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Market Analysis |
Businesses, Customers and Markets |
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Businesses sell goods or services to people who are their customers. Whilst no two businesses and their products are exactly identical, some products are very similar, so it makes sense to talk in terms of a market for a product of a certain type. All the people who buy products of that type are customers and are served by that market.
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Businesses are in competition with each other to supply their goods and services to the market. They seek to inform and persuade their potential customers of the benefits of purchasing their product. Therefore, they need some means of communicating with their customers, and this is called marketing.
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Market segmentation |
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Talk of a market implies that all the goods or services provided by companies serving that market are identical. To constitute a market the goods must have certain obviously recognisable similarities. For example, cars and cat food. However, both examples do illustrate that whilst every product made for a market bears some similarity to every other product also made for that market, the products are not all identical. There are many different makes of car, and their prices vary vastly. The differences between different brands of cat food may not be so obvious at first, but on reflection one realises that some brands are deliberately more expensive than others, whilst there are substitutes for tinned food, such as dry food for cats. Of course, it isn't the cats that make the choice of the cat food — it is their owners, who identify certain brands of cat food with their life-style!
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In other words, the population of any country is not uniform but consists of millions of individuals. These individuals can be grouped according to: gender, age, occupation, family status and size, etc. These different groups are called segments of the market. The are made up of socio-economic groups of individuals who share social and/or economic similarities .
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There are two approaches to marketing a product: mass marketing and segmented marketing. The idea behind mass marketing is to push a product at all the people who buy it regardless of the difference that exist between them — that is, regardless of the different segments to which they belong. However, whilst some goods can clearly be marketed in a way that makes them appealing to a wide range of socio-economic groups, it is clear that products express different values to different people, and that in practice some segments of the market are more likely to purchase a given good than others. Therefore, it seems wise to focus the marketing efforts of the company on those segments of the market that are likely to be most receptive to the message.
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Each segment has some kind unity and a distinctiveness which separates it from other segments. The first task for those engaged in marketing is to segment the population in ways which are appropriate to marketing. These are:
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| • | | Socio-economic class
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| • | | Gender
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| • | | Age
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| • | | Geography
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| • | | Income group
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| • | | Religion and ethnic origin
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| • | | Lifestyle
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| • | | Personality
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| • | | Motivation
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| • | | Size of order
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| • | | The outlet from which they buy
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| • | | Degree of loyalty
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Some classifications |
When one starts to think practically about marketing a product, it soon becomes apparent what kind of client is most likely to be interested in buying it, and this is often all that is required in order to start the process of effectively targeting the marketing at the right segment. However, market analysts have used some more systematic methods of classifying the different market segments, and it is useful to be aware of some of them. This the market segments can be classified generally according to:
| 1 | | Socio-economic class — that is, ranging from upper middle-class to subsistence level.
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| 2 | | Type of household — there is a family life cycle ranging from bachelor, through marriage, acquisition of children, to retirement. The disposable income of the head of the household changes through the cycle.
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| 3 | | Life-style topology — different types of personality that strongly affect purchasing — self-explorers, self-resistors, experimentalists, conspicuous consumers, belongers, survivors and aimless.
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| 4 | | ACORN classification — a classification by residential neighbourhood, which is very useful to credit firms.
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| 5 | | Motivation. People can be classified as (a) subsistence types who chose on price; (b) discriminators, who chose on quality; (c) hedonists, who seek immediate gratification.
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| 6 | | Brand loyalty: (1) hard core loyal customers; (2) soft core loyal customers; (3) shifting customers; (4) switching — with no brand loyalty.
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Market share |
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Each company producing a product of an identifiable similar type is said to serve the same market. This could be true even when the market is segmented in some way, so that different companies within the same market serve different segments.
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The proportion of sales that a company makes of all the sales made in a given market determines its market share. It is usual to express this market share as a percentage. For example, suppose 1000 items are made for a market, and that firm A makes (and sells) 240 items, firm B makes 420 items and firm C makes the rest. Then the market share of firm A is
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For firm B it is 42%, and for firm C it is
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Since there only three firms in the market.
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The firm with the largest market share is called the market leader. Often this firm will be producing a product known as a benchmark. A benchmark product is a product that is recognised by customers and producers alike as representing a quality product that serves all the basic needs of the customers and perhaps more. In other words, it is the product that everyone would be happy to have, even if they in fact buy something with more features, because they have the money and inclination to do so, or with less features, because they don't have the money or inclination. The benchmark product provides the standard to aim at, and very often companies that are trying to establish a new product in an existing market use benchmarking as a marketing strategy. In other words, they try to replicate the features of the existing benchmark product and convince potential customers that they will be just as well of with their version of the product as with that provided by the original company.
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A market challenger is a firm competing aggressively in order to extend market share. A market follower is a firm not competing aggressively; that is aiming to maintain market share.
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Some companies seek to avoid too direct competition. They can do this by developing a market niche; that is, the firm makes a product that serves a special segment of the market as a whole.
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Marketing strategy |
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To differentiate a product the product has to express distinctive features (values) that the customer perceives as being worth having and which cannot be obtained by buying another product. For example, certain up-market brands of car are very distinctive in their style, and you can only have that style of car if you buy their make.
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Companies might seek to differentiate their product from other products in order to obtain some kind of niche. Thus, companies have to choose between alternative marketing strategies:
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| 1 | | Low-cost, product undifferentiated market.
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| 2 | | Concentrated, niche-marketing. Highly differentiated product offered to a particular segment.
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| 3 | | Differentiated marketing. A variant of concentrated marketing in which a basic product and features is targeted simultaneously at different segments.
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Marketing research |
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Of course, one never does really know whether a product will appeal to a market, or even a niche within a market. Thus, in advance of making a product, which if it fails can lead to expensive losses, it is a good idea to research the market first.
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The aim of market research is to reduce the risks of making and selling products by finding out more about how that product is sold and why customers might or might not purchase it. This can be approached under a number of headings.
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| 1 | | Market research to identify the customer profile, the market share of competitors and the size and geography of the market.
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| 2 | | Product research to look at the strengths and weaknesses of existing products, and the effect of varying the product or marketing mix on the sales potential.
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| 3 | | Sales research to evaluate the effectiveness of sales techniques, sales staff, distribution systems and so forth.
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| 4 | | Promotions research into the effectiveness of promotional activities, effectiveness of different media as vehicles for advertising, and the appropriateness of advertising messages.
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| 5 | | Research also into the economic environment, export possibilities, customer motivation, and competitors.
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The research process |
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In all forms for research, and not just for market research, there is a distinction between primary and secondary data.
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Primary data is data collected by direct observation, survey or experiment on the public; secondary data are reports in publications of the views of “experts” in the area, and summaries of primary research. Useful secondary sources are the government publication “Social Trends”, the Economist, and Which magazine.
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The research process should generally begin with secondary sources, because they are cheaper, provide useful information and help to screen out bad ideas.
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Types of primary research |
| 1 | | Observation — for example, watching behaviour, but also audits of stocks, records of viewing figures, and so forth.
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| 2 | | Experiment — for example, testing the response of consumers to changes in the market mix (that is product). A test market is the limited launch of a product within a region or to a market segment to test the reaction to the product and the marketing.
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| 3 | | Survey — essentially asking consumers for their views by personal interview, postal survey, telephone survey and so forth. Questionnaires may be used within this context.
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Sampling and population |
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The whole point of market research is to try to find something about a whole group of potential clients, by first finding out about the reactions of part of that group. This is just a distinction between population and sample that is the central theme of all research that involves the use of statistical methods.
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For example, it is not possible to find out anything about the whole population of fish in the Atlantic ocean by sampling every fish. So if researchers want to find out something about fish, they have to take a sample.
This applies to populations of potential customers as well When you launch the product you will discover something about all their reactions, but the idea is to find out in advance of this how most people will react to the product by finding out how some of the people reach.
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A census is a survey of the entire population. Businesses are usually unable to conduct a census, and they, therefore, sample the population. There are different kinds of sample:
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| 1 | | (Simple) random sample — for example, picking names from a hat; every person in the population has an equal chance of being picked.
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| 2 | | Systematic sample — for example, picking every 100th person from a list. This approximates to random sampling and is cheaper.
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| 3 | | Stratified sampling — divides the population into groups or segments. This is obviously appropriate where the response of different segments is important.
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Questionnaires |
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Questionnaires are likely to play a major role in most market research surveys. Questions can be open, encouraging more free responses, or closed, highly structured questions designed to attract a limited range of responses. As the design of the questionnaire is important to the quality and reliability of the data obtained, it is advisable to undertake a pilot survey in order to assess the quality of questions. Researchers should:
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| • | | Clarify the purpose of the enquiry
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| • | | Devise clear, unambiguous questions
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| • | | Use language intelligible to the respondent
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| • | | Avoid leading questions
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| • | | Follow a logical sequence
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| • | | Avoid questions that tax the memory to much
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| • | | Do not use questions where an answer may confer some status to the respondent
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| • | | Confine questions to the personal experience of respondents
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| • | | Introduce some control questions.
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Marketing Model |
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The marketing model is a method of turning a marketing objective into a practical strategy. It involves the following stages.
Starting with corporate objectives
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| 1 | | Define marketing objectives
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| 2 | | Gather data
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| 3 | | From a hypothesis
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| 4 | | Test the options
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| 5 | | Control and review
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This is a loop. Once the model has passed through one cycle, new marketing objectives are defined, and the model commences again.
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The crucial idea is that of forming a hypothesis and testing it. It is felt that this will reduce the likelihood of expensive errors in marketing.
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Marketing research can be seen as a risk-reducing activity. By "intelligence gathering", followed by analysis and evaluation it is possible to devise strategies that increase the probability of success. For instance, by building up a consumer profile it is possible to identify distinct market segments which can be targeted.
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Some identifiable stages that occur in each loop of the marketing model are
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| 1 | | Definition of the problem - a hypothesis to be tested.
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| 2 | | Investigation of secondary sources of data - this involves desk research before the undertaking of costly field research. Secondary data has its limitations, and should be handled with care. Secondary data is collected by means of desk research. Primary data originates as a result of that particular investigation.
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| 3 | | Selection of primary data collection methods - three basic techniques are available: surveys, observation, and experiments. The task for the researcher is to choose the most appropriate method. In making this choice one must consider relative costs, the time available, the type of information required, the sample of the market to be investigated, and the degree of accuracy required. (This point may require some clarification)
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| 4 | | Decide on details of research technique - the formulation of questionnaires and deciding on sampling methods.
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| 5 | | Analysis, interpretation and evaluation of the data - it is vital to draw conclusions from the data that will be of value in designing marketing strategy. This requires an understanding of statistical theory, which we will look at later.
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| 6 | | Recommendations for action - the final part of a research project consists of the recommendations to be made with relation to the marketing strategy.
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