Market Research: Market Research Sul Kassicieh New Venture Creation course


Market Research: Market Research Industry Analysis, market analysis, competitors: the “what” we need to do Forecasting: the models Market Research: the “how”


INDUSTRY ANALYSIS: INDUSTRY ANALYSIS Investors usually want to be assured that the business understands the "industry" in which the business venture is to compete If you really want to study your potential customers' choices and the competition, you should define your "industry" in terms of the customers' need satisfiers.


INDUSTRY ANALYSIS: INDUSTRY ANALYSIS Example of need satisfiers: a potential customer who wishes to contribute to cleaning up his community’s air may choose to buy an electric car, a hydrogen-based car, convert to a natural gas fueled car or purchase ethanol gasoline or diesel. All these compete in one industry


UNDERSTANDING AN "INDUSTRY": UNDERSTANDING AN "INDUSTRY" THE FOLLOWING "INDUSTRY" FACTORS SHOULD BE INVESTIGATED: The size and segmentation basis Typical profit margins Structure (centralized, fragmented, etc.) Underlying technologies, innovations Frequency and costs of entry and exit Acquisition and merger activity


INDUSTRY Factors: INDUSTRY Factors Competitive strategies of main players Regulatory / environmental factors Typical vertical relationships (supplier, distributor, retail) Critical success factors (e.g., capacity utilization) Typical sources of financing ventures (VCs, Angels, IPOs, etc.) Basis of innovation (sources of technologies)


MARKET ANALYSIS: MARKET ANALYSIS The objective of market analysis is to project, as accurately as possible, the units sold, the revenues and the potential profits to be attained over the firm's planning horizon (usually five years) for: each product line each market segment


Market Analysis : Market Analysis The market analysis data is one of two important foundations upon which one constructs the financial models of the business (the other is cost figures). There are two common approaches to estimating market – with justifications to validate estimates. 1) the macro (industry) approach 2) the micro (customer) approach


Macro Approach: Macro Approach The macro approach estimates the total number of potential users in each addressed segment and then applies expected penetration rates to the total. Penetration rates depend on industry fragmentation, the strength of your competitive advantages, diffusion rates of similar types of innovations, etc.


Micro Approach: Micro Approach The micro approach focuses initially on the prospective customer, his needs and apparent benefits from adopting your innovation, his purchase decision and usage rates, his sophistication in using your innovation, and his personal demographics (age, education, wealth,


Market Segments: Market Segments The sequence of segments addressed is determined by the readiness of adoption. The number of potential adopters in each time period is estimated by the resources that are available and required to close a sale in each segment.


MARKET SEGMENTATION AND SEQUENCING: MARKET SEGMENTATION AND SEQUENCING Most new ventures start out by pursuing a niche / differentiation competitive strategy. This implies a thorough understanding of the market segments to be addressed and the sequence in which segments will be pursued


INVESTORS: INVESTORS Many institutional investors prefer segments with price inelasticity, knowledgeable users and industrial (OEM) customers.


SEGMENTATION : SEGMENTATION Type: Consumer, industrial, commercial, and government Life cycle: Retrofit, replacement or new purchase Stages in the adoption cycle: innovators, early adopters, early majority, late majority, laggards Urgency of customer need: “white knuckles" to "ho hum" Demographics


CUSTOMER PURCHASE DECISIONS: CUSTOMER PURCHASE DECISIONS Understanding the purchase decisions of typical customers in each market segment is key to accurately projecting demand and devising appropriate promotional and sales strategies


THE PURCHASE DECISION: THE PURCHASE DECISION 1. User economics (especially in industrial and commercial segments) Capital cost savings Operating cost savings Time saving Increased functionality


THE PURCHASE DECISION: THE PURCHASE DECISION 2. Customer organizational decision processes including "champions" within customer organization 3. Customer budget cycles 4. Decision constraints (e.g., regulations) 5. In-channel decisions (e.g., distributors, inventory financiers)


THE PURCHASE DECISION: THE PURCHASE DECISION 6. Purchase decision influencers (lessors, systems integrators, consultants, trade and professional associations, performance certifiers) 7. Resistance to change and politics


ASSESSMENT OF COMPETITORS: ASSESSMENT OF COMPETITORS Competitive strategies are developed on the basis of careful assessment of current and anticipated future competitors. Remember: customer needs may be satisfied by products, services, materials or processes that are dramatically different from yours


Competitors: Competitors For each, what are their comparative advantages Cost structure, Technologies, Reputation / brand recognition, Control of critical resources Management In what market segments and geographic areas will each compete?


Competitors: Competitors What is their likely reaction to your competitive moves (especially the large, resource-rich competitors)? Where will competition come from and how will it change as the industry expands and matures? How will technology change the competitive structure?


Competitors: Competitors Will you or your competitors gain advantage through the formation of strategic alliances? (are there opportunities for you to eliminate strong competitors by forming alliances with them?)


Issues: Issues Market is key: what does the customer want? Can the company deliver on time and is a cost effective manner? Features: product/service description Price: high enough Production Warranties


People Express: People Express Design of operations provided advantage Oversized storage racks and storage under seats Less need for luggage in the hold Quick turnaround: less time on ground, less ground equipment and crews Airplanes in air more: more revenue


Ben & Jerry: Ben & Jerry Use of pure cane sugar Use of Egg yolks No artificial ingredients Insertion of large chunks of cookies, candies, nuts, etc. required researching new techniques and buying new machinery


Technology: Technology People do not buy technology We need to describe the products in terms of solutions to people’s needs/problems Classification of products as “vitamins” or “painkillers” You could get people to use products that increase “productivity”


Forecasting: Forecasting Source: Based on Mitroff and Turoff, 1973


Strategies and Techniques for Forecasting: Strategies and Techniques for Forecasting Forecasting strategy can be divided into two parts: Strategy used to conduct the technical aspects-that is selecting forecasting techniques and applications Strategy for communicating forecasts to users, which depends on the character and needs of the user needs


Five Most Frequently Employed Families of Forecasting Techniques: Five Most Frequently Employed Families of Forecasting Techniques Monitoring: is the process of scanning the environment for information about the subject of a forecast. Strengths: monitoring can provide large amounts of useful information from a wide range of sources. Weaknesses: information overload can result without selectivity, filtering, and structure. Uses: to maintain current awareness of an area and the information with which to forecast as needed.


Families of Forecasting Techniques: Families of Forecasting Techniques Expert Opinion: the opinions of experts in a particular area are obtained and analyzed. Strengths: Expert forecasts can tap high-quality models internalized by experts who cannot or will not make them explicit. Weaknesses: it is difficult to identify experts. Their forecasts are often wrong. Questions posed are often ambiguous or unclear. Uses: to forecast when identifiable experts in area exist and where data are lacking and modeling is difficult or impossible.


Families of Forecasting Techniques: Families of Forecasting Techniques Trend Analysis: uses mathematical and statistical techniques to extend time series data into the future. Strengths: it offers substantial, data-based forecast of quantifiable parameters and is especially accurate over short time frames. Weaknesses: it often requires a significant amount of good data to be effective and works only for quantifiable parameters. Uses: to project quantifiable parameters and to analyze adoption and substitution of technologies.


Families of Forecasting Techniques: Families of Forecasting Techniques Modeling: is to simply represent the structure and dynamics of some part of the “real” world. Strengths: models can exhibit future behavior of complex systems simply by isolating important system aspects from unessential detail. Weaknesses: sophisticated techniques may obscure faulty assumptions and provide a spurious credibility for poor forecasts.


Families of Forecasting Techniques: Families of Forecasting Techniques Scenarios: are sets of snapshots of some aspect of the future and/or future histories leading from the present to the future. Strengths: they can present rich, complex portraits of possible futures and incorporate a wide range of information. They are an effective way of communicating forecasts to a wide variety of users Weaknesses: they may be more fantasy than forecast, unless a firm basis in reality is maintained by the forecaster.


Market Research: Market Research The process of collecting, organizing, maintaining, analyzing, and presenting data that enables activities to achieve the best value acquisition of products, services, and technology. A continuous process.


Phases: Phases Market Surveillance (Strategic) Ongoing activities to keep abreast of technology and product developments. Market Investigation (Tactical) More comprehensive research in response to a specific need for products or services.


Conducting Market Surveillance: Conducting Market Surveillance The process of staying abreast of general industry practices and trends Trade journal subscriptions Professional Association memberships Interact with users Site visits to suppliers Industry forums, trade shows Internet Resources


Market Research Principles: Market Research Principles Start Early Involve Users Communicate Make market research iterative, an ongoing process Tailor the investigation Refine as you proceed Use the research to shape the product


Research Design: Research Design Three types of designs Exploratory Descriptive Causal In business planning, most of the work is in exploratory research


Exploratory research: Exploratory research Exploratory research is used in a number of situations: To gain background information To define terms To clarify problems and hypotheses To establish research priorities


Methods: exploratory research: Methods: exploratory research A variety of methods are available to conduct exploratory research: Secondary Data Analysis Experience Surveys Case Analysis Focus Groups Projective Techniques


Primary and Secondary data: Primary and Secondary data Primary data: information that is developed or gathered by the researcher specifically for the research project at hand Secondary data: information that has previously been gathered by someone other than the researcher and/or for some other purpose than the research project at hand


Outside databases: Outside databases External secondary data External Databases: databases provided by outside firms; many are now available online (online information databases) Bibliographic databases: citations by subject, i.e. ABI Inform Numeric or statistical databases, 2000 Census Directory or list databases, membership lists Comprehensive databases, Contain all of the above, i.e.Lexis-Nexis


Advantages of Secondary Data: Advantages of Secondary Data Obtained quickly (compared to primary data gathering) Inexpensive (compared to primary data gathering) Usually available Enhances existing primary data


Disadvantages of Secondary Data: Disadvantages of Secondary Data Mismatch of the units of measurement: Need daily data yet only monthly available, need incomes of $75,000 and over only available $50,000 and over Differing class definitions used Timeliness (how current is the secondary data) Lack of information needed to assess the credibility of the reported data


Focus groups: Focus groups Focus groups: small group (6 – 12 people) discussions led by a trained moderator; homogeneous group; tightly bounded topic area Objectives: Generate ideas Understand consumer vocabulary Reveal consumer benefits sought, needs, motives, perceptions, and attitudes on products and services Understand findings from quantitative studies


Focus Groups – In General: Focus Groups – In General Advantages: Generation of fresh ideas Client interaction Versatility (many topics, other research techniques may be used, product tests, etc.) May tap special respondents (drs., lawyers …) Disadvantages: Representative of the population? Interpretation is subjective High cost-per-participant ($150 - $200 each)


Advantages of Surveys: Advantages of Surveys Standardization Ease of administration Ability to tap the “unseen” Suitability to tabulation and statistical analysis Sensitivity to subgroup differences


Link to promotion: Link to promotion Need for Promotion Does your target market know you exist? Advertise and actively promote your business before you can expect inquiries Basics Value proposition: small business owners’ unique selling points that will be used to differentiate their products / services


Value proposition: Value proposition Value proposition For (target customer) Who (statement of the need or opportunity) The (retail business name) is a (product or service category) That (statement of key benefit) Unlike (primary competitive alternative) Our business (statement of primary differentiation) Is available (where)


Promoting the venture: Promoting the venture How to convey the message: Advertisements Brochures Web sites Business cards Business stationery Post flyers


Publicity: Publicity Press kits: should include product or service brochures, press releases, biographies on you and key employees, photos or digital images Write articles Pitch the idea as a story to a newspaper or magazine


Web sites: Web sites Customers these days search on the Internet Develop a good web site: useful as a cost-effective way of gaining new clients and keeping current customers Needs unique keyword and description tags


Referrals and word-of-mouth: Referrals and word-of-mouth Enhance your image and protect your reputation Offer incentives for referrals that turn into business Create a referral form and send it clients with invoice Ask prospects who have turned you down their reasons Tap your suppliers for leads