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Home > Getting Started > Business Plans > Market Analysis

Defining and Analyzing Your Market

While it is important to be optimistic, intuitive and confident about your product or service, a realistic look at your market and your competitors will go much further toward paying your bills. The following list should help you:

• determine if your idea is viable
• create a marketing plan for your business
• prove your idea is viable, so you can obtain financing for your enterprise.

Target Market

• Develop a description of your typical customer
• What customers form your market?
• Where are they found?
• Why will they purchase your product or service rather than another?
• Is there a large enough target market to support your product/service & generate a profit?

Demographic Analysis of your typical customers

• Age
• Sex
• Socio-economic Background
• Income Levels
• Psychographic Analysis (Lifestyle)
• Buying patterns
• Consumer habits

Market Analysis & Strategy

• Description of total market
• Indicate what strategies are needed to sell to this market (price, promotion tools, communication messages, and distribution methods)
• Point out any political influences or factors
• Describe market coverage (local, regional, national, international)
• Describe industry trends
• Past- Brief explanation of product/service history. How long has the product been in existence?
• Present- What is happening now in the market place?
• Future- What developments do you see for the future?
• Is the industry in an upswing/downswing?
• Are there any societal trends or tastes that will influence the industry?

Market Research

(Use charts, graphs, and tables only if they are pertinent and can make your plan better understood by the reader)

• Primary data: Marketing research that you conduct yourself
  • Telephone survey
  • Mailed questionnaire
  • Personal interviews
  • Focus groups
• Secondary Data: Information researched by the business through other sources
  • Industry Associations
  • Government Research Reports
  • Industry Profiles

Competitive Analysis

• List four of your business's nearest competitors
• How are their businesses doing?
• How will your business be better than the competition?
• What are the strengths and weaknesses of your competitors?
• What have you learned from looking at the competition?
• What are your business's operational strengths and weaknesses.
• What does your product/service offer over the competition?
• Locally or nationally owned and operated?
• Their pricing strategy
• Product comparison
• Length of years in business
• How do they advertise?
• How you intend to exploit the competitive advantage?

Pricing Strategy

Promotional Strategy

What promotional methods will you use and why?

1. Brochures
2. Business Cards
3. Direct Mail
4. Direct Selling
5. Event Marketing
6. Flyers
7. Networking
8. Newspaper
9. Penny Saver
10. Radio
11. Television
12. Trade Magazines
13. Word-of-mouth
14. Other: ______________

Detail how you are going to sell the product or service.

Cost analysis of advertising

What is your business's annual advertising budget? Is it a fixed amount or a percentage of projected sales? An advertising budget should never be based on your bank balance. First figure out what you need to spend, then find the money.
Advertising is not merely an element of business expense, it is an investment in building your sales. The future growth of your business will be influenced by your ability to plan and execute an effective advertising program. The advertising budget helps you determine how much you have to spend and helps establish the guidelines for how you're going to spend it.
What you'd like to invest in advertising and what you can afford are seldom the same. You don't want to spend too much, but spending too little can be just as bad in terms of lost sales and diminished visibility. Costs must be tied to results.

Complete promotional spending and timing chart

Get your money's worth
When deciding how to spend your advertising budget, there are two very important points to remember:

1. The average small business usually has limited funds available for advertising.
2. Today's consumers have been inundated with so much advertising over the course of their lives that they tend to be more critical, cynical, and less likely to notice ads than any previous generation.

To get the most from your advertising dollar, you need to think "outside the box." Pay attention to the ads that you notice and remember. Don't be afraid to adopt an idea that works and adapt it to your own business. If your creativity doesn't lie in this direction, then this is where you pay for the services of a professional. To be competitive on a limited advertising budget you need a very strong and creative message placed in formats that get attention by virtue of being unexpected.

Promotional Tips

Here are a few tips about some of the most common methods of promoting your business:

1. In retail merchandising, advertising begins with the store and its windows. Rental costs depend on location and customer traffic so window displays have special value. One study by a trade publication allocated as much as 40 percent of the store's rent to its window space. The giant stores in New York, Chicago, or Los Angeles fully capitalize their window values - don't waste yours.
2. Newspaper and magazine advertising
   1. Don't buy tiny ads, buy for page dominance: half-page, two-thirds page, and junior-page ads dominate a page without the full-page price. Two-thirds and junior page ads make it unlikely for another ad to be placed on "your" page.
   2. Use color! Visualize your company logo in bright purple or green or orange (or any other strong color) standing out from a page full of only black-and-white ads and editorial.
   3. Consider several ads in the same position on sequential pages - maybe the same ad over and over, or a series (like the old "Burma Shave" signs along the highway).
   4. Ask for special treatment in terms of placement, color, format. You might not get it, but ask anyway.
3. Radio advertising
   1. Buy commute time. It's more costly, but you have a captive audience.
   2. Buy time around the news, weather, sports and traffic reports. Take advantage of the attention people are already paying to the radio.
   3. Know who is listening to the radio. If your potential customer is not among the listening audience, then you are wasting you money.
4. Television advertising
   1. Consider short (15 second) back-to-back spots. They cost more than one 30 second spot, but the repetition commands more attention too.
   2. Consider cable advertising, a relatively affordable way for the small business retailer to advertise to a defined geographic market.
   3. As with radio advertising, know the target audience of a particular show or station. Do not place your commercial where it will be overlooked or ignored.
5. Outdoor advertising
   1. Go big, bold and unusual. Use 3-D effects, lots of color, unusual shapes - and very few words - to attract the attention and lodge in the memory of the traveling public.
   2. Check out some of the mobile billboard options, too: A-frame trailers that carry your message anywhere, colorful ads on the sides of 18-wheelers; recent computer painting techniques even make it possible for your delivery vehicle to become a traveling advertisement far more effective than the traditional "logo-on-the-door" treatment.
6. Event marketing
   Event marketing - event sponsorship - is another form of advertising. This might include hospitality, tickets, direct and indirect media exposure, on site advertising through the use of signs, access to participants and the hours of direct on site contact for one on one marketing, on site sales opportunities, exclusive rights, mailing lists, etc.
   Event marketing encompasses sports from the major leagues to the amateur levels, food festivals, art extravaganzas, fairs, music festivals and concerts, Chamber programs, and on and on. If planned right, event marketing can have many of the benefits of door to door/word of mouth sales at a fraction of the usual cost.
   When given the opportunity to sponsor an event, expect factual answers to some of the following questions:
   1. Does the event have a budget history? Does the event have a current budget or business plan? A comprehensive marketing and advertising plan?
   2. What will you get for your money? Get this in writing.
   3. Have line items in the event budget been identified that will allow you to provide in-kind services in lieu of cash? Remember that this method of fundraising has dollar value and should always be accounted for in real dollars.
   4. Does the event have a history of media coverage (news stories, purchased or trade advertising)? Will your company be featured in the media?
   5. Does the event have documented attendance figures from previous or similar events?

METHODS OF ESTABLISHING AN ADVERTISING BUDGET

Each of the many ways in which to establish an advertising budget has its problems as well as its benefits. No method is perfect for all types of businesses, nor for that matter is any combination of methods. The following are the most usual methods in use today.

• Percentage of Sales or Profits The most widely used method of establishing an advertising budget is to base it on a percentage of sales. Advertising is a legitimate business expense and should be related to the quantity of goods sold.
  It's helpful to use the percentage-of-sales method because it's quick and easy. It ensures that your advertising budget isn't way out of proportion for your business. It's a sound method for stable markets. But if you want to expand your market share, you'll probably need to use a larger percentage of sales than the industry average.
  The percentage-of-sales method avoids some of the problems that result from using profits as a base. For instance, if profits in a period are low, it might not be the fault of sale or advertising. But if you stick with the same percentage figure, you'll automatically reduce your advertising allotment. In the short run a small business owner might make small additions to profit by cutting advertising expenses, but such a policy could lead to a long term deterioration of the bottom line.
  By using the percentage-of-sales method, you keep your advertising in a consistent relation to your sales volume - which is what your advertising should be primarily affecting. Gross margin, especially over the long run, should also show an increase, of course, if your advertising outlays are being properly applied.
  What percentage? You can guide your choice of a percentage-of-sales figure by finding out what other businesses in your line are doing. These percentages are fairly consistent within a given category of business.
  
  
• Unit of Sales In the unit-of-sales method you set aside a fixed sum for each unit of product to be sold, based on your experience and trade knowledge of how much advertising it takes to sell each unit. Thus, if it takes two cents' worth of advertising to sell a case of canned vegetables and you want to move 100,000 cases, you'll probably plan to spend $2,000 on advertising them. You're simply basing your budget on unit of sale rather than dollar amounts of sales.
  Unit-of-sales probably lets you make a closer estimate of what you should plan to spend for maximum effect, since it's based on what experience tells you it takes to sell an actual unit, rather than an overall percentage of your gross sales estimate.
  
  
• Objective and Task The most difficult (and least used) method for determining an advertising budget is the objective-and-task approach. Yet, it's the most accurate and best accomplishes what all budgets should:
  1. It relates the appropriation to the marketing task to be accomplished.
  2. It relates the advertising appropriation under usual conditions and in the long run to the volume of sales, so that profits and reserves will not be drained.
  To establish your budget by this method, you need a coordinated marketing program with specific objectives based on a thorough survey of your markets and their potential.
  
  
• Purchasing stream
  The budget for advertising to attract new customers is often based on expected total income - called a purchasing stream - from your new customer.
  A purchasing stream is the total gross volume of new business you can realistically expect to generate from an advertising effort. For example a grocer might attract a new customer who will spend $125/week for six years. That's a $39,000 customer.

ADVERTISING BUDGET WORKSHEET: PURCHASING STREAM METHOD

The following is a worksheet to help you establish a typical advertising budget based on the present value of the future purchasing steam:

1. What is the expected term of the relationship you establish with a customer? (How long does your average customer continue to do business with you? ) # of years: _________
2. How much does the average customer spend with you over that period of time? $_________/year
3. Now, multiply:
   1. # of years: ___________ X value of sales/year: $ ___________ =
   2. Total Purchasing Stream from one customer: $ ____________
4. What is your gross profit margin? __________ %
5. How much gross profit will you realize from this one customer? Line 3b: $ __________ X Line 4: __________% =
   Gross Profit Dollars from one customer: $ _____________
6. How much of the gross profit provided from one customer are you willing to spend to find and attract one new customer? $ _____________
7. How many new customers do you want to attract? ____________
8. Multiply Line 6 X Line 7 to determine your TOTAL ADVERTISING BUDGET: $ __________________