Even the most skilled entrepreneurs will fail if they don’t understand their market or enter a market too thin to support their business. So how do you research and analyze the market? In an already competitive market, how do you find a niche to create your own market? And how do you create a marketing plan that will increase your selling potential? The following information is designed to help you identify strong markets, tailor your product to meet market needs, and create marketing strategies guaranteed to strengthen your marketing presence!

Analyzing your market

You probably conduct market research without even realizing it. Locating competitors’ products, comparing prices, and identifying differences between products are all forms of market research. Many small businesses believe conducting a market analysis is a daunting task—something they don’t have the time or the money to do. After all, how can you possibly find out what people in America are buying or wanting to buy? The great thing about starting a small business is that you don’t have to answer that question…yet.

Starting out small and analyzing your local market is smart business. You aren’t going to immediately start selling your product to the entire country, so there is no need to analyze their needs. Start out by analyzing the customers in your local area, and let them be the target of your marketing plan.

The two major things you need to bring into focus during your market research are:

1. Understanding who your customers are: demographics, needs, patterns and preferences, and how to reach them
2. Understanding who your competitors are: products offered, strengths and weaknesses, and market share owned

By understanding your customers and your competitors, you will be able to tailor your product effectively to fit the needs of your target audience while not duplicating products already on the market.

:: What to know about your customers:

• Demographics—knowing the age, sex, income, and location of your customers will help you estimate the size of your potential market. For example, a new discount razor might target low-income men ages 25-49; on the other hand designer purses might target high-income women in the same age bracket.
• Needs—understanding the needs of your customers is a major component to reaching them effectively through your product. For example, products targeting children would need to be easy to use, catchy to the eye, unbreakable, and engaging; products targeting busy parents would need to be quick, reliable, mess-free, hassle-free, and time-savers.
• Patterns and preferences—recognizing patterns and preferences of your target customer base will make reaching out to them easier. Look for patterns such as where they shop and what newspapers they read. Preferences would include whether they tend to buy in bulk, appreciate specialty products, or go for name-brand items. For example, individuals who tend to buy the store brand are more interested in cost than brand name; customers reading a certain newspaper are more likely to purchase items advertised in that paper, especially if coupons are included.
• How to reach your customers—paying attention to what your customers are exposed to will help you identify prime advertising methods. Look around your local area to identify how your competitors advertise. For example, billboards along a major interstate might grab the most attention; an ad placed in a specialty magazine, however, might be more useful in reaching your target audience.

:: What to know about your competitors:

• Who they are—knowing who your competitors are is the first step to properly determining your potential market share. Do you have a lot of competitors or just one? Sometimes multiple competitors can be easier to overcome than just one competitor who has built up customer loyalty. For example, if you want to open a diner in a town where there is one very popular diner, it may be tough to attract customers away from their regular eating establishment; in a town with lots of diners and similar options, however, customers may be used to bouncing around, may have little loyalty toward one particular place, and may be more likely to try your diner.
• Products—understanding the products your competitors offer is key to determining what product you will offer. What are the similarities between products and what are the differences that distinguish each product from the next? For example, when comparing cough medicine, you can note that nearly all of the leading cough syrups contain the same primary ingredients; you notice, however, that some brands have added flavors, some are designed for children, some include additional medicine for flu symptoms, and so on and so on. Noting the similarities and differences of each product will help you identify potential gaps and opportunities for your product!
• Strengths—Identifying the strengths of your competitors is critical for making realistic assumptions about how your product will perform. If there are currently two competitive products on the market, one of which is significantly cheaper than the other, its obvious strength is low cost. You must decide whether your product will compete with the low cost option or will be a higher quality product offered for a slightly higher price. As you look at the strengths of your competitors, keep in mind your own strengths and where you are able to compete.
• Weaknesses—Knowing the weaknesses of your competitors will help you determine where your product fits in. If all of the products share a common weakness in an area where your product will be strong, you will be in good position to take a percentage of the market share, assuming that your customers have a need for that strength. For example, if your competitors’ products guarantee results in two weeks, and your product can get results in two days, people will jump on the opportunity; if, however, your competitors offer results in three days, the one day you save customers may not be important enough to convince them to try your product.
• Market share—Determining the market share of your competitors will help you determine your own market share. If your competitors share the market equally, do you have something to offer that will take customers from both? Will you be able to dominate the market or merely become a third competitor for a limited customer base? If one competitor dominates the market over all others, do you have something to offer that will make customers choose your product instead? Be sure to look realistically at how your competitors are doing and what you can offer in comparison, and always make sure your customers are in need of what it is you have to offer!

Finding your niche

Once you have identified the needs of your customer base and the weaknesses of your competitors, you may be able to find a niche for your product. Small companies generally cannot serve the needs of an entire market. By specializing your product, however, to fit a small group of needs, you can play a role in a niche market, catering exclusively to customers with specific needs and dominating market share in that category. For example, you want to start a company that makes laundry detergent. You can’t possibly overtake some of the major name brands and there is no room for another generic product. Instead, you make a special detergent designed specifically for people with a certain allergy triggered by most detergents. By catering to this group, you pull them away from other detergents on the market and become the exclusive provider of allergy-free detergents. You have created a niche market!

Creating a niche market eliminates direct competitors by targeting specific customers with a product geared entirely toward their needs. By organizing the information from your customer research and competitor research, you can identify overlaps, gaps, and needs that are not being met. Creativity and innovation can help you identify your niche and design a product to fit your target audience. A word of caution about creating a niche market—sometimes entrepreneurs can get so caught up in creating a tiny niche market that they eliminate their entire customer base. A specialty store that makes expensive, elaborate cakes for festive occasions may be a welcome change if only grocery store sheet cakes are currently available in your area; a store that makes only wedding cakes, however, will limit its potential market and drastically reduce its volume of sales.

Developing a marketing plan

Now that you know your competitors, you know your clients, and you know your product, it is time to develop a marketing plan! A marketing plan is critical to entrepreneurial success because it tells you who you need to reach and how you are going to reach them. Without customers, you have no business. The good news, you have already done most of the work needed to write your marketing plan!

Your plan should answer the following questions:

:: How will you position yourself in the marketplace?

In this section of your marketing plan, you should define your business and the product and/or service you are going to sell and create an overview of your market area. Identify your competition and the products or services they offer, what you can offer that the competition does not, and how you will attract customers away from the competition. Include the price of your product, how it compares to the competition’s price, and why you can offer it for less money or how you plan to attract customers despite a higher price. Finally, give an overview of how you will sell your product or service (online, face-to-face, etc.) and how that relates to the competition’s sales methods.

:: Who are your customers and what are their needs?

You have already done all of the work necessary to complete this section! Define your customers, including their demographics, needs, patterns and preferences. Describe the size of your target market and what they will find attractive about your product opposed to products currently on the market. How does your product better respond to their needs and preferences?

:: What is your marketing strategy and how will you reach customers?

You have already done the first part of this section! Define the patterns of your customers, how your competitors reach out to them, and what the best way for you to reach them is. Second, define your marketing strategy by identifying the methods you will use to market your product to your customers. Will you advertise only on television? Will you place ads in the newspaper or local periodicals? Would billboards be appropriate, or should you send out bulk mailings? Include in your strategy whatever ways you see appropriate to reach your customer base, and identify what percentage of your total marketing dollars you will dedicate to each marketing method.

:: What is your marketing budget?

The hardest part of figuring out your overall marketing strategy is creating your marketing budget. These costs will be included in the overall start-up costs needed to run your business. Effective marketing is critical from the first day; otherwise, no one will know about your business! You can’t rely simply on word of mouth, so plan accordingly. Research marketing costs in your area. If you plan to rent a billboard on the main interstate for three months, find out exactly how much it costs. Do not guess on marketing costs—research and determine the exact numbers it will take to market your product to your target audience. If costs seem too high, eliminate high-cost options or look for marketing strategies that target fewer people overall but a higher number of people in your targeted customer base.

Your marketing plan will become part of your overall business plan that you present to lenders and investors. By doing the work involved to write a researched, thorough marketing plan, you are one step closer to having a complete business plan in hand!