Markets & Demand...

Starting & Operating a New Small Business
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Define Your Market the potential market, target segments, typical customer profile and purchase behavior.

In this section we will look at a very important question: Is there a market for your business, services and products? Also, will the market generate enough demand to make your startup cost acceptable for the risk; and your operating expenses and profit needs feasible to cover? We will look at the following for context:

Potential Market (the group of DMU's)

Individual Representative Buyer

Typical Buyer Purchase Behavior

Market Segments

Demand

Wants & Needs Filled

Exchange of Values

Marketing Strategy

  • Product Concept
  • Price Concept
  • Place Concept
  • Promotion Concept
    • Advertising
    • Sales Promotion Devices
    • Personal Selling
    • Publicity

Estimating Demand:

Demand is a forecast of future buyer behavior characterized by:

  • willingness of potential buyers to purchase a given amount of goods and services at a given price at a given time under given circumstances...change these factors and demand will respond.
  • it presumes the ability to pay.
  • demand may be split amongst competitors.
  • past demand (actual) has been recorded and can be looked up. (market shares).
  • potential new users can be estimated.

Demand can be measured by any of the following three criteria:

  • Number of Customers (# of DMU's)
  • Sales volume in dollars ($'s)
  • Unit sales volume (units)

 

If I already have a business, how can I get new customers or increase sales and compete better? Read the article Seven Ways to Encourage Sales When the Economy is Slow

Factors affecting buyer behavior:
  • Number of available substitutes?
  • Quality of available substitutes?
  • Can the buyer do without the product?
  • Can the buyer postpone the purchase?
  • Is it a hi or lo-involvement decision?
  • How motivated is the buyer?
  • How strong are the competitors efforts?
  • Seasonality?
  • Other factors?

 

General Buyer Behavior is a result of:

Individual & Internal Factors

Group & External Factors
  • Personality
  • Learning
  • Perception
  • Motivation
  • Attitudes
  • Culture
  • Subculture
  • Social Class
  • Peer Groups
  • Reference Groups
  • Physical Environment
  • Political/Legal
  • Marketers

 

Describing Your Market(s)

Decision Making Units - DMU's are the basic element making up your potential market, where the potential market is all of the users and all nonusers that can potentially and realistically be motivated to become users.

  • person
  • informal groups: roommates; family
  • formal: business; reseller, govt.

Set Potential Market Limits & Define the Potential Market

Your market potential is all of the users and non users, or in other words, the number of DMU's broken into two groups

Sometimes it is necessary to identify more than one large potential market from another, perhaps because they are substantially different in behavior, purchasing power, geography, customs or other factors. For instance, look at world markets by countries as separate potential markets; or look at business versus consumer markets.

You can then take a potential market and further analyze it for subgroups called market segments. This is referred to as the process of market segmentation. The segments can be formed around any one or any combination of the following factors:
  • Geographics
  • Demographics
  • Lifestyle
    (AIO, Psychographics)
  • Brand Loyalty
  • Usage Patterns
  • Key Benefits:(needs/wants/motivations)

Identify Market Segments & Target Markets

The subpart of your potential market called users represents the market penetration of that potential market. The amount of users that purchase from particular competitor businesses is the market share for each business.

  • Market Penetration
  • Market Share


Targeting Strategies
Once you have formed market segments for a potential market you need to choose a targeting strategy, that is a choice of whether to focus on the whole potential market with one marketing strategy or selected parts with different marketing strategies customized for each segment.

  • Undifferentiated - treat the segments as not being significant; one market strategy
  • Concentrated (on a Special Segment) - choose a niche or single segment; one market strategy
  • Differentiated - choose the whole market with each segment being recognized as significant; Many market strategies
  • Atomized - treat every DMU as a segment; many market strategies

 

Describe the Typical Consumer In Target Market

Roles Within The DMU

  • Decision Maker
  • Purchaser
  • Influencer
  • User
Decision Making Process

(1) Recognize Needs/Wants - Motivation

  • Instant Evoked Set

(2) Information Search

  • Internal - Evoked Set (mental search)
  • External

(3) Evaluate Alternatives/Make Decisions

  • What
  • Where
  • When
  • How To Buy

(4) Implement Purchase Decisions

(5) Post-Purchase Evaluation - Establishes a Probability Of Repeating Same Purchase Decision = P(Behavior)

Analyzing Demand

Lo vs. Hi involvement Decision - Lo or Hi involvement is based upon the consumers perceptions of risk (perceived risk), based upon dollar amount, social risk, self image, product life span, debt, peer pressure and any other factors.

Using the steps above in typical decision making processes, Lo involvement involves step 1, skips steps 2 and 3 except for a cursory effort, and goes almost immediately to step 4.

Hi involvement decisions involve all five steps.

A marketer attempts to take market share from competitors or add non users to their share by interrupting consumers normal decision processes and shaping the behavior to new patterns.

Discuss possible ways to do this...

Purchase Behavior
When analyzing demand, it also helps to look at a few factors about the actual purchase implementation, Step 4.

  • Lo or Hi involvement
  • Purchase Cycle - frequency
  • Quantity - per visit, average per month, etc.
  • Perceptions - product type, brand
  • Key Decision Factors

 

Estimating Demand

With all of this analysis completed, we are now ready to make demand estimates. This can be done using are three measures from the beginning of this lesson:

  • Number of Customers (# of DMU's)
  • Sales volume in dollars ($'s)
  • Unit sales volume (units)

Market research can also be conducted to help in this (see session on market research)

Steps:

  1. Define the criteria by which you will include and exclude DMU's in your potential market.
  2. Determine if you have multiple potential markets
  3. Look at market shares
  4. Segment the market if appropriate
  5. Determine your targeting strategy
  6. Forecast the demand potential for the industry for a year
  7. Forecast you share of demand as noted below, working from your yearly total down to the daily or from the daily up to the yearly
  8. Bracket you forecast with a high and low estimate
  9. Determine related expenses and potential profit or loss
  10. Assess financial feasibility using this and other factors
 
Average Sale in $ per Customer Visit?
  daily weekly monthly
# of customers _______ _______ _______
# of units _______ _______ _______
$ value/revenue _______ _______ _______

High and Low Ranges

High _______; Low _______

A next steps require that we analyze our startup cost and typical monthly expenses against these estimates to see if the business is financially feasible within the predicted range of demand. We then set Benchmarks, Targets or Standards by which we can compare our predictions with actual figures as we run the business. If we are off, we can have Contingency plans based upon these benchmarks. This kind of analysis allows us to identify where adjustments are needed and where they can be made.