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Marketing analyzing or assessment is anything but empty lingo. It’s really exactly what it sounds like: determining the characteristics unique to your particular market and analyzing this information, which will help you make decisions for your business. A marketing assessment studies the attractiveness and the dynamics of a special market within a special industry. It is part of the industry analysis and thus in turn of the global environmental analysis. Through all of these analyses the strengths, weaknesses, opportunities and threats (SWOT) of a company can be identified. Finally, with the help of a SWOT analysis, adequate business strategies of a company will be defined. The marketing assessment is also known as a documented investigation that is used to inform a firm's planning activities, particularly around decisions of inventory, purchase, work force expansion/contraction, facility expansion, purchases of capital equipment, promotional activities, and many other aspects of a company. Market segmentation: At its most basic level, it refers to subdividing a market along some commonality, similarity, or kinship. That is, the members of a segment share something in common. The purpose of segmentation is the concentration of marketing energy and force on the subdivision (or the market segment) to gain a competitive advantage within the segment. It’s analogous to the military principle of “concentration of force” to overwhelm an enemy. It is the basis for a differentiated marketing assessment. Differentiation is important. One main reason is the saturation of consumption, which exists due to the increasing competition in offered products. Consumers ask for more individual products and services and are better informed about the range of products than before. As a consequence, segmentation is necessary. Segmentation includes a lot of research, since a lot of knowledge is required to segment the market. Marketing research about structures and processes must be done to define the “relevant market”. The relevant market is an integral part of the whole market, on which the company focuses its activities. To identify and classify the relevant market, a classification or segmentation has to be done. Dimensions of marketing assessment: David A. Aaker outlined the following dimensions of a marketing assessment: Market size (current and future); trends; growth rate; profitability; Industry cost structure; Distribution channels; Key success factors; Key success Details. The goal of a marketing assessment is to determine the attractiveness, both now and in the future. Organizations evaluate the future attractiveness by gaining an understanding of evolving opportunities and threats as they relate to that organization's own strengths and weaknesses. Organizations use the finding to guide the investment decisions they make to advance their success. The findings of a marketing assessment may motivate an organization to change various aspects of its investment strategy. Affected areas may include inventory levels, a work force expansion/contraction, facility expansion, purchases of capital equipment, and promotional activities. Market size: It is defined through the volume and the potential. The volume exhibits the totality of all realized sales volume of a special market. The volume is therefore dependent on the quantity of consumers and their ordinary demand. Furthermore, the volume is either measured in quantities or qualities. The quantities can be given in technical terms, like GW for power capacities, or in numbers of items. Qualitative measuring mostly uses the sales turnover as an indicator. That means that the price and the quantity are taken into account. Besides the volume, the potential is of equal importance. It defines the upper limit of the total demand and takes potential clients into consideration. Although the potential is rather fictitious, it offers good values of orientation. The relation of volume to potential provides information about the chances of growth. The following are examples of information sources for determining size: Government data, Trade association data, Financial data from major players, Customer surveys. Market trends: They are the upward or downward movement of a market, during a period of time. The size is more difficult to estimate if one is starting with something completely new. In this case, you will have to derive the figures from the number of potential customers, or customer segments. Besides information about the target market, one also needs information about one's competitors, customers, products, etc. Lastly, you need to measure marketing effectiveness. A few techniques are: Customer analysis, Choice modelling, Competitor analysis, Risk analysis, Product research, Advertising the research, Marketing mix modelling, Simulated Test Marketing. Changes are important because they often are the source of new opportunities and threats. Moreover, they have the potential to dramatically affect the size. Examples include changes in economic, social, regulatory, legal, and political conditions and in available technology, price sensitivity, demand for variety, and level of emphasis on service and support. Market growth rate: A simple means of forecasting the growth rate is to extrapolate historical data into the future. While this method may provide a first-order estimate, it does not predict important turning points. A better method is to study trends and sales growth in complementary products. Such drivers serve as leading indicators that are more accurate than simply extrapolating historical data. Important inflection points in the growth rate sometimes can be predicted by constructing a product diffusion curve. The shape of the curve can be estimated by studying the characteristics of the adoption rate of a similar product in the past. Ultimately, many markets mature and decline. Some leading indicators of a market's decline include saturation, the emergence of substitute products, and/or the absence of growth drivers. Market opportunity: A market opportunity product or a service, based on either one technology or several, fulfills the need(s) of a (preferably increasing) market better than the competition and better than substitution-technologies within the given environmental frame (e.g. society, politics, legislation, etc.). Market profitability: While different organizations will have different levels of profitability, they are all similar to different conditions. Michael Porter devised a useful framework for evaluating the attractiveness of an industry or market. This framework, known as Porter five forces analysis, identifies five factors that influence the marketing profitability: Buyer power, Supplier power, Barriers to entry, Threat of substitute products, Rivalry among firms in the industry. Industry cost structure: The cost structure is important for identifying key factors for success. To this end, Porter's value chain model is useful for determining where value is added and for isolating the costs. The cost structure also is helpful for formulating strategies to develop a competitive advantage. For example, in some environments the experience curve effect can be used to develop a cost advantage over competitors. Distribution channel: Examining the following aspects of the distribution system may help with a marketing assessment: Existing distribution channels - can be described by how direct they are to the customer; Trends and emerging channels - new channels can offer the opportunity to develop a competitive advantage; Channel power structure - for example, in the case of a product having little brand equity, retailers have negotiating power over manufacturers and can capture more margin. Success factors: The key success factors are those elements that are necessary in order for the firm to achieve its objectives. A few examples of such factors include: Access to essential unique resources, Ability to achieve economies of scale, Access to distribution channels, Technological progress. It is important to consider that key success factors may change over time, especially as the product progresses through its life cycle. Applications: The literature defines several areas in which marketing assessment is important. These include: sales forecasting, research, and strategy. Not all managers will need to conduct a marketing assessment. Nevertheless, it would be important for managers that use marketing assessment data to know how analysts derive their conclusions and what techniques they use to do so.
By conducting a marketing assessment, you will be able to gather valuable data that will help you get to know your customers, determine appropriate pricing, and figure out your competitors’ vulnerabilities. It’s critical that you develop a clear view of how the world at large – including your competition – affects your business and its profitability. But the depth of detail in your assessment will depend on how you intend to use it. If you’re looking for investors, you need to demonstrate that you understand your industry while avoiding extraneous information. If you’re creating an internal plan that will guide your strategic direction, you may require much more detail. Here are ten ways to gather the information you need to make informed decisions on your strategic direction. 1. Segment Your Market: Divide into workable segments for which you are collecting data. Ways of segmenting might include age, income, product type, geography, buying patterns, customer needs, lifestyle, psychographics or other classifications. For example, when a local computer store defines its customer segments as “high-end home office” and “high-technology small business,” its segmentation says a lot about its customers. In developing segments, consider what factors make a difference in the purchasing, media and value patterns of your target groups. Does age matter in choice of restaurants, or are style and food preference more important? Is income level a key factor? 2. Prioritize Market Segments: You should also understand and explain growth in each segment. Discuss why your business is focusing on these specific target groups. What makes them more interesting than groups you’ve ruled out? Why are the characteristics you specify important? This is more crucial for some businesses than others. A clothing boutique, for example, might focus on one set of upper-income customers instead of another for strategic reasons. An office equipment store might focus on certain business people whose needs match the firm’s expertise. Some fast-food restaurants focus on families with children under driving age. 3. Collect and Organize Internal Data: Critical to understanding your competition is understanding your company’s numbers. Develop a process for tracking and reporting all relevant sales trends. 4. Gather Available Information on Your External Environment: You can glean a lot about competitors and industry trends by doing your homework. Check: Annual reports and 10 K reports on public companies; Internet search engines by competitors' names or key words; Trade associations and publications; Business and general press as well as press releases; Government agencies; Private research firms, including online computer databases. 5. Shop the Competition: If you’re in the restaurant business, patronize your competition once a month, rotating through different establishments. If you own a shoe store, shop your competition monthly and visit different stores. Park across the street and count the customers who go in. Note how long they stay inside, and how many come out with purchases. Browse the store and look at prices. If you can’t shop the competition, ask your customers and suppliers about them. 6. Conduct Your Own Research: When you need specific information that doesn't exist about your customers and prospects, conduct your own primary research. There are two types of research: qualitative and quantitative. Qualitative research is used to understand why customers behave as they or to develop hypotheses about that behavior. Personal interviews and focus groups (a group of 8-12 carefully selected people held in a neutral location) are two examples of this semi-structured type of survey. Quantitative research is a very structured form that attempts to answer how much. Numbers can be projected to the universe that the sample represents. Telephone, online and mail surveys are examples of this type of research. 7. Explain Needs, Growth, and Trends: All marketing should be based on underlying needs. For each segment, explain those needs that lead this group into buying your service. Did the need exist before the business? Are there other products, services or stores that offer different ways to satisfy this same need? Do you have research related to this need? It’s always a good idea to try to define your retail offering in terms of target needs, so you focus on the buyer needs you satisfy rather than what you have to sell. Are there really underlying needs - such as style and prestige for fashion footwear, padding for runners, or jumping for basketball players - that relate to selling shoes? Understand and explain trends. What factors seem to be changing your business? What developing trends could make a difference? Depending on what business you’re in, trends could be caused by changes in demographics, customer needs, fashion styles or something else entirely. 8. Develop Metrics to Compare Your Company to the Competition: Compile a list of factors that are important in your industry. Criteria may include: Marketing: sales growth, share, distribution methods, size of sales force, effectiveness of sales force, sales training, selling expenses, prices, advertising effectiveness, advertising budget, inventory levels, delivery time, distribution expenses, gross margins, product quality, customer retention rates; Production: plant capacity, plant locations, age of plant(s), age of equipment, ability to expand capacity, skill of labor force, labor turnover, union relations, quality control, supplier retention, raw material sources; Financial: profitability, cash flow, retained earnings, current assets, current liabilities, long-term debt ratio, inventory turnover, return on sales, credit line, debt/equity ratio, per share book value, stock price, return on investment, net margins; Administrative: employee turnover, administrative expenses, age of facilities; Management: experience, depth and turnover of top, middle and supervisory managers, effectiveness of communication systems, access to information, cohesiveness of top management ranks, compensation plan; decision making speed, strategic planning ability; Technology/Research & Development: age of R&D facilities, age of production technology, production patterns, basic innovation, engineering abilities, experience of R&D team, R&D budget, R&D project timelines. 9. Understand Your Strengths and Weaknesses: Rate your company on your developed list of metrics in comparison to your competitors. Look for clusters of strength that may give you a competitive advantage. 10. Apply the Information: Analyze the intelligence you’ve collected, draw conclusions and make recommendations based on it. Develop a plan for seeking out opportunities to demonstrate your company’s strengths. If weaknesses are critical drawbacks to your company’s success, develop a plan for overcoming them.
What to include in your marketing assessment? Your marketing assessment should include an overview of your industry, a look at your target, an analysis of your competition, your own projections for your business, and any regulations you’ll need to comply with. 1) Industry description and outlook: This is where you’ll discuss the current state of your industry overall and where it’s headed. Relevant industry metrics like size, trends, life cycle, and projected growth should all be included here. This will let banks or investors see that you know what you’re doing, and have done your homework and come prepared with the data to back up your business idea. 2) Target market: In the previous section of your marketing assessment, you were able to look at the general scope. In this section, you’ve got to be specific. It’s important to establish a clear idea of your target market early on. A lot of new entrepreneurs make the rookie mistake of thinking that everyone is their potential market. To put it simply, they’re not. This is a good thing--by narrowing in on your real customers, you’ll be able to direct your marketing dollars efficiently while attracting loyal customers who will spread the word about your business. The target section of your business plan should include the following: (a) User Persona and Characteristics: You’ll want to include demographics such as age, income, and location here. You’ll also need to dial into your customers’ psychographics as well. You should know what their interests and buying habits are, as well as be able to explain why you’re in the best position to meet their needs. (b) Market size: This is where you want to get real, both with the potential readers of your business plan and with yourself. Do your research and find out who and where your competitors are, and how much your customers spend annually on your product or service. How big is the potential market for your business? 3) Competitive analysis: This is the section in which you get to dissect your competitors, which is important for a couple of reasons. Obviously, it’s a good idea to know what you’re up against, but it also lets you spot the competition’s weaknesses. Are there customers out there being underserved? What can you offer that similar businesses aren’t offering? The competitive analysis should contain the following components: Market: How big is the market for goods and services similar to what you plan on offering? What’s the growth rate? Include the general outlook and trends for this market. Who are your main competitors? Are there any secondary competitors who could impact your business? (a) Competitor strengths and weaknesses: What is your competition good at? Where do they fall behind? Get imaginative to spot opportunities to excel where others are falling short. (b) The importance of your target market to competitors: Ideally, you’re going after customers whose needs aren’t being met by your competitors. (c) Barriers to entry: What are the potential pitfalls of entering your particular market? What’s the cost of entry—is it prohibitively high, or can anyone enter your market? This is where you examine your weaknesses. Be honest, with investors and yourself. Being unrealistic is not going to make you look good. (d) Window of opportunity: Does your entry into the market rely on time-sensitive technology? Do you need to get in early to take advantage of an emerging market? Projections: (a) Market share: When you know how much money your future customers spend, you’ll know how much of the market you have a chance to grab. Be practical, but don’t sell yourself short. Make sure you are able to explain how you came up with your numbers. (b) Pricing and gross margin: This is where you’ll lay out your pricing structure and discuss any discounts you plan to offer. Your gross margin is the difference between your cost and the sales price. Again, be realistic yet optimistic. Optimistic projections not only serve as a guide, they can be a motivator. (c) Regulations: Are there any specific governmental regulations or restrictions on your market? If so, you’ll need to bring them up here and discuss how you’re going to comply with them. You will also need to address the cost of compliance. Addressing these issues is essential if you are seeking investment or money from a lender, and everything has to be legally squared away and above board.
Let us give you some more tips in doing marketing assessment while writing a business plan. When working on any part of your business plan, it’s crucial to remember who you’re making this plan for; there’s a difference in how you go about forming and articulating a plan if it’s for internal use (just for you and your team to use as a road map going forward) versus using it as tool to win over investors. In either scenario, you’ll want to include the necessary degree of detail – and not a whole lot more. Prioritizing your energy and focusing on the information that’s most valuable is the central method that will make your business plan come out as clean and effective as possible, with as little wasted time as possible. At no point is this truer – and more often messed up – than when it comes to drawing up a marketing assessment. In the hopes that you can really make your marketing assessment work for you rather than the other way around, here are some guidelines to take note of when working on this often tedious section of your business plan. 1) For internal use business plans, focus on need-to-know info: For a lot of budding entrepreneurs, your business idea is built entirely from having an intimate, working knowledge of your market, as opposed to having to learn about for the purpose of successfully serving it. If this is true for your company, and you’re developing a business plan as simply a tool for your own use, there’s no real need to be labor a lengthy, detailed account which you and your team already know inside and out. This would, however, be an excellent space to find and record facts about your customer base that maybe you didn’t know – but keep it at that. 2) For investors, go a bit further: On the other hand, if your business plan is intended to convince investors to back your company, you will want to go into more detail than you or your team needs; chances are, the people you’re presenting your plan to aren’t as familiar with your market as you are. But again, overdoing the details isn’t necessary. This is an opportunity for you to demonstrate your knowledge–investors need to feel confident that you are very well-acquainted with your audience and competitors, but they don’t necessarily need enough info to become experts themselves. Just be sure to include enough that they know you are the expert. 3) Explain yourself: Before just launching into the nitty-gritty on your assessment, take a moment to explain how you went about breaking down the info, and why you chose to present it that way. Any chance you have to show potential investors that you know how to prioritize information – not to mention your time and theirs – only reinforces their overall view of you as someone who knows how to respectfully, efficiently do business. And you pretty much never want to overlook the details that make you look extra competent. 4) While you’re at it, offer a quick summary: It’s nice for both you and your presentation audience to have a sense of where you’re going before you jump in and make the trip. Before you launch into the details, it’s helpful to give a brief summary of what you’re about to cover. 5) Give true assessment: Too frequently, small-business owners include a ton of data in their marketing assessment without going a step further to actually analyze it. When going over your information, continuously put your findings in context – what conditions or problems in your industry does this info indicate? What gaps exist? And most critically, how does your company service this market in a new way that fills in those gaps, and solves those problems? 6) Show trend awareness: How is your market changing? How has it changed already? What factors are fueling change or lack of? How does your company play into all of that? These are essential questions to answer in your marketing assessment. Very few (okay, no) industries are entirely static, so it’s inevitable that the data you amass is, in reality, just one point on a trend line. Explain how that line is moving, and what it means for both the future of your business.
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