Does the word marketing make you just a little nervous?
Are you concerned that you may not know enough about this skill set that can make or break your business? Then you’re in the right place. Our Intro to Marketing series starts at the beginning, understanding marketing jargon, moves on to demystify market research then introduces you to marketing strategies and tactics.
Let’s start with the basics – figuring out what a market is and why you need one.
Technically, a market is a place where goods and services are traded. A market can range from a physical location such as a store front to a cyber location such as a website or a combination such as a stock exchange. However, most people refer to their customer pool as their market, though the correct term would be market segment.
Marketing is the process of understanding and identifying the people or organisations that have an interest in a product or service then aligning that product or service in a manner that optimises the potential for sale or trade. The marketing of your product may include determining the age group and income of the people who will purchase it, their preferred product features, their usual methods of purchase and the price point that will provide the most profitable sales.
Market research is the process of gathering, recording and analysing data about customers, competitors and the market. The purpose of market research is to help you make better business decisions about the development and marketing of current and new products. Market research answers questions such as:
- What are current market trends?
- Who are the competitors?
- How do consumers talk about the products in the market?
- Which needs are important? Are the needs being met by current products?
Market research should help you cusotmise your products then position them correctly for your target market.
A target market is the market segment to which a particular product is offered. Target markets are often defined by age, gender, geography, and/or socio-economic grouping. For example, the target market for figurines carved from crystals might be people who embrace an alternative spiritual lifestyle.
Target Market Strategy
Target market strategy is the set of plans you put in place to offer your product to the customers you wish to service. The decisions involved in targeting strategy include which segments to target, how many products to offer, which products to offer in which segments and how to reach those customers.
Marketing ojectives are the outcomes that you hope to achieve for your business. For example, if you sell anti-aging vitamins and your current purchasing group is primarily ages 50+, your new marketing objective might be to expand your product’s appeal to the 35 – 50 age group.
A market plan is a written document that describes the actions necessary to achieve specific marketing objectives. Market plans are based on market strategy, usually pertain to a product or service, a brand, or a product line and cover periods from one to five years. The market plan for a new line of hand crafted ink pens may include use of press releases, special packaging, discussion of the pens as an executive gift item in human resource forums, collaboration with a specialty paper company to co-market, e-mails to your client base describing why these pens make a perfect gift for people who appreciate quality and function.
Marketing tactics are the group of methods used to optimise the opportunity to sell a product. Tactics to expand your vitamin sales to the 35-50 age group might include special articles in your e-newsletter discussing the benefits of beginning vitamin use early to gain the greatest anti-aging benefit, placing advertising on fitness sites, health & beauty sites and fashion sites that cater to this age group, encouraging site users to sign up for a free birthday gift by entering their birth date into your data base then targeting the 35-50 age group with special offers.
We agree that there’s a lot of jargon associated with marketing and that even once you’ve learnt more about the definitions, it may be difficult to know how to move from marketing theory to producing results. In the next article in our series, we’ll take a hands-on look at market research and how you can use it to make practical decisions about your business.
Thinking about Target Markets
A target market is the market segment to which a particular product is marketed.
It is often defined by age, gender, geography, socio-economic grouping or in B2B sales, industry. Target market is a key concept for your business. The more you know about your target market and how to position your product to sell to that market, the more successful your business will be.
Target Segment Identification
Target segments or markets are often defined by their demographic attributes such as age, gender, geography or income. They are also often grouped by preferences such as trendy, organic, etc. In B2B marketing, target markets are typically defined by industry and business size.
Consumer markets can be specific to a part of the globe or can sometimes be global in nature such as Baby Boomers, those people born from about 1946 to about 1959 in World War II affected countries. This huge segment of the population has been defining market trends since their birth and will continue to do so as they age. In most countries, these consumers are generally better educated and more affluent, and are often the consumers of high end merchandise as well as merchandise that creates quality of life.
In western countries, another segment that has recently been gaining notoriety is the ‘tweenies’. These are the aged eight to twelve year olds, no longer children in terms of maturity and taste but not yet teenagers. This sought after group, armed with discretionary income, are the likely segment for those selling electronics and gaming equipment as well as fashion merchandise.
There are also a number of groups that have less household recognition but are very important in the marketplace. One such example is LOHAS. This segment of consumers who subscribe to Lifestyles of Health and Sustainability (LOHAS) is an enormous marketplace ($228.9 billion in the U.S.) for goods and services focused on health, the environment, social justice, personal development and sustainable living. The consumers attracted to this market have also been collectively referred to as Cultural Creatives. Approximately 30 percent of the adults in the U.S., or 50 million people, are currently considered LOHAS Consumers. The interconnections between global economies, cultures, environments, and political systems play a large role in the holistic worldview of the typical LOHAS Consumer, but equally important are the interconnections of mind, body and spirit within individuals.
Business markets have huge variation based on industry, size, location and governance.
The healthcare industry, for example, has enormous needs for products from basic office supplies to sophisticated electronics, software and equipment, linens, personal consumables and so on. Does the notion of serving the healthcare industry seem too daunting to you as an online reseller? Or, is it too large a segment to be meaningful? Try thinking about smaller segments within this industry such as physicians’ offices who buy not only traditional medical supplies but also office furnishings including artwork, paper goods, promotional items, waiting room reading materials, electronics such as pagers and so on.
Manufacturing industries require every manner of tools, specialised and generic parts, machinery and so on. Again, too daunting? Narrow your segment to auto parts manufacturers; narrow again to auto parts manufacturers with revenues of less than £10,000,000.
Who are your target markets? Sports enthusiasts? Travelers? College students? Families with young children? Identify the markets that you sell your services or products to as specifically as possible. The better you know your market, the better you can plan your marketing campaign.
Characteristics of Target Segments
The value of identifying target segments is that they are groups of people with similar points of view and/or similar needs or purchasing patterns. By understanding those segments, you can position your products in the optimal way.
Once a target segment has been identified and described to the extent possible demographically, it is useful to understand that segment’s needs. Are they looking for value and efficiency? Do they need support because they have too much on their plates? Are they analytic and particular and have the finances to support that approach? Are they empty nesters looking for ways to enjoy their new lives? Are they people with a strong devotion to a holistic and spiritual approach to life and are willing to make life changes to operate that way?
What kind of resources does your target population have? Are they middle income people who want a bargain or want to buy products that look high end but are economically priced? Are they high income people who prefer to surround themselves with one-of-a-kind creations and seek out fine craftsmaship? Are they holistic folks who prefer to buy natural and organic and will search the Net looking for goods that match their special needs?
Methods of Receiving Information
Where do you find your target segment and how do they receive information? Are they socialising in MySpace or searching eBay for bargains?
Does your target market purchase frequently? Do they follow sales and buy at a good price or read supporting materials and buy quality? Are they constantly seeking out new sources or do they show purchase loyalty?
The answers to these questions give you the information you need to optimise sales. The next question is, how do you discover what your target market is thinking about and how they purchase?
Market Research Techniques
Our article series on marketing has first, provided an initial understanding of marketing by defining and explaining the key terms marketers use, and secondly, has taken a more in-depth look at how to identify market segments.
Next and critically important, we need to talk about how to conduct the market research you need to understand how to position and promote your product. Part IV explains the process of collecting qualitative market research.
Everyone can and should do market research
Some business owners start to hyperventilate when they hear the words ‘market research’. They think things like:
‘I don’t have a master’s degree in marketing; I have no idea how to do research!’
‘I can’t afford to do market research; I have a very limited budget!’
‘I don’t have time to do research; I can hardly keep up with everything I have to do now to keep the business growing!’
Relax. You don’t need special degrees to do market research, it doesn’t have to cost a lot of money and you absolutely, positively need to make time for market research if you really want to grow your business.
In this article we’ll look at some simple ways for you to gather the marketing information that is very important to your business’ long term success.
The methods for doing market research are varied and range from the informal information gathering that every seller does on a routine basis to more systematic methods of data gathering. Research data can be divided into two types, qualitative and quantitative.
Qualitative Data Gathering Techniques
Qualitative data is information that is not subject to measurement. You may think that unquantified information is not valid and it’s true, you may not be able to calculate projections with qualitative information. However, every kind of information is useful and the ‘uncontrolled’ nature of qualitative information can make it some of the most insightful research data you’ll find.
Chat Rooms, Forums, Message Boards
First and foremost, market research can be done by listening and observing attentively. As an on-line retailer, you don’t have the advantage of being able to chat with your customers over a sales counter or listen in on conversations as people stroll past your trade booth but there are ways of listening to your customers on-line.
In order to learn more about your target market’s preferences, you need to determine where they are communicating on the net about subjects that are useful to your research efforts. If you sell auto parts, you should seek out auto repair chat boards, auto parts review sites and so on. If you sell craft supplies, you should explore sites that crafters tend to visit.
To find chat rooms that involve your area or involve interests within your target markets, use a good search engine such as Google and search those topics in this way (using auto parts as an example), ‘car repair chat room’ or ‘top auto parts sites’ and so on.
Go to these sites and read, read, read. Find out what your potential customers are saying, how they use sites and what’s hot. You may even want to subscribe to several sites and become an ‘expert’, providing advice and directing people to your site, if it’s allowed. (If you can’t do such ‘advertising’, just be sure your profile lists your site info – if you give good advice, people will find you.)
A second interesting technique is the use of review sites. There may or may not be relevant reviews available for your area but it’s worth trying; you would be surprised at what you may find. For example, try doing a search on Google for ‘hand crafted chess board review’. This rather esoteric request yielded a variety of reviews of handcrafted chess boards. A site that offer reviews of both common and unusual products is www.amazon.com customer reviews. EBay is also a good source of reviews. Go to the category area you are interested in and look at the sidebars for review articles. These articles give excellent information about how people look at and evaluate products.
Informal surveys can be useful ways to gather intelligence. Here are some ways to gather informal feedback:
- Add a comments section to various pages on your site. Offer a reward for posting comments.
- Add a comments section to your shopping basket, linked to rewards.
- Review and analyze customer email; what are people saying to you?
- If you offer live chat, review transcripts for information.
As a general rule, there’s never a downside to learning more about your customer and everything counts.
The focus group is a market research technique that is used to get information that is not easily obtained through surveys or is too expensive to obtain through more quantified methods.
A focus group is a group of people who have been selected based on some set of desired attributes such as teenagers from households of moderate income or mothers who do not work outside of the home. The group is brought together and a facilitator asks questions of the group to gather information. Often the group dynamic generates better information than individual interviews as one person’s perspective inspires another person’s comments. The group is sometimes shown a new product and asked to comment or is queried about general attitudes and preferences.
It’s possible to conduct something like a focus group on-line by holding a live chat session. You can invite users to come together to ask questions of your resident product expert and respond to some new product offerings you’re considering. The group setting allows people to springboard off one another’s comments and often stimulates useful discussion and insights you might not have gained in otherwise.
Your methods do not have to be scientific to gather interesting and useful information. Remember that first and foremost, every scientist learns that observation is the key to developing hypotheses to test.
Well, terrific, now you have discovered some simple and inexpensive ways to gather market research. Next, we are going to spend a bit of time talking about quantitative research methods.
Qualitative Market Research
As we discussed, we know that people sometimes get very nervous about the idea of doing market research.
You are probably saying, ‘Okay, I can do those things but quantitative research sounds too much like Quantum Theory … no can do.’
While it is true that market research can be very complex and involve substantial statistical analysis, it’s also possible to gather information systematically but more simply and gain good marketing intelligence that you can put to practical use. In this article we will look at some quantitative methods for gathering market information.
In general, quantitative market research involves some type of data gathering or the development of some method of measuring and analysing marketing information. One of the best starting places for quantitative market research is the collection of demographic data.
Demographic information is usually defined as age, gender, race, income, marital status, geographic residence, work residence, household data and so on. There are several ways to gather this data, large group data gleaned from your country’s census or small group data gathered from your customer base.
Unique Customer Database Development
It is very, very, (are you getting this?) very important to know who your customers are. You can obtain this information by asking for it and making it worthwhile for your site users to provide the information to you. How do you do it?
Make it easy for people to register to get something from your site, name and email address – that’s enough for you to know who’s visiting and be able to contact them again. However, if you can, offer something worthwhile in exchange for a more complete set of registration information. Give users a discount in exchange for learning age range, income range, marital status, geographic location, how they found your site, occupation and so on.
Customer Satisfaction Survey:
Once again, use an incentive to get feedback from your purchasers. In this situation, you will be able to tie the type and amount of purchase and type of payment mechanism to other demographic data.
Aggregate Demographic Information
Once you know something about your customers or you have established a demographic group as your intended customers, tweens in the UK from families with income over for example, it’s often useful to understand what the market potential is by determining the number of people in your market segment. Here are the sites to go to for census data.
- UK: The government of the UK provides a statistical data site that provides demographic information across many categories of inquiry and allows you to create your own data tables as well. Go to http://www.statistics.gov.uk/ to access the information.
- U.S.: Although the U.S. Census publishes census data in aggregate form, you will need specific information that is compiled for your unique needs. The best way to obtain that information is through the Factfinder site,www.factfinder.census.gov.
- Canada: Canada provides both raw census data as well as tabulated data in many forms. Go tohttp://www12.statcan.ca to access the information.
- Australia: Australia’s Bureau of Statistics’ website is a storehouse of demographic information. Go to www.abs.gov.au to access the data.
You are in a unique position to discover customised information from your customers through formal surveys. Online traders have a strong advantage over bricks and mortar retailers who have great difficulty enticing customers to fill out and return survey forms or respond to surveys by telephone. Web users, on the other hand, are much more likely to provide information when asked. And, you already have an audience of website users to draw into your data gathering efforts.
The subject of constructing surveys is an enormous field of study, much too complex to even begin to discuss in this article. Formal surveys should be carefully designed with questions tested for validity (Does each question elicit a response that answers the research question?) and reliability (Will the question be answered in a consistent way when asked by different surveyors at different times under different circumstances. Does this mean that formal surveys are out of the question as a tool for you unless you can afford the services of a survey design group? Not necessarily.
If you decide to conduct a survey on your site, try these strategies to improve the survey’s response rate and validity:
- Keep the length to the equivalent of one page or less
- Use a dynamic format if possible so the survey adapts to the survey taker
- Write as clearly as possible
- Offer confidentialityOffer an incentive for completionMake the survey aesthetically pleasing.
One good way to test the survey’s ability to retrieve the kind of information you want is to study the results of a trial run of a limited number of users. Look at individual results to see if responders became confused by the questions, if there were too many ‘don’t know’ or ‘n/a’ responses to make the question useful and so on.
Remember that statistical validity doesn’t really begin until you have at least 30 responses within a response. This means that if you ask a question with four possible multiple choice answers, the data begins to be reliable when each multiple choice option has at least 30 responses.
Now, you need to remember that the surveys you conduct of visitors to your site represent the people that actually made it there – it completely misses all of those people that do not seem to know that your site exists. Oftentimes, those are the people whose opinions you need to discover. In that case, you may want to try an online survey group.
There are many, many web survey businesses that will help you design, conduct and analyse a formal survey, often targeting specific markets for you. One of the more interesting offerings is www.surveymonkey.com. These folks are so sure that you will prefer their service that they encourage you to compare and give you a list of their competitors with links to their sites! So, if you think you know what you want to ask and who you want to ask, it may be worth giving one of these services a try.
Trend Analysis and Industry Research
Since many small business owners cannot afford to undertake major formal marketing surveys, this kind of market research is typically the province of trade associations. One of the many reasons to join a trade association is to gain access to the market research that is conducted on behalf of its membership.
To find macro market research, try these techniques:
- Google your product area name and the words ‘trade association’ or ‘market research’ or ‘industry’
- Google your target market name and the words ‘market research” or ‘trends’ or ‘buying habits’
If you sell on eBay, be sure to read our articles on Secrets of Selling on eBay to learn about the wonderful array of market research information that is available to you through the gauk Market Research Wizard and the eBay sites.
Pricing – Calculating the Price Based on Costs
Product pricing is a critical business skill to develop.
You must be able to strike a balance among a number of factors including direct costs, staff costs, overheads, profitability and market influences. In this article, we will make a fast survey of these elements so you will have a working knowledge of the framework for pricing based on costs, then look more closely at these issues in Pricing Part II – Measuring Market Influence.
Direct costs, also known as variable costs, are those costs that are directly attributable to making or buying a product. In general, the direct cost varies in direct proportion to the product produced or purchased. Although we understand that you probably do not produce the products that you sell, we’ll walk through one production example then, for the rest of this article, assume that you are purchasing goods for resale, rather than manufacturing goods for wholesale or retail sale.
If you sell bookshelves that you make, the direct costs associated with making wooden bookshelves might be:
- Nails, glue, other fastening materials
- Finishing materials
- Packaging if required
Each time you make a bookshelf, you need a unit of each of these materials, i.e., the cost varies directly with the number of units produced.
If you are purchasing bookshelves and storing them for resale, the direct cost will be the price of the bookshelf purchased from the wholesaler or manufacturer plus the cost of shipping.
If you are purchasing bookshelves from a drop shipper, the shipping cost will be a pass-through, i.e., passed through to the customer so your cost will be the cost of the product plus any per piece transaction fee.
If you are selling on eBay, you will have a cost per sales transaction that should be considered a direct cost.
If you are importing the product from another country, you may pay a duty per piece, such as a 10% duty and some additional tax such as VAT. These importation costs are direct costs.
The term indirect cost essentially refers to anything that’s not a direct cost. Indirect costs can also be referred to as semi-variable, fixed or overhead costs.
Indirect costs represent the expenses of doing business that are not readily identified with a particular product but are necessary for the general operation of the business.
Fixed costs are those costs that will exist regardless of the volume of products you purchase and sell. For example, the cost of maintaining your website is generally a fixed cost. Other fixed costs could include ISP fees, business insurance and accounting fees.
Another way to look at fixed costs is to think about the costs that a business incurs even if it is not buying and selling any products. Even if you sell nothing on your website, you will continue to have the cost of maintaining that site.
The term ‘overhead cost’ is often used interchangeably with the term ‘fixed cost’ although there is a distinction to be made. Fixed costs tend to remain whether or not you are selling, such as the website costs mentioned above. Overhead costs can sometimes be modified. For example, online traders’ overhead costs include ISP costs, merchant account fees, paid advertising and so on, generally fixed costs. On the other hand, office supplies, education and travel are also considered overhead costs but those costs can be reduced if your site is not selling much merchandise. For our purposes, we will make no distinction between fixed and overhead costs; they will be treated in the same way (You will sometimes see these costs referred to as G&A – general and administrative costs).
Semi-variable costs are those costs that vary with your business needs but not in a directly proportional way. For example, if you have a clerical person who helps you with website maintenance, customer service and other administrative duties, that person is basically a fixed cost although there may be some variability associated with that cost. If sales plummet, you may ask that person to take some unpaid time off, essentially varying the cost of the assistant with the revenue generation of the business. On the other hand, if order filling demand continues to increase, you may have to add hours to your employee’s work schedule. This cost is semi-variable because you can vary the cost of additional workers somewhat but in order to keep reliable helpers, you need to provide a somewhat steady or fixed schedule. Personnel costs are generally considered semi-variable. (There are times when worker costs are variable as in when you pay someone by the piece.)
You may be saying, ”Wait, how does my compensation fit in?” You as the owner can be paid in one of several ways. One of the most common is for you to be paid a ‘draw’, that is, your compensation is drawn from the profits, meaning that your compensation rises and falls with the health of the business. Alternatively, you may provide yourself a salary (usually when you are setup as a limited liability company), in which case your salary will be considered an overhead cost. For the purposes of pricing, even if your compensation is a draw from the business, you should estimate what you would like that draw in order to establish product pricing.
Of course, you are interested in realising a profit when you sell your products. The profit is the amount of money left over after all expenses are paid. Profit expectation is extremely variable and has a lot to do with the typical profit available within your sector of the marketplace, your personal profit plans, your ability to minimize costs, etc.
The Pricing Formula
In general, the pricing formula for a product looks like this:
Direct cost + % overhead costs + profitability % desired = Price
Very simply, if you are an online trader selling CDs and DVDs using a drop shipper, your pricing formula may look like this:
£2/CD or DVD plus 5% transaction fee (eBay, credit card) on price
Merchant account monthly fee, website host, online advertising, high speed connection, telephone, ofc supplies, prof svs = $400/month
You sell 1000 disks/month. Therefore, the overhead cost/disk = £400/1000 = £0.40/disk.
You plan to pay yourself a salary of £3,500/month or hope to draw £3,500 per month from the business or £3.50/disk
You are hoping for approximately 50% profitability. (We will discuss issues related to profitability in much greater detail in Part III – Profitability in Pricing.)
Cost category Cost
CD cost £2.00
Total Cost £6.90
50% profitability £3.45
5% Transactions £0.52
Final price £10.87
Your selling price for a disk should be around £10.87. Now you need to figure out if you can actually sell your disks at that price. Move on to Pricing Part II – Market Influences in Pricing.
Measuring Market Influences
In order to price your product, you have to figure out who your market is and what price they are willing to pay for your crafts.
This article discusses how to determine your price point.
Pricing by Formula
In many industries, clothing for example, pricing tends to conform to formulae. In the fashion industry, you might expect to sell a product for 2-3 times the wholesale value you paid. In other marketplaces, pricing might be much more narrow, say 30% over wholesale cost. Just because an industry has an expected pricing formula, that doesn’t mean you have to follow that formula. But, since the market will operate based on those expectations, if you intend to price differently, especially higher, you will have to clearly communicate to your buyers why your product is priced differently.
By the way, if you follow a pricing formula approach, say two times wholesale cost, your job is to be sure that your costs of doing business and anticipated profit can be reached at that price point.
Pricing by Cost Plus
Following from the discussion in Pricing Part I, you have probably calculated a cost per product, recognising that the variables in that calculation are the profit margin you hope for and, most likely, the compensation you will draw from your business. Now that you have this incredibly valuable information, you need to look at market forces to determine at what price point you can actually sell the product.
It’s very useful to do a competitive analysis to get a better understanding of where your price point should be. Determine who your competitors are then analyse their offerings or their marketing and yours in detail. When you are selling commodity merchandise, the competitive analysis that you will conduct will be less focused on the product and more focused on the marketing approach used by the competitor. When you are selling something unique such as handcrafts or art or a unique offering within a commodity grouping, your analysis can focus on product differentiators as well.
The easiest method is to search on the keywords that would lead someone to your site and see who else turns up and where they turn up in the search engine listings. Review their sites and look for the sites your clients are most likely to select over your site. Once you have identified a reasonable list of competitors, conduct your analysis systematically. Create a table with competitor names in one column and comparison points across columns. Take detailed notes as you work through the analysis.
Are they selling exactly the same products that you are selling? If yes, is it because your products are quite available for resale or because you have discovered the same or similar small groups of suppliers?
Compare pricing as closely as possible. Are your prices in the same ball park? 10% lower 20% higher? Do you see clear reasons for differences in pricing? If you don’t then you can be assured that customers will buy at the lowest price. If you aren’t the lowest priced trader of a commodity type product, then you will have to 1) be a better marketer, reaching more people and/or 2) offer something additional beyond product, such as information, association, etc.
Compare product presentation
Look at descriptions, photos, supplementary information.
Compare website presence in the marketplace
If you don’t know about Alexa, you should. Go to www.alexa.com and place the name of any website into the search box. Alexa will tell you that website’s ranking on the Internet, trends in ranking, pages viewed and trends and viewers/million and trends. Gather the Alexa data for every competitor’s site including your own. For eBay market research, you can obtain competitive data on any keyword by using the gauk Market Research Wizard.
Compare website content
Review each competitor website and evaluate:
- Appearance – is the site interesting, attractive?
- Ease of use – can you move around the site and find things easily?
- Shopping experience – How does the shopping experience work? Is the checkout process quick and effortless?
- Customer service – What are the customer service features? Live chat? 24 hour phone?
- Additional content – Feature articles? How-to section? How-to product guides? Other relevant content?
- Target marketing – Can you tell who the site is trying to sell to? How can you tell?
Compare selling strategies
What kind of selling strategies are they using? Special sales? Multiple product shipping discounts? Frequent buyer plans? After sale offers at checkout?
Once you have collected the data, review your chart looking for ways that:
- you can differentiate yourself from competitors and convince your market to pay a higher price;
- compete on price;
- improve your own product positioning based on what you have learned from your competitors.
The outcomes of your analysis should give you a picture of the competitive landscape and how you and your products fit into it.
Your pricing decisions should be made based upon your best understanding of your marketplace and what price the market will bear, your review of the competition and decisions about the extent to which you can compete on either price or other differentiators that will allow you to price above the competition. Read Pricing Part III – the Psychology of Pricing for good information about ways to increase revenue and profitability through pricing strategies.