Key Learning Outcomes
- Understand the need to collect as much knowledge and information on your potential market as possible during the business planning process.
- Use industry and government data combined with your own client and sales records to build a profile on your potential market.
- Learn how to analyse market information to allow for more effective business planning.
- Outline the benefits of analysing your potential market with reference to the case study business.
One of the most important steps in your business plan is to identify and analyse your market. Broadly speaking, your market is every potential client who has the ability and the willingness to buy your products or services. The more information you have on these clients, the better you can target them when attracting them to your business. In some cases, by going through this exercise, a business can discover that the potential market is not large enough to sustain business for the future, allowing for changes to be made in the plan.
There are a number of things to look at when identifying and building a profile on your market. The first things to look at are the geographic and demographic make up, these will identify how large your market is and will give you information on your potential consumers.
Geographic – How wide is the geographic area that you can service? This will vary from business to business. For example, in an industry such as real estate, where area knowledge and expertise are influential factors for consumers, the market may be very local, down to one or two suburbs. For an online business, it could be global and for a service-based industry, such as a nanny agency, the market could encompass an entire metropolitan area.[wlm_ismember]
Demographic – If your business is geographically bound, you need to know as much as possible about the area that you are servicing and the people you are dealing with. A lot of information can be found through government departments such as the Australian Bureau of Statistics. You will find information is readily available for a wide variety of factors such as the number of residents, age, marital status, housing, income, education level and ethnic origin.
Next, start to look at your current and past clients and look for common characteristics. What gender do you tend to attract? For example, a beauty salon or shoe shop may tend to attract female customers yet a sports store may get a mix. It is important not to just guess. Spend two weeks keeping a record to build your client profile or go through your current client base to get some tangible information. Are there any common lifestyle interests among your clients? Sometimes this can be obvious, for example, a cookware store is likely to attract people who like to cook, but for many businesses this might take a little more research.
Once you have this information, you need to determine your prime market area. This may be defined geographically or by the customer profile. You can then look at any secondary market areas that may offer potential, or areas where you may be able to broaden your appeal to a wider audience.
Let’s take The Best Beauty Salon as an example. Located in the local shopping strip, the assumption is that the majority of the current clients live in the local suburb and the business owner believes they are women who ages range from the mid-30s through to the early 50s.
In a business such as a beauty salon, information on clients, for example age, is easily collected in the initial consultation. Through analysis of the client base, the owner has found that 93% of the clients are female and that 60% come from the prime market area. She also found that 18% come from the secondary market area and 8% from another nearby suburb, with the remainder spread outside the area. An analysis of the clients’ ages has found that 7% are below age 19; 12% are above age 60; 36% are aged between 20 and 39; and 45% are aged between 40 and 59.
The prime market is identified as the local suburb with the secondary market an adjacent suburb. The following is research gained from the most recent census, giving some insight into each market area. Many businesses make the mistake of assuming residents from the secondary market area will be the same as those from the prime market area. However, this is often not the case and you must do the research for every one of your potential areas.
This market analysis starts to generate some valuable information for the owner of The Best Beauty Salon in pursuit of their goals. From the goal-setting article we know that one of the business’s goals is to increase appointments during the traditionally slow period from 11am–3pm. The above information shows that almost 70% of residents in the prime market area work full time, explaining why late and weekend appointments are always fully booked.
For the business to fulfil this goal, it will need to start thinking about how to attract clients from the secondary market area where less people are working and where there appear to be more families. Another factor is the lower average household income in the secondary market meaning fewer consumers are in a position to spend on luxury items such as spa treatments. It may be necessary to look at introducing a new product or service that will fill the less popular time slots at a lower price point.
Once you have compiled your information, start to look at it critically. Did you make some assumptions about the area or your customers that do not hold true? Do you need to do some further analysis on other secondary markets in order to achieve your goals? Has your market moved or changed over time? Are there opportunities that you may have missed?
The key to this section is to become an expert in your own market – the more that you understand about your customers, the more you are going to be able to attract and service them. The next step in developing your plan will be to complete the competitive analysis.[/wlm_ismember]
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