Entrepreneurship Unit 2.1 Analyzing a business’s customers

Students will analyze their market’s customers. Students will be able to: Define target market Define market segmentation by demographics, psychographics, geographics, and buying characteristics Distinguish the difference between primary and secondary research Describe a focus group Identify the steps of market research

Why Market Analysis? Market analysis presents research findings about target markets. Market analysis includes a target market profile that explains the traits of the company’s potential customers. Market analysis provides potential investors with a realistic forecast of the growth potential for the market in which your company will operate.

What is a Target Market? A specific group of consumers at which a company aims its products and services . Your target customers are those who are most likely to buy from you.

What is Market Segmentation? Market segmentation is the process of grouping a market into smaller subgroups defined by specific characteristics.

What are the four types of market segmentation? Geographics Demographics Psychographics Buying Characteristics

4 Types of Market Segmentation Geographics – the study of the market based on where customers live by region, state, city, and/or area. Demographics – the personal characteristics of a population: age, gender, family size, income, occupation, family life cycle, education, religion, race, nationality, or social class.

4 Types of Market Segmentation (cont’d.) Psychographics – the study of consumers based on social and psychological characteristics: personality, values, opinions, beliefs, motivations, attitudes, and lifestyle elements, including activities and interests; Behavior: Buying characteristics – knowledge of and personal experiences with the actual goods or services.

Guidelines to Segment the Target Market: The target market should be measurable. How many potential buyers are in the market? The segment should be large enough to be profitable—to recover costs and make a profit. The segment should be reachable. Product information and product availability must be considered. The target segment should be responsive; i.e., that people are interested in the product.

Market Segment Profile (Example) Situation: Clothing boutique specializes in trendy fashions for teenagers. Located in a fast-growing metropolitan area with several high schools and a college. Profile: Girls 13-18 years old; reside within city, nearby suburbs, or rural areas; part-time annual income of $1500; rarely buy expensive items; aware of current trends and attitude toward where to buy influenced by peers.

3 Types of Market Research 1. Exploratory Research is used when you know little about a subject. Check with industry & government publications. You can organize a focus group of people whose opinions are studied to determine the opinions that can be expected from a larger population.

3 Types of Market Research (cont’d.) 2. Descriptive Research Develop a customer profile. Learn the age, gender, occupation, income, and buying habits of potential customers. Such information can be collected through questionnaires, interviews, or observation.

3 Types of Market Research (cont’d.) 3. Historical Research involves studying the past. Trade associations and trade publications are two sources of useful historical data. Historical research might be useful to learn why a type of business has been successful or unsuccessful.

What is Primary Data? Research collected for the first time and relates directly to the collector’s study. How do I collect primary data? Observation Interviews – in person, by phone, through mail Surveys Observe buyers at competitor’s site Focus groups

What is Secondary Data? Information collected by someone else for their own purposes. Where do I find Secondary Data? Internet Government and community organizations Website of the U.S. Census Bureau Chamber of Commerce Trade associations Trade publications Commercial research agencies

Five Steps of Market Research Step 1: Identify your Information Needs. What data needs to be collected? What methods of analysis will be used? How will the data be used? Example: Before opening a hobby store, you need to know who your first customers will be and what they want? Also, you must gather information about the competition.

Step 2: Obtain Secondary Resources Step 2: Obtain Secondary Resources. Information that has been collected by someone else is called secondary data. What are the demographics of the customer? What are the psychographics of the customer? How large is the market? Is the market growing? Is the market affected by geography? How can you reach your market? How do your competitors reach the market? What market strategies have been successful with these customers?

Step 3: Collect Primary Data 1. What are the demographics of your customer? 2. Would potential customers purchase your product or service? Why or why not? How much would customers purchase? When would customers purchase? Who would customers like to find the product or service? What do customers like about your competitors’ products and services?

Step Four: Organize the Data What does the data tell you. Organize it Interpret it Analyze it Understand it

How may Data be Represented? Bar graphs Pie charts Line graphs

Step Five: Analyze the Data. Now that your information has been organized, ask yourself these questions: Is there a market for the product or service? How big is the market? Will the industry support such a business? What do substitute products/service reveal about demand for the product/service? What do customers, end users, and intermediaries predict the demand will be?

Let’s Review Define target market Define market segmentation by demographics, psychographics, geographics, and buying characteristics Distinguish the difference between primary and secondary research Describe a focus group Identify the steps of market research