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Glencoe Entrepreneurship: Building a Business Doing Market Research SECTION SECTION 6.1 Chapter 6 Market Analysis To ensure success, entrepreneurs need to understand the industry and the market. They should define areas of analysis and conduct effective industry and market research. The Main Idea
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MarketMarketAnalysisAnalysis
Glencoe Entrepreneurship: Building a Business
Doing Market ResearchDoing Market Research
Industry and Market AnalysisIndustry and Market Analysis
6.1Section
6.2Section
6
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
• Define areas of analysis for industry and market research.• Describe how to conduct effective market research.
Section Objectives
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
To ensure success, entrepreneurs need to understand the industry and the market. They should define areas of analysis and conduct effective industry and market research.
The Main Idea
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Content Vocabularyindustryvalue chainscarrying capacitycomplexitymarkettarget marketmarket segmentationmarket segmentsgeographics
psychographicsindustrial marketsmarket researchexploratory researchfocus groupdescriptive researchhistorical researchsecondary dataprimary data
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Defining Areas of Analysis
In order to satisfy current customers or attract new ones, an entrepreneur must conduct market analysis. The entrepreneur will want to understand the nature of the industry he or she is analyzing.
industry
a collection of businesses with a common line of products or services
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Thorough market analysis requires:
Identifying prospective customers and determining their buying habitsAnalyzing your industry and assessing your chances for success within it
Defining Areas of Analysis
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
There are four factors that are useful in understanding the nature of an industry:
carrying capacityuncertaintycomplexitystage of life cycle
Industry
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Industry
You will want to find an industry that has carrying capacity so that your new business can expand and prosper.
carrying capacity
the ability of industry to support new growth
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Uncertainty is the degree of stability or instability in an industry. Many high-tech ventures are in industries with uncertain climates.
Industry
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Complexity
Some businesses must learn to deal with complexity in many industries.Firms that operate in complex industries have more suppliers, customers, and competitors than firms in other industries.
complexity
the number and diversity of contacts with which a business must deal
Stage of Life Cycle
11
There are four stages to the life cycle of an industry.
1
2
3
4
Birth
Growth
Maturity
Decline
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Target Market and Customer
After first identifying your market, you will then need to select a target market to be the focus of your company’s efforts.
marketa group of people or companies who have a demand for a product or service and are willing and able to buy it
target marketa specific group of customers whom a business wishes to reach
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Target Market and Customer
Consumer market segmentation is based on geographics, demographics, psychographics, and buying characteristics.A business can select and serve multiple market segments.
market segmentationthe process of grouping a market into smaller subgroups defined by specific characteristics
market segmentssubgroups of buyers with similar characteristics, segmented by geographics, demographics, psychographics, and buying characteristics
Target Market and Customer
14
Market Segmentation
demographics
geographics
psychographics
buying characteristics
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Target Market and Customer
Information about the geographics of the target market can help an entrepreneur decide on a geographic area to focus marketing efforts.
geographicsthe study of the market based on where customers live, including region, state, country, city, and/or area
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Target Market and Customer
An entrepreneur can study psychographics to learn about target customers’ feelings.
psychographics
the study of consumers based on social and psychological characteristics, including personalities, values, opinions, beliefs, motivations, attitudes, and lifestyle elements
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Target Market and Customer
Businesses that cater to industrial markets must consider customers’ individual situations.
industrial markets
customers who buy goods or services for business use
Target Market and Customer
18
The target market for your product or service should be:
Measurable
Large enough to be profitable
Reachable
Responsive
1
2
3
4
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Conducting Market Research
Once you know the areas of the market that you need to analyze, you are ready to begin market research.The marketing research process can be used to identify potential markets, analyze demand, and forecast sales.
market researchthe collection and analysis of information aimed at understanding the behavior of consumers in a certain market
Select the Type of Market Research
20
There are three types of market research
exploratory research
descriptive research
historical research
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Select the Type of Market Research
A good way to start exploratory research is to read government or industry publications.
exploratory researchthe initial collection and analysis of information used when very little is known about a subject; it forms a foundation for later research
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Select the Type of Market Research
Another way to gather information is to form a focus group.
focus groupa group of people whose opinions are studied to determine the opinions that can be expected from a larger population
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Select the Type of Market Research
Descriptive research can be gathered through questionnaires, interviews, or observation.
descriptive researchthe collection of information to determine the status of something, such as in developing a customer profile
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Select the Type of Market Research
You can use historical research to forecast your business’s future potential.
historical research
the study of the past to explain present circumstances and predict future trends
Identify your information needs.
Start the Research Process
25
The Five Steps of an Effective Research Plan
1
2
3
4
5
Obtain secondary resources.
Collect primary data.
Organize the data.
Analyze the data.
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Start the Research Process
Research secondary data before researching primary sources because it is easily obtained and inexpensive.
secondary data
information that has already been collected by someone else
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Start the Research Process
The most common methods of gathering primary data about customers are:• observation• interviews• surveys
primary data
information that is collected for the first time, is current, and relates directly to the collector’s study
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
After You Read
1. Define areas of analysis for industry and market research.
Areas of analysis for industry research include carrying capacity, uncertainty, complexity, and stage of life cycle. Areas of analysis for market research include identifying the target market through market segmentation and conducting target marketing.
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
After You Read
2. Discuss how to conduct effective market research.
First, identify the focus of the research. Next, select the type of market research—exploratory, descriptive, or historical. Finally, start the research process by identifying your information needs, obtaining secondary resources, collecting primary data, organizing the data, and analyzing the data.
Glencoe Entrepreneurship: Building a Business
Doing Market Research
SECTIONSECTION 6.1
Chapter 6 Market Analysis
Quiz
1. What are two examples of buying characteristics ?
2. What are four guidelines to use when segmenting the target market?
3. Explain the term carrying capacity and why it is important in market research?
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
• Explain how to research an industry.• Identify a customer profile and customer needs analysis.
Section Objectives
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
Studying a company’s industry and market helps an entrepreneur create a product or service that people want. It also helps the entrepreneur develop a customer profile, estimate demand, and increase the chances for success.
The Main Idea
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
Content Vocabularybarriers to entryeconomies of scalebrand loyaltymass marketingmarket share
nichemarket positioningcompetitive advantagecustomer profilecustomer needs analysis
Look
Researching the Industry
34
Understand
Study
Analyze
Look at trends and patterns of change.
Understand industry forces that affect your business.
Study industry demographics.
Analyze the competition.
Industry Forces That Affect Your Business
35
barriers to entry
threats from substitute products
sources of supply
buyers’ ability to bargain
technology
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
Industry Forces That Affect Your Business
In established businesses, the dominant businesses have advantages that are barriers to entry to smaller, new ventures.
barriers to entryconditions or circumstances that make it difficult or costly for outside firms to enter a market to compete with established firm or firms
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
Industry Forces That Affect Your Business
Established businesses have achieved economies of scale in production, marketing, and distribution.
economies of scale
situations where the cost of producing one unit of a good or service decreases as the volume of production increases; the decrease of production costs relative to the price of goods and services
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
Industry Forces That Affect Your Business
Customers with brand loyalty do not easily switch to a new company that enters the industry.
brand loyalty
the tendency to buy a particular brand of a product
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
Issues in Entrepreneurship
In the past, businesses used mass marketing to sell products with universal appeal and few features to differentiate them from competitors’ products.
mass marketing
the attempt to reach all customers with a single marketing plan
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
The Competition
Usually, competing products are already established in the market.To succeed, you must be able to capture market share by differentiating your business.
market share
a portion of the total sales generated by all competing companies in a given market
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
The Competition
Many entrepreneurial companies succeed by studying the competition to define a niche in the market.
nichea small, specialized segment of the market based on customer needs discovered in market research
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
The Competition
An entrepreneur who wishes to capture market share can use market positioning.
market positioning
the act of identifying a specific market niche for a product
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
The Competition
You can create a competitive grid to help define your competitive advantage.
competitive advantage
a feature that makes a product more desirable than its competitors
Create
Evaluate
Forecast
Researching the Target Customer
44
Create a customer profile.
Evaluate customers’ needs.
Conduct research to forecast demand.
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
Creating a Customer Profile
Creating a customer profile is the first step in targeting your marketing efforts.
customer profilea complete picture of a venture’s prospective customers, including geographic, demographic, and psychographic data
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
Evaluating Customers’ Needs
In order to provide what the customer wants, you should prepare a customer needs analysis.
customer needs analysis
a study that pinpoints the features and benefits of goods or services that customers value
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
Several methods can be used to forecast demand:
Use historical analogy.Interview prospective customers and intermediaries.Go into limited production.
Forecasting Demand
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
After You Read
1. Explain how to research an industry.
To research an industry, look at trends and patterns of change, industry forces that affect your business, industry demographics, and the competition.
Industry and Market Analysis
Glencoe Entrepreneurship: Building a Business
SECTIONSECTION 6.2
Chapter 6 Market Analysis
After You Read
2. Describe a customer profile and customer needs analysis.
A customer profile is a complete picture of a venture’s prospective customers. It includes geographic, demographic, and psychographic data. A customer needs analysis pinpoints the features and benefits of your goods or services that customers value so you can provide them with what they want.
MarketMarketAnalysisAnalysis
Glencoe Entrepreneurship: Building a Business
Doing Market ResearchDoing Market Research
Industry and Market AnalysisIndustry and Market Analysis
6.1Section
6.2Section
6
End of
Chapter 6MarketAnalysis