differentiation

Describing “The Market” in Your Business Plan – Section 3.0

by Tom Gray | on Nov 21, 2012 |  Comments

Effective marketing is the hallmark of a successful business. Its absence means the business will fail. If it is that important, you cannot leave it to chance. You must plan how to do marketing effectively.

How Marketing Fits Into Your Business Plan

Your Business Plan is the first place you actually write down those random thoughts about marketing, so you and others can see the logic and the holes. Once you figure out the marketing, then you can estimate its cost, and include that in your financial section.

But before you can figure out the marketing, you need to know who are you going to be selling to. Groups of likely prospects are called your “target market.”

Describing “The Market”: Section 3.0

To describe the Market, you first talk about industry (i.e. all your competitors) sales volume in units and dollars for your target area. Include the sales growth rate. Describe the customer groups (segments) who make those purchases: their demographics, any other characteristics such as interests or how often they buy, and how many there are in the area. Seasonal ups and downs are also mentioned here.

For some sources to measure the size of market segments, see Target Market | Thomas H. Gray.

Next you discuss trends that might change those industry sales figures, or change the ways customers are solving the problem that your product addresses. The acronym DPEST reminds you what trends to think about: Demographic, Political/regulatory, Economic, Socio-cultural, Technological. When you mention a relevant trend, you will of course say why it is relevant – how it is affecting the current or future market for your product. Your goal is to show that the trend is helping your success – you are consistent with it, not fighting it.

Then you choose the primary segment you will be selling to, and up to two secondary segments. This is your target market. Describe your typical customer in each of your target segments. Example: “he or she is (how) old, has x education and y income, family status is z, lived in the area for a years, is interested in b, c, and d, and values e, f, and g enough to spend q dollars on them annually.” Now estimate how many of those target customers live in your selling area, using the sources in the reference above.

Why bother to identify a target market? Why not sell to all? Effective communications and economical generation of “sales leads” both depend on targeting an audience that has some specific characteristics. These audience characteristics drive the design of your communications plan, the features of your product, your price, and where you sell. You want to spend marketing money reaching those most likely to buy, and buy a lot, and often, not the long shots! So targeting is critical to controlling the marketing budget. It is also critical to crafting a message that is effective by speaking directly to the needs of a specific group of customers.

In the organization of your business plan, industry definition would be 3.1, market trends is 3.2, and target market and its size is 3.3.

Competitive Analysis is Crucial!

Now you move on to a crucial issue for your business: Competitive Analysis (section 3.4). First, describe your competitors with a paragraph for each. If there are too many, group them into types of competitors so there are no more than 3 to 5. In this description, consider how they are perceived by customers (their “positioning”), and how well they satisfy the customer’s buying criteria – those 5 to 7 things a customer weighs when choosing a vendor for your product.

After this description of the competitive landscape, summarize it in a table as described in Competitive Analysis | Thomas H. Gray – Consultant, CEO, Director. The table shows how well each competitor meets each of the buying criteria (High, Medium, Low, or not at all).

Then use the table to evaluate your own offering the same way. Where you are High in satisfying customer buying criteria and others are not, this becomes your differentiation – the reason for your business to exist. If there isn’t any, don’t launch the business! If your differentiation is only price attractiveness, find some extra value to offer that will help you keep customers when competitors lower their prices to match yours.

For a short video on how to do this, go to Competitive Analysis: Find Your Edge – YouTube

Now you know who you are selling to, and what advantages you offer them compared to your competitors. Your headings look like this:

2.0 Business and Product Description

2.1 Business Description

2.2 Product Description and Need Met

3.0 The Market

3.1 Industry Definition

3.2 Trends in the Market

3.3 Target Market and Size

3.4 Competitive Analysis and Differentiation

Once you know this, you are ready to work on your strategy and tactics for capturing a share of this market. The next article addresses these.

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.

Competitive Analysis and Differentiation: Be Different or Be Gone!

by Tom Gray | on Feb 19, 2012 |  Comments

The most important reason to do competitive analysis is to find your differentiation. Every company must have an edge – must be different from competitors, in a way that matters to prospects. If your company does not meet customer needs better than other available choices, there is no reason for the customer to choose to buy from you.

Without a reason to buy from you, you have no business! Customers will not buy, and bankers will not lend. Bankers will lend only to those companies who seem to be different in a way that matters to customers when they are choosing a supplier.

So your company has to be different. It must enable customers to meet their needs better than if they bought from others. But there is also this other idea – “different in a way that matters.”

What Matters to Customers when Choosing Suppliers?

Figuring out what matters to customers – their buying criteria – starts with understanding who your target market is, and then understanding their thinking about what they need in your product. For example, when someone is thinking about buying an e-reader, their choices include Kindle or Nook or a tablet computer with an e-reader app, and perhaps a few other less well-known e-readers. How do they decide what to buy?

They think about (make a mental list of) what the e-reader must deliver. For example, they will want a glare-free display, color display, large library of books (maybe children’s books or textbooks?), a reliable unit with decent battery life, a reputable supplier, easy book ordering, protection if things go wrong, and of course an attractive price considering the value received. For some, other features may be more important than some of those listed above, such as text to speech (“read-to-me”).

Humans cannot assess products on dozens of factors. Five to seven is our limit, and maybe seven is too many! Thinking like a customer in your target market group, organize these buying criteria into priority order, and stop at 7 (or 5). You may want to group some items into a broader category such as “ease of use”. This becomes your test list.

Now you will want to talk to some of these target customers and see if you guessed right. Note: don’t ask current owners; they know too much! Ask people who tell you they are considering buying an e-reader but have not done so yet. Find them at locations where the units are sold, and strike up a conversation. Maybe you can find such research on the internet, or pay for your own survey or focus group.

Once you have a reasonable set of buying criteria in priority order, then you can assess how well the competitors meet each of these criteria. For those criteria where no one meets them well (no competitor is rated “high”), that is where you must be high – this will be your differentiation.

Summary of the Process

There is a logical train of thought here:

  • You define your target market so you can think like them about their buying criteria.
  • Then you assess competitors on those criteria and find your differentiation.
  • It is something that matters to prospects because ideally it is one (or two) of their top 5 to 7 buying criteria.
  • Having this differentiation, you have a reason to be in business!
  • Next you must figure out a “positioning” slogan: how you want the customer to think of your company. It will relate to the differentiation, but expresses customer benefits in a catchy style.
  • Once you have your positioning, you can develop your marketing program (the 4Ps), where every tactic must support this positioning.

Have you ever found an easier way to do competitive analysis and find your differentiation?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com

Competitive Analysis

by Tom Gray | on Feb 18, 2012 |  Comments

Once you know your target market’s top 5 to 7 buying criteria in priority order, you can assess the competition on how well it meets those criteria. See Competitive Analysis and Differentiation: Be Different or Be Gone!

Then you can plan to be different – to be excellent on some criteria that matter to customers where the competitors generally fall short. The final step is to capture your differentiation in a marketing slogan or “positioning” – what you want customers to think of when they hear your name.

Competitive Analysis In Your Business Plan

Start with two to four paragraphs describing the offerings of competitors today, and any improvements they are likely to introduce. In your narrative, be sure to highlight their offering in terms of the buying criteria.

Then set up a table called the Competitive Analysis Matrix. You could copy and paste the one below, and then edit it for your business.

You will have one row for each of the buying criteria, and one column for each competitor or group of competitors. Four to five columns is enough. By the way, “price attractiveness” is never the first buying criterion. The first one is most important, so it must be something about how the product meets a need, such as its functionality. After that, people might consider price. If it does not do the job, the price does not matter!

Then, in each cell, enter the consumer’s perception (not your perception, but what you think is their perception) of how well each competitor meets each buying criteria by entering H (high), M (medium), or L (low).

You will use three extra columns at the right end of the table: common shortfalls; my product; my strategy.

  • Under “common shortfalls”, enter an X for a buying criterion where no competitor is rated H.
  • Under “my product”, enter how you expect prospects will rate your product. Be realistic!
  • Finally, under “my strategy”, enter a word or two saying why you will be better than competitors on that criterion (e.g., “add color”).

Review the table to compare the ratings to each other. Modify them if needed to be sure you can explain and defend them. Review the three columns on the right; are your entries accurate?

The last step is to write a short paragraph stating your differentiation from competitors – your competitive edge. Obviously, make sure your words match what the table says. This is why they will buy your product. This is what a lender is looking for!

Positioning

Positioning  is a marketing slogan that captures your differentiation and expresses how you want to be thought of by prospects. Your slogan will be positive, expressed in terms of customer benefits – prospects will think of your company as one that offers value and perhaps good experiences.

Think of several possible slogans and try them out on friends. This is a big decision, because it drives all your marketing, so take your time to find something that makes customers (and you) feel good about your firm.

By the way, always use “price attractiveness” rather than simply “price.” Why? You want all your High ratings to be considered good. High price attractiveness is good, but a high price is bad.  So using “price attractiveness makes all your ratings consistent: high is good; low is bad.

Competitive Analysis Matrix Example (in two tables for blog space limitations)

Buying Criteria Ajax Co Sell-Co Big Bertha Also-Rans CommonShortfalls
Performance M M M L X
Durability H L M L
Price Attractiveness M M L H Almost
Fit with other tools M M H L
Company Reputation M M H L
Order/delivery M M L M X
Easy Training M M M L X

 

BuyingCriteria CommonShortfalls My Product MyStrategy
Performance X H ComputerControlled
Durability M Perf more important
Price Attractiveness Almost H Low Overhead
Fit with other tools L Our line will grow
Company Reputation L Startup needs references
Order/delivery X H Web, plusPerson option
Easy Training X H On-line

 

This table shows a startup firm whose edge is computer-controlled performance for some type of tool.

  • The firm will enter the market as an unknown, supported by references.
  •  Its appeal (differentiation) will be unmatched performance and attractive pricing for that level of performance, which can save money for its clients.
  • It is easy to do business with, but suffers from lack of a broad line of tools that work well together.
  •  It has also decided to be middle-of-the-road in durability to control costs, believing that its performance advantage will outweigh any durability disadvantage.
  •  Ajax is competing on durability and a price below Big Bertha. Sellco is a third place firm, and Big Bertha is the leader based on its broad line and established reputation.

A possible positioning slogan: “Cut your costs with the newest cutting edge.” This starts with positive customer benefit, and highlights the performance (cutting edge) of our product. It touches on how the customer can reduce his own expenses by using a high performance tool (for example, there may be no need for him to deburr and polish if he uses your machine). It also suggests that your price might be lower than average.

You will want to create your own buying criteria to fit your market and product, but here are some generic criteria to jog your thinking:

  • range of products
  • quality (hard to differentiate until AFTER one buys)
  • selection
  • service
  • reliability
  • stability
  • expertise
  • appearance or style
  • sales method
  • credit policies
  • advertising
  • image
  • ease of use
  • company reputation
  • durability
  • fit with other tools
  • training requirements

The Competitive Analysis Matrix is a simple tool to sum up the market (customer buying criteria and how well competitors meet them), choose your differentiation, and then your positioning. For a short video on how to do this, go to Competitive Analysis: Find Your Edge – YouTube.

How did this work for you? Did it organize your thinking? Was the effort worthwhile?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com