Introduction

The marketing strategy is that part of the business plan that is concerned with getting your product(s) or service(s) to the consumer. It consists of the following five elements: an industry analysis, the target market, the competition, the product, pricing, distribution, advertising and promotion, and market timing. Product, pricing, distribution, and advertising and promotion are commonly referred to as the "Marketing Mix." This lesson will focus on examining the first three elements of the marketing strategy: the industry analysis, the target market, and the competition. Lesson 7 will deal with the Marketing Mix and market timing.

Every business is part of a larger industry. The industry consists of those companies that are offering similar or related products or services, as well as those related companies that supply raw or finished materials, distribute your product or offer services in support of your product or service. Forces that effect the industry as a whole will inevitably effect small local businesses as well. The successful entrepreneur should have a thorough understanding of his/her industry and always be alert to trends and changes in the industry. Conducting an Industry Analysis (1) increases the entrepreneur's knowledge of those factors that contribute to the success of the business, (2) helps to identify opportunities or threats that may be present, and (3) indicates to potential investors an understanding of external forces affecting the business.

The purpose of Target Marketing is to identify and understand your customers. This is essential to the success of any business. If you don't understand your customers, how can you meet their needs?

All markets can be divided up into groups of individuals who share common characteristics and traits. In marketing, these groups are referred to as "market segments." A market segment can be defined as, "a group of customers who share a set of common characteristics that differentiate them from other groups of customers." Target marketing involves identifying the different customer segments, examining their potential, and deciding on the segments with which you wish to do business. Once these decisions have been made, a marketing mix can be developed for the chosen segment(s).

Every business is faced with competition. Within any given market segment many businesses are competing to meet the needs of the same customers. You can learn a lot by observing your competition. What segments are they targeting? What are they doing better than you? How satisfied are their customers? What does their Marketing Mix look like? Knowledge about competitors can help to differentiate a product or business from that of the competition and can also reveal new opportunities with regard to additional customer needs. Consequently, the more you know about the competition the better chance you have of successfully competing in the marketplace.

Finally, it is important to consider market timing. When is the best time to start a business? This can vary greatly depending on the type of business. However, it is best not to start up in the months immediately following Christmas. At this point most customers have extended their credit and are not likely to make purchases. Thanksgiving is a good time, particularly in retail, since it is the beginning of the Christmas shopping season. Also consider the seasonal use of your product/service. Think the start up date through carefully, it may be the difference between success and failure.

This lesson will focus on gathering and utilizing information regarding the industry, target markets and the competition in the development of a marketing strategy.

Topics

• Industry analysis.
• Target market.
• Competition.

Objectives

• To learn how to analyze the larger industry to which your business belongs.
• To understand the implications for smaller businesses.
• To gain an in-depth understanding of your potential customers.
• To develop an appropriate Marketing Mix to meet the need of potential customers.
• To analyze the competition for purposes of developing an effective competitive position in the market.

Lesson Description

Students will become familiar with several indicators commonly used in assessing the health of an industry. By examining these indicators they will gain a better understanding of the larger environment and its implications for their business. Students will also learn how to identify different market segments (customer groups) and evaluate them as potential customers. Finally, they will learn how to analyze the competition for the purpose of effectively entering and competing in the marketplace.

Materials

• Activity 6-A: Industry Analysis Worksheet
• Activity 6-B: Identifying Your Target Market Worksheet
• Activity 6-C: Competitive Analysis Worksheet
• Visual 6-1: Components of the Marketing Strategy
• Visual 6-2: Components of an Industry Analysis
• Visual 6-3: Definition of Market Driven
• Visual 6-4: Definition of Market Segmentation
• Visual 6-5: Definition of a Target Market
• Visual 6-6: The Basis of Market Segmentation
• Visual 6-7: A Market Segmentation for Toothpaste
• Visual 6-8: Criteria Used to Evaluate Market Segments
• Visual 6-9: Components of a Competitive Analysis

Procedure

This lesson can best be taught in three modules: the Industry Analysis, Target Marketing, and Analysis of the Competition. Each of these modules will be presented in sequence.

1. Explain to students that the marketing strategy focuses on getting their product to market.

2. Industry Analysis: Using Visual 6-1:Components of the Strategy, briefly go over the elements of the marketing strategy. Explain to students that the Industry Analysis, Target Marketing, and Competition will be the focus of today's class, and the Marketing Mix will be dealt with during the next class period.

3. The industry analysis consists of a description of the industry and examining current trends. Ask students how they might describe the industry to which their business belongs and the trends they feel would be important to track. Visual 6-2: Components of an Industry Analysis identifies various factors and trends that should be examined when conducting an Industry Analysis.

4. Distribute Activity 6-A: Industry Analysis Worksheet. Students should use this worksheet to collect the necessary information for writing the Industry Analysis section of the business plan. (Refer students to the Information Sources at the end of this lesson for a list of references from which data for this section can be obtained.)

5. Target Market: Begin this section by explaining to students that the next step in developing a market strategy involves deciding who you want to sell your product or service to. Introduce students to the concepts of "Market Driven" (Visual 6-3: Definition of Market Driven), "Market Segmentation" (Visual 6-4: Definition of Market Segmentation), and "Target Market", (Visual 6-5: Definition of Target Market).

6. The teacher should explain that most business people have a general idea regarding who might use their product or service. However, this provides them very little information on which to make business decisions. Defining the market as all people who eat food hardly helps in developing a plan for a gourmet food store. Consequently, it is necessary to identify and evaluate the different segments of the market and then decide which segments needs are best met the by company's product(s) or service. Once this is done, a meaningful plan can then be developed.

7. Visual 6-6: The Basis of Market Segmentation illustr ates the basis of Segmentation and Visual 6-7: A Market Segmentation for Toothpaste provides an example of a market segmentation for toothpaste. Using the dimensions illustrated in Visual 6-6 ask students to describe in detail either verbally or in writing the different segment(s) to which their proposed product(s) or service(s) might appeal.

8. Explain to students that the "target market" is simply that segment or segments they chose to direct their marketing efforts toward. However, point out that before choosing a specific target market(s) each potential segment of interest should be evaluated on the following criteria, (Visual 6-8: Criteria Used to Evaluate Market Segments):
   • Definable: Identified as a common set of characteristics that are shared by a potential group of customers, yet differentiate them from other groups.
   • Meaningful: Characteristics that have been identified meaningful in regards to the customers decision to purchase the product or service.
   • Sizable: Potential segment(s) that is large enough to make it profitable to do business with.
   • Reachable: Potential segment(s) can be reached efficiently, effectively, and economically.

9. Explain to students that once the target market(s) has been identified, it should then be examined for any emerging trends and/or opportunities.

10. Handout Activity 6-B: Identifying Your Target Market Worksheet. When Activity 6-B is completed it should provide students with the necessary information to analyze and choose their Target Market(s).

11. Emphasize that to be successful in today's business environment, a company must be "market driven." In other words, the focus of the company should be on the demands and trends of the marketplace rather than the characteristics of the product or service. Consequently, it is essential to have a thorough understanding of your customers. This will help you recognize changes in the marketplace and enable you to respond in terms of adjusting your advertising, product lines, packaging, location, etc. In both the short and long term, a market analysis can save you a significant amount of money.

12. Competition: Begin this section by emphasizing the fact that all businesses are faced with competition. Reiterate that the basis of all competition is to be more responsive than your competitor to the needs of the consumer. A thorough understanding of your competition can aid in accomplishing this by helping you to better understand your own product(s) or service(s) in relation to your competitors as well as understanding what customers want.

13. Ask students to identify their competition. Have them make list of the information they feel they should know about their competition. Ask them why this information is important. If applicable, see if students have recognized that competition may come from businesses in neighboring cities, mail order and/or TV shopping channels.

14. Using Visual 6-9: Components of a Competitive Analysis, illustrate the scope of information that should be gathered and analyzed with regard to conducting an evaluation of the competition.

15. Lead a discussion that focuses on how some of the larger companies in any given industry operate their businesses, e.g., Kaufmans Department Store, General Motors, etc. Ask students what the small business owner can learn from the larger companies that would help the entreperneur in their business.

16. Hand out Activity 6-C: Competitive Analysis Worksheet. Go over the worksheet with the students and instruct them to gather the necessary information as indicated. Student will need to locate somebody fitting the characteristics of their target market to complete this the Analysis of the Consumers' Perceptions of Competitors portion of Activity 6-C. (If this is not possible students may role play an individual from that Target Market.) After completion, students should study the data and synthesize it for this section of their plan.

Closure

Review the three main components of the marketing strategy discussed in this lesson; Industry Analysis, Target Market, and Competition.

Assessment

Using the worksheets from Activities 6-A, 6-B, and 6-C students should write up the three dimensions of the marketing strategy presented in this lesson and hand them in during the next class period.

Information Sources

Industry Analysis Sources

• U.S. Industrial Outlook 1997: Provides data, by industry, regarding the economic outlook, growth rates, etc.
• American Statistical Index (ASI): Lists all government reports.
• U.S. Census Bureau:
  • Current Industrial Reports (CIR), covers 5000 manufactured products.
  • Economic Census and Related Statistics: Monthly sale figures and trends for retail trade, manufacturing, services, and transportation.
  • County Business Patterns: Covers all counties in the U.S. for businesses with more than 50 employees.
• Small Business Sourcebook
• Gale's Encyclopedia of Associations
• National Trade and Professional Associations in the U.S.
• Standard & Poor's Industry Surveys
• Also check with local organizations to get a pulse on what's happening in a particular industry: The Chamber of Commerce, The Regional Planning Commission, Merchants Associations, banks, stock brokers, etc.

Target Market Sources

The most important source of information concerning the target market is of course that which is col lected in the area where the business is to be established. However, there are several publications that are useful with regard to gaining a better understanding of customers who would potentially be interested in your product(s) or service(s). In addi tion to the suggestions listed in Industry Analysis Sources, students should review copies of:

• American Demographic
• Advertising Age
• Business Week
• Forbes
• The Wall Street Journal
• Fortune
• Best 100 Sources For Market Information
• Simmons Study of Media and Markets
• Sourcebook of Demographics and Buying
• Power for Every Zip Code in the U.S.

One should also look closely at whom the competition is directing its marketing efforts towards.

Competition Sources

Again, information on the competition is best gathered in the area where the business is to be established. However, some of above sources, such as County Business Patterns may provide valuable information about competitors. Likewise information on different brands of similar products competit ors carry may prove valuable in determining if a competitor can offer a particular price, service, guarantee, etc.