to ensure success, entrepreneurs need to understand the industry and the market

Glencoe Entrepreneurship: Building a Business

Doing Market Research

SECTION 6.1

Chapter 6 Market Analysis

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.

The Main Idea

http://www.glencoe.com/



SECTION 6.1


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.

industrya collection of businesses with a common line of products or services




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Thorough market analysis requires:

Identifying prospective customers and determining their buying habitsAnalyzing your industry and assessing your chances for success within it

Defining Areas of Analysis




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There are four factors that are useful in understanding the nature of an industry:

carrying capacityuncertaintycomplexitystage of life cycle

Industry




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IndustryYou will want to find an industry that has carrying capacity so that your new business can expand and prosper.

carrying capacitythe 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.




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ComplexitySome 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.

complexitythe number and diversity of contacts with which a business must deal


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Stage of Life Cycle

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There are four stages to the life cycle of an industry.

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2

3

4

Birth

Growth

Maturity

Decline



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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.

marketa group of people or companies who have a demand for a product or service and are willing and able to buy it

target marketa specific group of customers whom a business wishes to reach




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Consumer market segmentation is based on geographics, demographics, psychographics, and buying characteristics.A business can select and serve multiple market segments.

market segmentationthe process of grouping a market into smaller subgroups defined by specific characteristics

market segmentssubgroups of buyers with similar characteristics, segmented by geographics, demographics, psychographics, and buying characteristics


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Market Segmentation

demographics

geographics

psychographics

buying characteristics



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Information about the geographics of the target market can help an entrepreneur decide on a geographic area to focus marketing efforts.

geographicsthe study of the market based on where customers live, including region, state, country, city, and/or area




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An entrepreneur can study psychographics to learn about target customers’ feelings.

psychographicsthe study of consumers based on social and psychological characteristics, including personalities, values, opinions, beliefs, motivations, attitudes, and lifestyle elements




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Businesses that cater to industrial markets must consider customers’ individual situations.

industrial marketscustomers who buy goods or services for business use


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The target market for your product or service should be:

Measurable

Large enough to be profitable

Reachable

Responsive

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2

3

4



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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.

market researchthe collection and analysis of information aimed at understanding the behavior of consumers in a certain market


6.1

Select the Type of Market Research

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There are three types of market research

exploratory research

descriptive research

historical research



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Select the Type of Market Research A good way to start exploratory research is to read government or industry publications.

exploratory researchthe initial collection and analysis of information used when very little is known about a subject; it forms a foundation for later research

Another way to gather information is to form a focus group.

focus groupa group of people whose opinions are studied to determine the opinions that can be expected from a larger population




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Descriptive research can be gathered through questionnaires, interviews, or observation.

descriptive researchthe collection of information to determine the status of something, such as in developing a customer profile




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You can use historical research to forecast your business’s future potential.

historical researchthe study of the past to explain present circumstances and predict future trends


6.1

Identify your information needs.

Start the Research Process

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The Five Steps of an Effective Research Plan

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2

3

4

5

Obtain secondary resources.

Collect primary data.

Organize the data.

Analyze the data.



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Research secondary data before researching primary sources because it is easily obtained and inexpensive.

secondary datainformation that has already been collected by someone else




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The most common methods of gathering primary data about customers are:• observation• interviews• surveys

primary datainformation that is collected for the first time, is current, and relates directly to the collector’s study


Industry and Market Analysis


SECTION 6.2


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.

The Main Idea


6.1

Look

Researching the Industry

24

Understand

Study

Analyze

Look at trends and patterns of change.

Understand industry forces that affect your business.

Study industry demographics.

Analyze the competition.

6.1

Industry Forces That Affect Your Business

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barriers to entry

threats from substitute products

sources of supply

buyers’ ability to bargain

technology



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In established businesses, the dominant businesses have advantages that are barriers to entry to smaller, new ventures.

barriers to entryconditions or circumstances that make it difficult or costly for outside firms to enter a market to compete with established firm or firms




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Established businesses have achieved economies of scale in production, marketing, and distribution.

economies of scalesituations 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




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Customers with brand loyalty do not easily switch to a new company that enters the industry.

brand loyaltythe tendency to buy a particular brand of a product




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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.

mass marketingthe attempt to reach all customers with a single marketing plan




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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.

market sharea portion of the total sales generated by all competing companies in a given market




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The CompetitionMany entrepreneurial companies succeed by studying the competition to define a niche in the market.

nichea small, specialized segment of the market based on customer needs discovered in market research

An entrepreneur who wishes to capture market share can use market positioning.

market positioningthe act of identifying a specific market niche for a product




SECTION 6.2


The Competition

You can create a competitive grid to help define your competitive advantage.

competitive advantagea feature that makes a product more desirable than its competitors


6.1

Create

Evaluate

Forecast

Researching the Target Customer

33

Create a customer profile.

Evaluate customers’ needs.

Conduct research to forecast demand.



SECTION 6.2


Creating a Customer Profile

Creating a customer profile is the first step in targeting your marketing efforts.

customer profilea complete picture of a venture’s prospective customers, including geographic, demographic, and psychographic data




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Evaluating Customers’ Needs

In order to provide what the customer wants, you should prepare a customer needs analysis.

customer needs analysisa study that pinpoints the features and benefits of goods or services that customers value




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Several methods can be used to forecast demand:

Use historical analogy.Interview prospective customers and intermediaries.Go into limited production.

Forecasting Demand


to ensure success, entrepreneurs need to understand the industry and the market

Documents

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multiple market segments