spontaneous or planned? Is the purchase a gift?
  • Trends for new and improved products. What needs to they want filled? What is missing in the marketplace?
  • Strategic alliances opportunities - Who else is doing what you do? What companies could complement your product offerings if you worked together?
  • Opportunities for beating your competition. What's important to your customers? Price? Quality? Features?


Fuck me this is a huge book.