P R E P A R E D B Y : I N T A N N A Z U H A B T A B D U L L A H 1

CHAPTER OUTLINE

The role of market research

Conducting market research

Developing a strategy

Developing a business model

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WHY DO MARKET RESEARCH?

To find out…

1. Is the business concept viable from a market perspective?

2. What are the major risks and information gaps in this venture, and what information is needed to characterize and minimize these risks?

3. Will the business model and entry strategy succeed?

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MARKETING RESEARCH DEFINED

The systematic and objective

process of generating information

for aid in making marketing

decisions

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Marketing Research Types

Basic research

Applied

research

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BASIC RESEARCH

Attempts to expand the limits of

knowledge

Not directly involved in the solution

to a pragmatic problem

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BASIC RESEARCH EXAMPLE

How to improve the effectiveness

of information system?

How to integrate technology into

the overall strategy objective of

the company?

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APPLIED RESEARCH

Conducted when a decision must be made

about a specific real-life problem

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APPLIED RESEARCH EXAMPLE

Should McDonalds add Italian pasta

dinners to its menu?

Marketing research told McDonald’s it should

not

Should Procter & Gamble add a high-priced

home teeth bleaching kit to its product

line?

Research showed Crest Whitestrips would sell

well at a retail price of $44 P R E P A R E D B Y : I N T A N N A Z U H A B T A B D U L L A H 10

SCIENTIFIC METHOD

The analysis and interpretation of

empirical evidence (facts from

observation or experimentation) to

confirm or disprove prior conceptions

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USING MARKETING RESEARCH

We can use Marketing Research to:

Identify & Evaluate Opportunities

Analyze Market Segments

Select Target Markets

Plan & Implement Marketing Mixes

Analyze Marketing Performance

Performance Monitoring Research

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Is sufficient

time

available?

Information

already on

hand

inadequate?

Is the

decision of

strategic

or tactical

importance?

Does the

information

value

exceed the

research cost?

Conduct

Marketing

Research

Do Not Conduct Marketing Research

Time Constraints Availability of Data Nature of the Decision Benefits vs. Costs

Yes Yes Yes Yes

No No No No

DETERMINING WHEN TO CONDUCT MARKETING RESEARCH

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WHAT INFORMATION ARE

ENTREPRENEURS MISSING?

Research has identified four areas where

entrepreneurial information is typically incomplete:

1. Risk in the form of financial return to investors

2. Complexity -- the number of inputs with which a business

must deal

3. Ignorance -- what the entrepreneur doesn’t know that he

doesn’t know

4. Indeterminism – not knowing how an entrepreneur’s actions

will affect the outcome

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CHARACTERIZING THE TARGET MARKET

WHO IS YOUR CUSTOMER?

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CHARACTERIZING THE TARGET MARKET

The customer or target market is that segment of the marketplace that will most likely purchase the product or service.

The target customer is not always the end-user of the product or service.

The target customer could be a manufacturer producing a product that is sold to a distributor, who in turn sells to the end-user -- the consumer perhaps, or another business.

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SEGMENTING THE TARGET MARKET

By geographic area –

WHERE DO THEY LIVE?

(area and region)

By psychographics –

WHAT IS THEIR LIFESTYLE, VALUES, PERSONALITY TRAITS and MOTIVES?

By demographics –

WHAT IS THEIR AGE, NATIONA L ORIGIN, SOCIAL CLASS and GENDER?

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KEY QUESTIONS OF MARKET RESEARCH

Who is your primary customer?

What products/services do they typically buy?

How did they hear about it?

How do they like to buy this type of product/service?

How often do they buy?

How can we (our business) best meet the customer’s needs?

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“Make your product easier to buy than your competition, or you will find your

customers buying from them, not you.”

-Mark Cuban

Owner of the Dallas Mavericks

Chairman of HDNet and 2929 Entertainment

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ENTREPRENEURIAL MARKET RESEARCH PROCESS

The market research process for entrepreneurs differs in four fundamental ways from the research undertaken by large companies:

1. entrepreneurs’ questions about the market are generally broader and

more exploratory in nature; 2. entrepreneurs have fewer resources to work with; 3. they are usually on a short time frame; and 4. they typically have limited experience with their customer.

Seiger, A. (June 18, 2004). “Note on Market Research,” Stanford Graduate School of Business Case E-165.

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SIX-STEP MARKET RESEARCH PROCESS

1. Design some business prototypes

2. Assess and prioritize information needs, key assumptions, and unknowns based on the prototype designs

3. Conduct interviews with opinion leaders and experts in the industry and market

4. Prepare for market research

5. Conduct field analysis or primary research with the customer

6. Organize, analyze, modify, and conduct further research

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1. DESIGN SOME BUSINESS PROTOTYPES

The business concept describes...

the customer,

the value proposition,

the product or service being offered,

the channel through which the benefit will be delivered.

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2. ASSESS AND PRIORITIZE INFORMATION NEEDS

An ideal market should have the following

characteristics:

Over RM100 million and growing

30-35 percent growth rates

Gross margins of 40-50 percent or more

Relatively low start-up requirements

Allows for break-even in two years or less

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ASSUMPTIONS AND UNKNOWNS

What assumptions are we making about the...

Product/service

Industry/market

Customers

Competitors

Business we hope to start

We need to find proof that these assumptions are realistic.

What information do we need to test these assumptions?

Where can we find this information?...how can we get it?

MAKE A LIST OF THE INFORMATION YOU NEED, AND

WHERE YOU WILL GO TO OBTAIN IT. P R E P A R E D B Y : I N T A N N A Z U H A B T A B D U L L A H 24

3. CONDUCT INTERVIEWS WITH OPINION

LEADERS AND INDUSTRY/MARKET EXPERTS

Talk with people in the industry who understand the value chain, the markets and the

customers.

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4. PREPARE FOR MARKET RESEARCH

The following questions help to uncover the underlying rationale for the research.

What are you trying to achieve?

Who do you want (or need) to convince?

What do you need to know in order to make a compelling case for sufficient market demand?

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SECONDARY SOURCES OF CUSTOMER DATA

Chambers of commerce. Information on the community in general as well as businesses.

Small Business Administration. Broad-based information and services for small businesses.

Small Business Development Centers. Branches of the Small Business Administration that contain a wealth of information and services for small businesses.

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SECONDARY SOURCES OF CUSTOMER DATA

Trade associations. Typically keep statistics on their members and their industries. Some of this information may be available to the public.

Trade journals. What is happening in an industry: trends, problems, opportunities, and sources of information.

Government Printing Office. The federal government provides free of charge pamphlets and documents on just about anything a business owner might want to know.

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MORE ACTIVE SOURCES OF CUSTOMER DATA

Trade shows. Attending trade shows in your industry is

an excellent way to learn who the competition is and

to see what the latest trends in the industry and your

specific market are.

Competitors. Competitors can be a great source of

information. Become one of their customers and

study their strategies and how they deal with their

customers. Who are their customers? What can you

provide the customer that they are not providing?

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Surveys

Structured

Interviews

Focus Groups

Choice Modeling

and Concept

Testing

Choosing the

Sample

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5. CONDUCT FIELD ANALYSIS OR PRIMARY

RESEARCH

Data the entrepreneur collects through observation and talking with people = primary research

Exploratory vs Confirmatory methods

Focus Groups Presentations, experiential demonstrations, discussions

Videotaped opinions and feedback

Interviews Structured vs open-ended

Face-to-Face and Phone

Surveys (questionnaires) Mail

On-line

Phone

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5. CONDUCT FIELD ANALYSIS OR PRIMARY

RESEARCH WITH THE CUSTOMER

Stratified Samples

Based on geography

Based on psychographics

Based on demographics

Convenience Samples

Random Samples

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PICKING YOUR CUSTOMER SAMPLES

Keep the questionnaire short

Keep your questions neutral...no leading or bias

Ask easy questions first...lead up to complex ones

Ask demographic questions last

When you ask sensitive questions, or when people

hesitate...give them a range to pick from

“Your income level (in thousands) is... $20-$40, $40-60, $60-80, or $80+”

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SURVEY QUESTIONS

Respondents may increase their income by one level and decrease their age by one level (they distort or lie)

Respondents may tell you what they think you want to hear, rather than what they really feel, or what they really intend to do...sure, I’d buy X!

Possible low response rates (less than 10%) on mail and on-line surveys make the data suspect

On-line surveys may not represent a normal sample of people

Mail surveys can’t tap non-verbal communication messages or clarify ambiguous questions

Phone surveys can clarify issues or questions, tap non-verbal feelings better, and gain higher response rates, but have to be short, are more costly, and are prone to surveyor bias. P R E P A R E D B Y : I N T A N N A Z U H A B T A B D U L L A H 34

SURVEY WORRIES

Data when organized

Becomes information which

when analyzed

Becomes intelligence

6. ORGANIZE, ANALYZE, MODIFY, AND

CONDUCT FURTHER RESEARCH

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WHAT TOWN IS THIS?

Franchise gives an individual an agreement to market a company’s product in return for a percentage (royalty) of the profits. Semi-independent business. The company is the franchiser and the individual is the franchisee. The 1st franchise operation was started by Singer Company in 1851 to sell sewing machines. In the last 40 years, franchising has really taken off, led by Ray Kroc of McDonald’s. Today we have franchising for everything from hemorrhoid clinics [“You bend, we mend”] to auto clinics. A typical large city in the U.S. will have its share of Burger Kings, Foto-Mat, KFCs, Goodyear, Taco Bell, Pizza Hut, Dunkin Donuts, and others. There are 3,000 franchises in 670 industries, with 600,000 outlets. The franchiser will train your personnel, take care of marketing and accounting. The franchisee receives a tried-and-tested business method.

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Advantages of Franchises A Benefits of a well known trade name, systemized management, and national advertisement. B Less than 5% fail each year (65% of all independently owned businesses fail within the first 5 years). C Chance to own your own business with minimum risk.

Disadvantages of Franchises A May be too many restrictions imposed so independence is sacrificed. B Takes a lot of money for start-up C May lose your investment if the company goes bankrupt.

Some franchises such as pizza, video rentals, frozen yogurt, instant printing, & tanning parlors will not make it because they are either too competitive or too unhealthy.

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Cooperatives – voluntary association of people formed

to carry on some kind of economic activity benefiting members.

Different Types of Cooperatives: 1. Producer Coop – group of farmers who join to get better prices for their goods. They eliminate the middle-man charges.

2. Housing Coop – formed by members to buy the building they live in. 3. Purchasing Coop – retail store owned and operated by its customers. 4. Credit Union – members pool their savings so they can borrow from it at lower rates (the most common form of coop)

5. Service Coop – provides service to its members (electrical or telephone) 6. Baby-Sitting Coop – families swap baby-sitting duties without ever exchanging money.

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Nonprofit Organizations – provides

products without making a profit. Churches are the most common.

(Boy Scouts, Y.M.C.A., Salvation Army, & Goodwill)

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E-COMMERCE BUSINESS MODELS

1. Transaction fee model – companies charge a fee for goods or services.

2. Advertising support model – advertisers pay the site operator to gain access to the demographic group that visits the operator’s site.

3. Intermediary model – a web site brings buyers and sellers together and charges a commission for each sale.

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MORE E-COMMERCE BUSINESS

MODELS 4. Affiliate model – sites pay commissions to other sites to drive business to their

own sites.

5. Subscription model – The website charges a monthly or annual fee for site

visits or access to site content.

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SIDE STREET EFFECTS

When entrepreneurs start their enterprises and then let the market decide whether it

likes their ideas.

Unexpected opportunities may appear, so you must be prepared to act quickly and

effectively on any opportunity that presents itself.

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CLASS EXERCISE

Suppose you want to start a new business in a particular field.

What factors and what areas you would you research?

How you would proceed?

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THANK YOU…

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