Web Entrepreneurship

Market Research & Opportunity Assessment

Dr. Ken Cosh

What is Market Research? “The process of systematic gathering, recording and

analyzing of data about customers, competitors and the market. Market research can help create a business plan, launch a new product or service, fine tune existing products and services, expand into new markets etc. It can be used to determine which portion of the population will purchase the product/service, based on variables like age, gender, location and income level. It can be found out what market characteristics your target market has. With market research, companies can learn more about current and potential customers.”

(That Wikipedia site)

Market Research

Researching your market The process of finding out about your market e.g.;

What Products (or services) they might buy. What Price they would pay. Where it should be Placed, or what channels it should

be distributed through. How it should be Promoted, or how it should be

communicated to the customer.

4*P’s, Product, Price, Placement & Promotion.

Failing to do Market Research

Coca Cola in India Bought existing market leader, and withdrew popular

‘Thums Up’ brand Ketchup to Japan

Or should it be Soy Sauce? Cornflakes to Japan

What is breakfast? Knorr soups

Yes please! Oh, its dry soup? Instant Coffee in France

Doh!

Market Research Process

Specification of what information is needed Collection and analysis of information Interpretations of the information

How does this fit with the ‘Entrepreneurship’ topics we’ve discussed so far? “Get Going” “Weave a MAT”

Formulate a Problem

Research can be a lot more focused if you define the problem you are trying to answer. A problem could be not having evidence of

market demand to present to VC’s. Or not knowing what price people are prepared to

pay. Or not knowing what appearance would appeal to

your market.

Collecting Data

Exploratory Research Discover ideas and insights, normally small scale

and flexible. Descriptive Research

Determining relationships between 2 variables, or frequencies of some event occurring, normally following a hypothesis.

Causal Research Determining cause and effect relationships – if I

lower the price, what will the effect on sales be?

Exploratory Research

Is the most relevant to early entrepreneurs. Approaches can include;

Literature Search In-depth interviews Focus Groups Case Analysis

Examining ‘benchmark’ organisations Ethnography

Projective Methods Word Association Sentence Completion Role Playing

Interpreting Results

Study Business Stats and Research! There are numerous statistical methods to

analyse data. Regression ANOVA

Entrepreneurs and Market Research

“Studies indicate that small businesses are less likely than large businesses to use marketing research in their decision making. Reasons cited include monetary and time expenses, skepticism about potential benefits of marketing research, and the owner/manager's self-perceived inability to carry out the study.”

Snepenger

The Idea Stage

For some entrepreneurs, getting the idea-and imagining the possibilities-is the easy part. It's the market research that doesn't come so naturally.

Spaeder A full-throttle approach can cost you. Entrepreneurs

are often so passionate about their ideas, they can lose objectivity. Rather than taking the time to thoroughly plan and research, they sometimes plow ahead with execution, only to spend valuable dollars on unfocused or untargeted activities.

Shenker

Managers

One of the difficulties companies face with marketing occurs when the owner/manager thinks he or she knows what the customer wants, how they want it, where they want it and when they want it. Marketing research can help find the problem and identify a solution. It helps managers to look outside of themselves for solutions.

Snepenger

MR Myths Perfect information is needed

Nope – Any new knowledge can help guide you, you don’t need the full picture to ‘get going’.

Big decisions only Nope – some market knowledge can help make any number of

decisions. Surveys is the way

Nope – a lot of market knowledge can be gained from a trip to the library, observing people, brief discussions with a ‘focus group’.

It’s expensive It doesn’t need to be.

It’s difficult You don’t need a PhD. to do research.

What can we do?

List some questions What don’t you know about your business? Some of these

questions can be answered by a quick phone call.

Analysis Look at your business plan from 4 perspectives

Your Company Your Customers Your Competitors Your Collaborators

How are they likely to see your business?

What can we do? (2)

SWOT Analysis Check out the competition

Google search the terms that you will compete on.

What do they do well? What are they missing? Ask your friends what they think. Ask their

customers what they think. Bounce ideas off your ‘soul-mate’

Is that really Market Research?

Yes!

Competitor

Forecasting

Reducing the What If’s Ideally based on historical data!

But for entrepreneurs there is no historical data, so we can used expert judgments; Our Best Guess

Estimating Trends Graphical Judgment Least Squares Moving Averages

Graphical Judgment

OR

•Visual Assessment of Data

Time Time

Least Squares Calculating the best fitting line, by minimising the deviations

from that line. More scientific than graphical judgment

Assumes data follows the following formula; Y = mX + b m is the gradient of the line and b is the intercept with the y axis.

Calculate m and b using;

Moving Averages

Useful for smoothing data

Y1+Y2+Y3+…..Yn

n

Y2+Y3+Y4+…..Yn

nEtc.

Strongly affected by extreme data

Opportunity Assessment

Comparing Costs and Benefits Break-Even Payback Cash-Flow Present Value

Break Even

Comparing costs and benefits of business. The break even point is where the two meet.

0

10

20

30

40

50

60

Year 1 Year 2 Year 3 Year 4

Income

Costs

Payback

Determining how long it will take for the cumulative benefits to payback for the cumulative costs. Payback period is very often the deciding factor for projects

0

10000

20000

30000

40000

50000

60000

70000

Benefits

Costs

Payback Flaws

Short term approach to investment decisions No consideration for the timings of payments Doesn’t consider the returns may go well

beyond the payback year

Cash Flow Analysis

Cash flow looks at when the organisation will start to gain positive cash flow from the project, rather than when the project will break even.

In the previous case the project would have a positive cash flow straight after the initial investment.

Present Value Analysis 1000 Baht today is not worth the same as 1000 Baht in 5

years time, and this should be taken into account. The cost of money is really the opportunity cost, the rate that

could be obtained if the money was invested in another project (normally a safe project).

Year 1 2 3 4 5 6 Total

Cost 40000 42000 44100 46300 48600 51000 272000

Benefit 25000 31200 39000 48700 60800 76000 280700

Present Value Suppose an alternative project offered an annual 12% return,

we can calculate the present value of the costs and benefits by multiplying by a factor;

1/(1+i)n

Here, i is the alternative interest rate (0.12), and n is the time period (year).

Year 1 2 3 4 5 6 Total

Cost

Multiplier

Present Value

40000

.89

35600

42000

.80

33600

44100

.71

31311

46300

.64

29632

48600

.57

27702

51000

.51

26010 183855

Benefit

Multiplier

Present Value

25000

.89

22250

31200

.80

24960

39000

.71

27960

48700

.64

31168

60800

.57

34656

76000

.51

38760 179484

Lies, D@*n Lies and Statistics You can use any of these approaches to support a business plan

that you are recommending (or argue against a business plan you don’t agree with). Break Even Analysis

If system needs to be justified in terms of costs, not benefits (or if benefits don’t improve much)

Payback When the improved tangible benefits form a convincing argument for

the proposed system Case Flow Analysis

If the project is expensive (comparatively) or if the organisation would be affected by a large initial expense

Present Value If payback period is long, or the cost of borrowing money is high.