The market and competitors
This section of your business plan involves assessing and analysing the market and competitors. It covers essential aspects such as market segmentation, the market you intend to target and their needs and preferences, competitors as well as an account on key market trends. A well done market analysis will help you understand the needs and preferences of each identified market segment, identify a profitable segment that your business can best serve and ultimately help you achieve your marketing objectives. Additionally, a well done competitor analysis will help you understand the competitors and devise strategies that will assist your business to combat competition.
1. Market Analysis
The main focus of your market analysis should be to determine the size, growth potential, risks, trends, seasonality and other factors regarding the market. Investors and lending providers want to know the exact or close to exact size of your market. A research on the market is therefore important before developing any final marketing oriented plans or strategies.
Is there a market for your product or service offering? Who are the customers and what are their needs and preferences? Do you have any orders on hand? What about signed contracts to deliver? What market share are you going to strive to get?
You should also take the following into consideration:
- The identification of market segments
- The needs and preferences of each market segment
- Market segment attractiveness (the process of targeting)
- The selection of a suitable target market
Any market you want to do business in requires your best investigative and research efforts. You should make an effort to do some field and desk research as your business plan needs to address the hurdles, naturally occurring, or perceived, that prevent new competitors from entering the market (barriers to entry). You might be surprised to learn that sometimes these obstacles can be placed there deliberately by fellow competitors. Your research will enable you to conduct your market segmentation and targeting well.
1.1 Market Segmentation
Market segmentation helps you select a market that your business can best serve. The identification of market segments encompasses subdividing a total market into distinct subgroups of consumers, where any subgroup can be selected as a target market to be met with a distinct marketing mix of the 4 p’s (product, promotion, price and place). Each identified subgroup consists of people with common needs and preferences, which perhaps react to a certain marketing mix in a similar way.
The primary market segmentation bases include the following:
- Demographic segmentation
- Geographic segmentation
- Psychographic segmentation
- Behavioral segmentation
- Corporate or individual
Demographic segmentation involves assessing the needs and preferences and other factors using criteria such as age, income, status, education, gender and other factors.
Geographic segmentation assess the needs and preferences of people with reference to their geographic location.
Psychographic segmentation takes into account factors such as personality, the attitudes and tastes of a segment within a given population. Factors such as lifestyle or how people spend their money are assessed.
Behavioral segmentation looks at factors such as the benefits sought by people, purchase occasions and other behavioral patterns.
You may also segment your market in such a way that you discuss the needs and preferences of the corporate and individual market separately.
1.2 Market Attractiveness Assessment
1.2.1 The process or targeting
Upon completion of the above market segmentation process, you need to target. The process of targeting is mainly based on deciding which of the identified segments the business should select and base its marketing efforts on. To do this, you have to weigh up the potential of one segment against another and consider the ability of your business to serve the selected segment or segments. Ideally what you want to do is select a segment that you will be effective at establishing a viable and practical focus on potential customers. As a guideline, prior to targeting, you must ensure that the identified segments are:
- Measurable: a segment must be quantifiable or in essence the segment must not be elusive or difficult to measure
- Accessible: meaning that the segment must be easily reachable in terms of activities such as promotion and distribution
- Substantial: Is the segment substantially lucrative? Does the the potential revenue from the segment outweigh the input in terms of the effort to be made by the business
Access the attractiveness of each identified segments by taking the following factors into consideration:
- Segment size
- Segment growth rate
- Segment growth potential
- Segment profitability
- Market risk
- Barriers of entry
1.3 Target Market
On completion of the market segment attractiveness part, state the market segment you wish to target as well as your reasons for choosing this target market.
- Corporate or individual
- Geographic segments
- Demographics and social segmentation
- Urban or rural
Your market analysis will enable you to devise a good marketing strategy and plan as followed up in the section Marketing and sales plan.
1.4 Competition Analysis
Assessing and analyzing the competition is important as you will most likely compete for market share. Who are your competitors? or What businesses are offering a similar product or service offering to your business and serve the same market that you intend to serve or are already serving (in the case of an existing business)? What are the strong points and weak points with regard to your competitors? Where are your competitors located?
Drive or walk around and see what your competitors are doing, check their business websites, note down and assess the prices of their products and service offerings and assess what factors make them unique or position them better. Understanding your competitors will enable you to devise effective competitive strategies that will help you capture more market share and ultimately make more sales and profits.
Your competition analysis should ideally take the following into consideration:
- Direct competition
- Indirect competition
- Threat from new entrants or future competitors
- Threat from customers
- Threat from suppliers
- Threat from substitutes
- Intensity of rivalry
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1.5 Competitive Strategies
How will you combat your competition? What competitive strategies will you adopt? Address this part in detail in your Market and Sales plan or strategy.
- Cost leadership
- Product Differentiation
- Broad market or narrow market focus
- Customer intimacy
- Product superiority
- Process efficiency
1.6 Customer Value Proposition
What value are you going to provide? The following factors could be taken into account. Again, address this part in detail in the Marketing and Sales plan.
- Market positioning
- Branding and image
- Products or services