Small Business Strategies - identifying the target market, necessary skills, plans for development and legal and financial constraints.

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National Diploma Business

Unit 37: Starting a small business

P2 – Describe how to indentify the target market

Market research

Market research is essential if an organisation is to make the right decisions when producing a new product or service. This means the organisation must consider many different factors such as:

  • The target audience
  • What they require
  • When they require it
  • Where the product sells best
  • The activities of competitors
  • Changes in the current market

Market research is the process of planning, collecting, and analyzing data relevant to marketing decision-making. It usually requires using a combination of primary and secondary research tools to better understand a situation.

Primary research (also called field research) involves the collection of data that does not already exist. This can be through numerous forms, including questionnaires and telephone interviews amongst others. This information may be used in such things as questionnaires, magazines, and Interviews

Secondary research: data which already exist in some form, having been collected for a different purpose, perhaps even by a different organisation, and which might be useful in solving a current problem.

Sales forecasts

A sales forecast is a prediction of what sales will be achieved over a given period, anything from a week to a year. Sales managers require sales people to forecast, in order to provide data to production, purchasing, and other functions whose activities need to be planned to meet sales demand.

Sales forecast - Projection of achievable sales revenue, based on historical sales data, analysis of market surveys and trends, and salespersons' estimates. Also called sales budget, it forms the basis of a business plan because the level of sales revenue affects practically every aspect of a business.

Customers’ actions and choices

Customer behaviour can be used to highlight market trends, building up a profile of potential customers and consumer preferences, aspirations and lifestyle which will help businesses greatly in making accurate forecasts for the future in terms of what level of demand there is from certain segments of the market.

Competition

Information gained from competitors such as the cost of rival products, financial position of the organisations in terms of profitability, sales, market shares share and so forth. This will help a business to identify the weaknesses and strengths of competitors allowing them to compete more effectively.

Market trends

The actions taken by other companies and within the industry that provides indications of the overall future direction of the marketplace. Researching the market environment will help businesses to identify market trends, the potential size of the market and the market shares of other businesses, the various market segments and characteristics of these segments (age, gender, income etc).


National Diploma Business

Unit 37: Starting a small business

M1 - Explain and justify methods used to identify the target market for the proposed business

Primary research

Primary research (also called field research) involves the collection of data that does not already exist. This can be through numerous forms, including questionnaires and telephone interviews amongst others. This information may be used in such things as questionnaires, magazines, and Interviews

By carrying out their own primary research, the business will be able to cover specific issues that apply to their situation. The primary information will allow the business to gather information that would be of interest to them and is beneficial to them in some way. While secondary research may be useful, it may not always fit with the needs of the business as it was conducted with a different purpose in mind.

As well as allowing the business to focus on issues which are of interest to them, primary research will allow the business conducting it more control over how the information is collected. This means that the business can decide on the size of the project (in terms of responses), where the research will be based (geographic location) as well as how long it will take to complete the project (timeframe).

With secondary research, the business may have to pay for information which is not required. However with primary research, the data collection will be focused on the specific issues decided upon by the business meaning that funds will be spent more efficiently yielding results that are more relevant.

Another advantage of primary research is that because it has been collected by the business, the information gained from it is entirely theirs. This means that the business can keep it hidden from the general public (and more importantly competitors) which gives the business carrying out the research an advantage over them.

One disadvantage of primary data is that in comparison to secondary research, it can be very costly. This is due to the high expense of preparing and carrying out the market research to the required specifications.

Another point is that the collection of primary data can take a lot of time to plan and execute. This means that from the point where it is decided to carry out primary research and the actual end point can be much lengthier than simply collecting secondary data.

While the data collected from primary research can be really valuable, in many cases, primary research can be so large that it can only be feasibly carried out (if at all) by the largest of organisations. For example, if KFC wanted to interview every single consumer who purchased their products, it simply would not be possible in terms of the range of the research and the expenses and resources required.

Segmentation

Segmenting the business’s customers into according to factors such as geographical location, type and lifestyle of consumers, attitudes and behaviour has a lot of benefits.

One of the main advantages of segmentation is that it allows the business to identify who the most and least profitably customers are. This in turn will allow the business to focus the marketing and promotional activity at the consumers who are more likely to buy the products or services that the business offers and help them to avoid the markets that are not viable for the business. This also helps to ensure that resources are not wasted futilely on the wrong target segment.

The information gained from segmentation can help the business to improve the products in order to meet the needs of the customer. Segmentation also helps in identifying and refining new products as well as improving customer service.

All this important as it allows the business to build and develop a good relationship with customers by developing and offering them the products and services which they require which really helps in increasing consumer loyalty.  All these benefits gained from segmentation are vital if the business is to gain a competitive advantage over competitors in the market.

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However there is a downside which comes from segmentation of the market. When segmentation of the market leads to developing variations of the same product, it increases the overall production cost as a result. Inevitably, this will lead to a rise in the cost of stock holding as there are more variations of the product to keep in storage. As well as this, advertising costs will also increase due to the cost of having to promote a wider range of products.

        


National Diploma Business

Unit 37: Starting a small business

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