EntrepreneurshipEntrepreneurshipUnit 2.1Unit 2.1

Analyzing a business’s customersAnalyzing a business’s customers

Students will analyze their Students will analyze their market’s customers.market’s customers.

Students will be able to:Students will be able to:• Define target marketDefine target market• Define market segmentation by Define market segmentation by

demographics, psychographics, demographics, psychographics, geographics, and buying characteristicsgeographics, and buying characteristics

• Distinguish the difference between Distinguish the difference between primary and secondary researchprimary and secondary research

• Describe a focus groupDescribe a focus group• Identify the steps of market researchIdentify the steps of market research

Why Market Analysis?Why Market Analysis?

Market analysisMarket analysis presents research findingspresents research findings about about target markets. target markets.

Market analysisMarket analysis includes a target market profileincludes a target market profile that explains the traits of the company’s potential that explains the traits of the company’s potential customers.customers.

Market analysisMarket analysis provides potential investors with provides potential investors with a realistic forecast of the growth potentiala realistic forecast of the growth potential for the for the market in which your company will operate.market in which your company will operate.

What is a Target Market?What is a Target Market?

A A target markettarget market is a particular is a particular group of customers of interest to an group of customers of interest to an entrepreneur. entrepreneur.

Understanding the characteristics of Understanding the characteristics of the desired market segment allows a the desired market segment allows a company to tailor its marketing effort company to tailor its marketing effort to reach and appeal to the market to reach and appeal to the market segment. segment.

What is Market Segmentation?What is Market Segmentation?

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

Market segments are subgroups of Market segments are subgroups of buyers with similar characteristics.buyers with similar characteristics.

What are the four types of What are the four types of market segmentation? market segmentation?

GeographicsGeographics

DemographicsDemographics

PsychographicsPsychographics

Buying CharacteristicsBuying Characteristics

4 Types of Market Segmentation4 Types of Market Segmentation

GeographicsGeographics – the study of the market – the study of the market based on where customers live by based on where customers live by region, state, city, and/or area.region, state, city, and/or area.

DemographicsDemographics – the personal – the personal characteristics of a population: age, characteristics of a population: age, gender, family size, income, occupation, gender, family size, income, occupation, family life cycle, education, religion, family life cycle, education, religion, race, nationality, or social class.race, nationality, or social class.

4 Types of Market Segmentation4 Types of Market Segmentation(cont’d.)(cont’d.)

PsychographicsPsychographics – the study of – the study of consumers based on social and consumers based on social and psychological characteristics: psychological characteristics: personality, values, opinions, beliefs, personality, values, opinions, beliefs, motivations, attitudes, and lifestyle motivations, attitudes, and lifestyle elements, including activities and elements, including activities and interests;interests;

Buying characteristicsBuying characteristics – – knowledge of and personal experiences knowledge of and personal experiences

with the actual goods or services.with the actual goods or services.

Guidelines to SegmentGuidelines to Segmentthe Target Market:the Target Market:

The target market should be The target market should be measurablemeasurable.. How many potential buyers are in the market?How many potential buyers are in the market?

The segment should be large enough to be The segment should be large enough to be profitableprofitable—to recover costs and make a profit.—to recover costs and make a profit.

The segment should be The segment should be reachablereachable. . Product information and product availability must be Product information and product availability must be considered.considered.

The target segment should be The target segment should be responsiveresponsive;;i.e., that people are interested in thei.e., that people are interested in theproduct.product.

Market Segment Profile Market Segment Profile (Example(Example))

SituationSituation: Clothing boutique specializes : Clothing boutique specializes in trendy fashions for teenagers. Located in trendy fashions for teenagers. Located in a fast-growing metropolitan area with in a fast-growing metropolitan area with several high schools and a college.several high schools and a college.

ProfileProfile: Girls 13-18 years old; reside : Girls 13-18 years old; reside within city, nearby suburbs, or rural areas; within city, nearby suburbs, or rural areas; part-time annual income of $1500; rarely part-time annual income of $1500; rarely buy expensive items; aware of current buy expensive items; aware of current trends and attitude toward trends and attitude toward where to buy influenced by peers.where to buy influenced by peers.

3 Types of Market Research3 Types of Market Research

1. Exploratory Research1. Exploratory Research is used is used when you know little about a subject. when you know little about a subject. Check with industry & government Check with industry & government publications. publications.

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

3 Types of Market Research 3 Types of Market Research (cont’d.)(cont’d.)

2. Descriptive Research 2. Descriptive Research

Develop a customer profile. Learn Develop a customer profile. Learn the age, gender, occupation, income, the age, gender, occupation, income, and buying habits of potential and buying habits of potential customers. Such information can be customers. Such information can be collected through questionnaires, collected through questionnaires, interviews, or observation.interviews, or observation.

3 Types of Market Research3 Types of Market Research (cont’d.)(cont’d.)

3. Historical Research3. Historical Research involves involves studying the past. Trade associations studying the past. Trade associations and trade publications are two and trade publications are two sources of useful historical data. sources of useful historical data. Historical research might be useful to Historical research might be useful to learn why a type of business has learn why a type of business has been successful or unsuccessful. been successful or unsuccessful.

What is Primary Data?What is Primary Data?

Research collected for the first time and Research collected for the first time and relates directly to the collector’s study.relates directly to the collector’s study.

How do I collect primary data?How do I collect primary data?• ObservationObservation• Interviews – in person, by phone, through mailInterviews – in person, by phone, through mail• SurveysSurveys• Observe buyers at competitor’s siteObserve buyers at competitor’s site• Focus groupsFocus groups

What is Secondary Data?What is Secondary Data?

Information collected by someone else for Information collected by someone else for their own purposes. their own purposes.

Where do I find Secondary Data?Where do I find Secondary Data?• InternetInternet• Government and community organizationsGovernment and community organizations• Website of the U.S. Census BureauWebsite of the U.S. Census Bureau• Chamber of CommerceChamber of Commerce• Trade associationsTrade associations• Trade publicationsTrade publications• Commercial research agenciesCommercial research agencies

Five Steps of Market ResearchFive Steps of Market Research

Step 1Step 1: Identify your Information : Identify your Information Needs. Needs.

• What data needs to be collected?What data needs to be collected?• What methods of analysis will be used?What methods of analysis will be used?• How will the data be used?How will the data be used?

Example:Example: Before opening a hobby store, you Before opening a hobby store, you need to know who your first customers will be need to know who your first customers will be and what they want? Also, you must gather and what they want? Also, you must gather

information about the competition.information about the competition.

Five Steps of Market Research Five Steps of Market Research (cont’d.)(cont’d.)

Step 2Step 2: Obtain Secondary Resources. : Obtain Secondary Resources. Information that has been collected by Information that has been collected by someone else is called someone else is called secondary data.secondary data.

1.1. What are the demographics of the customer?What are the demographics of the customer?2.2. What are the psychographics of the customer?What are the psychographics of the customer?3.3. How large is the market?How large is the market?4.4. Is the market growing?Is the market growing?5.5. Is the market affected by geography?Is the market affected by geography?6.6. How can you reach your market?How can you reach your market?7.7. How do your competitors reach the market?How do your competitors reach the market?8.8. What market strategies have been successful with What market strategies have been successful with

these customers?these customers?

Five Steps of Market Research Five Steps of Market Research (Cont’d.)(Cont’d.)

Step 3Step 3: Collect Primary Data: Collect Primary Data1. What are the demographics of your customer?1. What are the demographics of your customer?

2. Would potential customers purchase your 2. Would potential customers purchase your product or service? Why or why product or service? Why or why

not?not?

3.3. How much would customers purchase?How much would customers purchase?

4.4. When would customers purchase?When would customers purchase?

5.5. Who would customers like to find the product or Who would customers like to find the product or service?service?

6.6. What do customers like about your competitors’ What do customers like about your competitors’ products and services?products and services?

Five Steps of Market ResearchFive Steps of Market Research (cont’d.)(cont’d.)

Step Four:Step Four: Organize the Data Organize the Data

Categorize data based on the Categorize data based on the research question it answers. research question it answers. Working on each question, note how Working on each question, note how many of your sources supported a many of your sources supported a particular conclusion and how many particular conclusion and how many did not. This data can help you did not. This data can help you refine your market analysis. refine your market analysis.

How may Data be Represented?How may Data be Represented?

Bar graphsBar graphs

Pie chartsPie charts

Line graphsLine graphs

Five Steps of Market Research Five Steps of Market Research (cont’d.)(cont’d.)

Step Five:Step Five: Analyze the Data. Analyze the Data.Now that your information has been organized, Now that your information has been organized, ask yourself these questions:ask yourself these questions:

1.1. Is there a market for the product or service?Is there a market for the product or service?

2.2. How big is the market?How big is the market?

3.3. Will the industry support such a business?Will the industry support such a business?

4.4. What do substitute products/service reveal about What do substitute products/service reveal about demand for the product/service?demand for the product/service?

5.5. What do customers, end users, and intermediaries What do customers, end users, and intermediaries predict the demand will be?predict the demand will be?

Let’s ReviewLet’s Review

• Define target marketDefine target market• Define market segmentation by Define market segmentation by

demographics, psychographics, demographics, psychographics, geographics, and buying characteristicsgeographics, and buying characteristics

• Distinguish the difference between Distinguish the difference between primary and secondary researchprimary and secondary research

• Describe a focus groupDescribe a focus group• Identify the steps of marketIdentify the steps of market

researchresearch

SourcesSources

Allen, Kathleen R., & Meyer, Earl Allen, Kathleen R., & Meyer, Earl (2006). (2006). Entrepreneurship and small Entrepreneurship and small business management. business management. New York: New York: Glencoe.Glencoe.

Green, Cynthia L. Green, Cynthia L. Entrepreneurship: Entrepreneurship: ideas in action. ideas in action. Boston: Thompson/Boston: Thompson/

South-Western.South-Western.

Created by: JJ AbernathyCreated by: JJ AbernathySnow Canyon High SchoolSnow Canyon High School

20062006