Market Research for New Ventures

Unit- 5
 Importance of Research in Business Planning
Research is a strategy that seeks to make basic discoveries and uncover new
principles or factors so far not unknown or unrecognized.
Or
Research is the systematic search for new knowledge.

 A business research program is an increasingly popular way for companies to

train and educate their managers and other employees in a vast array of different
fields.
Business research can pertain to economics, business strategy and ethics, in
fact, anything related to modern business and trade.
Research is an important element in business planning and administration in
many different ways as follows;
 Testing of new product:
Business research tests the potential success of
new products.
Companies must know what types of products and
services customers want before they market them.
 Market research will minimize risk - Market
research can help shape a new product or service,
identifying what is needed and ensure that the
development of a product is highly focused towards
demand.
 Ensuring adequate distribution:
Companies may also use business research to
ensure the adequate distribution of their products.
For example, a consumer products’ company may
want to talk to retailers about all the different brands
they sell.
The results of the business research will help
marketing managers determine where they need to
increase their product distribution.
 Measuring advertising effectiveness:
Companies use business research to determine the
success of their advertising.
 For example, a milk manufacturer may want to know
what percentage of the population saw its most recent
television commercial. The milk company may find that
more people become aware of its advertising the longer
the television ad runs. The milk company may need to run
its television advertisements at different times if few
people have seen the commercials.
 Studying the competition:
Companies often use business research to study key
competitors in their markets.
Companies will often start with secondary research
information or information that is already available.
For example, a software company may want to know the
percentage of customers in the market who purchase its
products versus competitors' products.
The researchers can then study the purchasing trends in the
industry, striving to increase their company's share of the
market. Companies will often need to increase their market
share in an industry to increase sales and profits.
 Research is an essential part of any business that
wants to offer products or services that are focused
and well targeted. Business decisions that are
based on good intelligence and good market
research can minimize risk and pay dividends and
by making market research part and parcel of the
business process.
Industry analysis: Competitor
analysis
What is Industry Analysis?

Industry
An industry is a group of firms producing a similar
product
or service, such as airlines, fitness drinks,
furniture, cinema, tourism, fashion, or electronic
games.

Industry Analysis
Is business research that focuses on the potential
of an industry.
Importance of Industry Analysis

• Once it is determined that a new venture is

feasible in regard to the industry and market in which
it will compete, a more in-depth analysis is needed
to learn the ins and outs of the industry.
• The analysis helps a firm determine if the niche
market it identified during feasibility analysis is
favorable for a new firm.
 Three Key Questions
When studying an industry, an entrepreneur must answer three
questions before pursuing the idea of starting a firm.
Question 1: Is the industry accessible—in other words, is it is

realistic place for a new venture to enter?

Question 2: Does the industry contain markets that are ripe for

innovation or are underserved?

Question 3: Are there positions in the industry that avoid some

of the negative attributes of the industry as a whole?

 How Industry and Firm-Level Factors
Affect Performance?
Firm Level Factors
Include a firm’s assets, products, culture, teamwork
among its employees, reputation, and other resources.
Industry Level Factors
Include threat of new entrants, rivalry among existing
firms, bargaining power of buyers, and related factors.
Conclusion
In various studies, researchers have found that from 8%
to 30% of the variation in firm profitability is directly
attributable to the industry in which a firm competes.
Techniques Available to Assess Industry
Attractiveness
Assessing Industry Attractiveness

Study Environmental and Business Trends

The Five Competitive Forces Model

 Studying Industry Trends
Environmental Trends
Include economic trends, social trends, technological advances,
and political and regulatory changes.
For example, industries that sell products to seniors are
benefiting by the aging of the population.
Business Trends
Other trends that impact an industry.
For example, are profit margins in the industry increasing or
falling? Is innovation accelerating or declining? Are input costs
going up or down?
 The Five Competitive Forces Model
Explanation of the Five Forces Model
The five competitive forces model is a
framework for understanding the structure of
an industry.
The model is composed of the forces that
determine industry profitability.
They help determine the average rate of
return for the firms in an industry.
 Competitive Analysis
Assuming that an entrepreneur has successfully launched a
new venture and satisfied the initial marketing questions, a
natural tendency is to just “get on it”.
Start selling and don’t look back. That may work for a while-
at least until a competitor suddenly passes by in high gear.
Smart business means staying on top of the market, and this
means continuous market research.
However, there are several important differences between the pre-
start-up planning analysis and post-start-up competitive analysis.
 On-going market research is called competitive analysis because
success often rests with relative strength of the enterprise compared
with competitors.
Competitive Advantage
Product Product Product
and service and service and service
that are that are that are
better cheaper faster

A quality
Faster
differentiation
Cheaper price indicates quick
projects better
reflects cost response to
image of the
leadership customer
product and
needs
service
A competitive analysis
Michael Porter (Harvard Business School Management Researcher)
designed various vital frameworks for developing an organization’s strategy.
One of the most renowned among managers making strategic decisions is
the five competitive forces model that determines industry structure.
According to Porter, the nature of competition in any industry is personified
in the following five forces:
 Threat of new potential entrants
 Threat of substitute product/services
 Bargaining power of suppliers
 Bargaining power of buyers
 Rivalry among current competitors
Risk Of Entry By Potential Competitors:
Potential competitors refer to the firms which are not currently
competing in the industry but have the potential to do so if given a
choice. Entry of new players increases the industry capacity, begins a
competition for market share and lowers the current costs. The threat of
entry by potential competitors is partially a function of extent of barriers
to entry. The various barriers to entry are-
Economies of scale
Brand loyalty
Government Regulation
Customer Switching Costs
Absolute Cost Advantage
 Rivalry Among Current Competitors:
Rivalry refers to the competitive struggle for market share between
firms in an industry. Extreme rivalry among established firms poses a
strong threat to profitability. The strength of rivalry among established
firms within an industry is a function of following factors:
Degree of exit barriers
Amount of fixed cost
Competitive structure of industry
Presence of global customers
Absence of switching costs
Growth Rate of industry
Demand conditions
 Bargaining Power of Buyers:
Buyers refer to the customers who finally consume the product or the
firms who distribute the industry’s product to the final consumers.
Bargaining power of buyers refer to the potential of buyers to bargain
down the prices charged by the firms in the industry or to increase the
firms cost in the industry by demanding better quality and service of
product. Strong buyers can extract profits out of an industry by
lowering the prices and increasing the costs. They purchase in large
quantities. They have full information about the product and the
market. They emphasize upon quality products. They pose credible
threat of backward integration. In this way, they are regarded as a
threat.
 Bargaining Power Of Suppliers:
Suppliers refer to the firms that provide inputs to the industry.
Bargaining power of the suppliers refer to the potential of the
suppliers to increase the prices of inputs ( labour, raw
materials, services, etc.) or the costs of industry in other ways.
Strong suppliers can extract profits out of an industry by increasing
costs of firms in the industry. Suppliers products have a few
substitutes. Strong suppliers’ products are unique. They have high
switching cost. Their product is an important input to buyer’s
product. They pose credible threat of forward integration. Buyers
are not significant to strong suppliers. In this way, they are regarded
as a threat.
 Threat of Substitute products:
Substitute products refer to the products having ability
of satisfying customers needs effectively. Substitutes
pose a ceiling (upper limit) on the potential returns of
an industry by putting a setting a limit on the price that
firms can charge for their product in an industry.
Lesser the number of close substitutes a product has,
greater is the opportunity for the firms in industry to
raise their product prices and earn greater profits
(other things being equal).
The power of Porter’s five forces varies from
industry to industry. Whatever be the industry,
these five forces influence the profitability as they
affect the prices, the costs, and the capital
investment essential for survival and competition
in industry. This five forces model also help in
making strategic decisions as it is used by the
managers to determine industry’s competitive
structure.
Contd….

Porter ignored, however, a sixth significant factor-

complementary. This term refers to the belief that
develops between the companies whose products work
is in combination with each other. Strong
complementariness might have a strong positive effect
on the industry. Also, the five forces model overlooks
the role of innovation as well as the significance of
individual firm differences. It presents a standing view
of competition.
Marketing research for
the new venture
Marketing research for the new venture:

Information for developing the marketing plan may

necessitate conducting some marketing research.
Marketing research involves the gathering of data
to determine such information as who will buy the
product or service?, what is the size of the potential
market?, what price should be charged?, what is the
most appropriate distribution channel?, and what is
the most effective promotion strategy to inform and
reach potential customers?.
Contd….
Marketing research may be conducted by
entrepreneurs or by an external supplier
or consultant. There are also opportunities
for entrepreneurs to contact their local
colleges or universities to identify faculty
which teach marketing and are willing to
have external clients for student research
projects. Suggestions on how to conduct
marketing research.
 Marketing research begins with a definition of objectives or
purpose. This is often the most difficult step since many
entrepreneurs lack knowledge or experience in marketing and
often don’t even know what they want to accomplish from a
research study. This, however, is the very reason why marketing
research can be so meaningful to the entrepreneur.

1. Defining the purpose or objectives

2. Gathering data from secondary sources
3. Gathering information from primary
sources
4. Analyzing and interpreting the results
 Defining the purpose or objectives

The most effective way to begin for the

entrepreneur to sit down and make a list of the
information that will be needed to prepare the
marketing plan. Some objectives may be to
determine the following:
How much would potential customers be willing to
pay for the product or service?
Where would potential customer prefer to purchase
the product or service?
Where would the customer expect to hear about or
learn about such a product or service?
Gathering data from secondary sources

Secondary sources like trade magazines, newspaper

articles, libraries, government agencies, and the internet
can provide much information on the industry, markets and
competitors.
The most important purpose of reviewing secondary
sources is to obtain information that will assist the
entrepreneur in making the best decisions regarding the
marketing of a product or services. Advances in information
technology today make this a very effective means of
gathering information on customers, competitors and
market trends.
Gathering information from primary sources
Information that is new is primary data. Gathering primary data
involves a data collection procedure such as observation,
networking, interviewing, focus groups, or experimentation and
usually a data collection instrument, such as a questionnaire.

Analyzing and interpreting the

results
Depending up on the size of the sample, the entrepreneur can
hand-tabulate the results or enter them on a computer. Then the
data can be cross-tabulated to provide more focused results.
 Preparing The Marketing Plan
 Once the entrepreneur has gathered all the necessary information,
he or she can sit down to prepare the marketing plan.

The marketing plan represents a significant element in the

business plan for a new venture.

Primarily the marketing plan establishes how the

entrepreneur will effectively complete and operate in the
marketplace and thus achieve the business goals and
objectives of the new venture.

Once the strategies of how the business will operate have

been identified, the entrepreneur can assign costs to these
strategies, which then serves the important purpose of
The marketing plan, like any other type of plan, may be compared to a road
map used to guide a traveler. It is designed to provide answer to these basic
questions:
1. Where have we been? It prepared the background on the
company, its strength and weaknesses, some background
on the competition, and a discussion of the opportunities
and threats in the marketplace.

2. Where do we want to go? This question primarily address

the marketing objectives and goals of the new venture in
the next 12 months.

3. How do we get there? This question discuss the specific

marketing strategy that will be implemented, when it will
occur, and who will be responsible for the monitoring of
Outline for a market plan
Situation analysis
> Background of venture
> Strengths and weaknesses of venture
> Market opportunities and threats
> Competitors analysis
Marketing objectives and goals
Marketing strategy and action programs
Budgets
Controls
Characteristics of a marketing plan
The marketing plan should be designed to meet certain
criteria. Some important characteristics that must be
incorporated in an effective marketing plan are as follows:
 It should provide a strategy for accomplishing the company
mission or goal.
 It should be based on facts and valid assumptions.
 It must provide for the use of existing resources. Allocation of all
equipment, financial resources, and human resources must be
described.
 An appropriate organization must be described to implement the
It should provide for continuity so that each
annual marketing plan can build on it,
successfully meeting longer-term goals and
objectives.
It should be simple and short. A voluminous plan
will be placed in a desk drawer and likely never
used. However, the plan should not be so short
that details on how to accomplish a goal are
excluded.
The success of the plan may depend on its
flexibility. Changes, if necessary, should be
incorporated by including what-if scenarios and
Facts Needed for Preparing a Marketing Plan
Who are the users, where are they located, how
much do they buy, from whom do they buy, and
why?
How have promotion and advertising been
employed and which approach has been most
effective?
What are the pricing changes in the market,
who has initiated these changes, and why?
What channels of distribution supply
consumers, and how do they function?
Who are the competitors, where are they located, and what

advantages /disadvantages do they have?

What marketing techniques are used by the most

successful competitors? By the least successful?

What are the overall objectives of the company for the

next year and five years hence?

What are the company’s strengths? Weaknesses?

What are one’s production capabilities by product?

A marketing plan powers your business and is at the heart of any good business plan. In 10
steps and on as little as a couple of pages, follow this template for writing a marketing
plan that turns your marketing effort into a planned investment rather than a hopeful risk.

1. State your business purpose.

2. Define your market situation, focusing on issues that affect your customers,

your product, and your competition.

3. Set goals and objectives.

4. Define your market and customer profile.

5. Define your position, brand, and creative strategy.

6. Set marketing strategies for your product, pricing, distribution, and promotion.

7. Outline your communication tactics.

8. Establish your budget.

9. Blueprint your action plan.