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A market profile
typically uses primary and secondary sources to answer key questions
about a potential market. A profile is a picture or an outline.
Information that makes up the social profiles of the people in your
target market is called demographic information, and
includes:
- age, usually
given in a range (20-35 years)
- sex
- marriage/partner status
- location of
household
- family size
and description
- income,
especially disposable income (money available to
spend)
- education
level, usually to last level completed
- occupation
- interests,
purchasing profile (what are consumers known to
want?)
- cultural,
ethnic, racial background
A clothing
manufacturer may consider a number of possible target
markets--toddlers, athletes, grandparents (for grandchildren),
teenagers, and tourists. A general profile of each of these possible
markets will reveal which ones are more realistic, pose less risk,
and which are more likely to show a profit. A test market survey of
the most likely market groups, or those who buy for them, such as
parents for babies and toddlers, can help you separate real target
markets from unlikely possibilities.
The Right
Product
What are your customers' needs? What do
they expect to get when they buy your product or use your service?
The right product is the one that best fits their
requirements.
People who eat
in restaurants want more than a good meal. They might expect quick
service, a reasonable price, a vegetarian menu, a children's menu,
entertainment, a drive through window, or to be identified with a
trendy crowd. It becomes a difficult and probably an unprofitable
venture trying to satisfy everyone's needs.
If you have
identified your customer and listed their expectations, you can
design your product or service around their requirements.
The more you
fulfil your customer's expectations, the better the quality of your
product. Think of your product or service as more than just what the
customers pays for. When you are planning your business consider how
the whole transaction meets the customer's needs.
Positioning your Business
Positioning refers to the image
customers have of your business. The goal is to create a business
image that enables you to position your business in such a way that,
in essence, it acts as a natural magnet for your intended customers.
A number of factors that customers often look for
include:
price (i.e.
cheapest price, fair price, price for quality, etc.)
- assortment
- parking
- service
- sales
personnel
- quality
- fashion
- convenience
- location
- atmosphere
Your overall
position should emphasize those areas that your
customers value
most, and those which make you different from your
competition.
Pricing Techniques
The importance of pricing can not be
underestimated as incorrect pricing can often result in the failure
of a business. New businesses often make the mistake of either
charging too little or too much for their product or service. So to
help you avoid making one of these mistakes, the following section
will outline some of the guiding principles of price
determination.
Price is a key
part of marketing. Setting prices is called pricing.
Setting
Prices
Prices for products and services can be set by
pricing to the market, pricing to your costs, and rule of thumb
pricing. New business people with little experience may set an
initial price based on the market, and then as experience grows,
re-set prices according to costs. These two aspects of price--what
is acceptable to the market, and what costs are--must both be
considered. In addition, effective pricing depends on the business
goals of your company: do you want to maximize profits or are you
aiming for high growth in sales? The choices that a business
ultimately makes about its markets and sales make a big difference
in pricing.
For example, a
business may make an early choice about where to position themselves
in the market--the "good value," low end of the market, or the
"quality conscious," upscale market. In pricing, as in everything
else in business, the customer is the reference point.
Pricing
to the Market
Compare prices with your competitors for
similar products and services. Set the price range that customers
will expect. You can use that market price range--what is acceptable
to the market--as a guide to set your prices. Businesses or people
to whom you sell may also price to the market by telling you what
they will pay for your product or service. As you keep records of
actual costs, the cost approach to pricing will help you make sure
all your costs are covered, which may not be true in a market
approach to pricing.
NOTE: Be careful
about underpricing in order to compete or make sales. Use
competitor's prices to establish the price range for similar
products or services but don't underprice; if your true costs are
higher, your final prices will have to be higher.
Cost
Approach to Pricing
Price must cover all costs of
goods/services sold, including production costs of supplies,
materials, fixed overhead, and time/labour, plus a profit. Costs
should include costs of production, labour and non-labour, including
overhead or fixed costs as well as supplies and materials.
Use this simple
formula in setting a price (per unit):
Total Costs of
Production Per Unit + Desired Dollar Profit Per
Unit
Businesses can
set different profit rates, for example 15% profit on supplies and
materials, 20% profit on labour/time, and 25% profit on overhead.
These more complicated approaches to pricing usually emerge in
response to the special needs of a particular business.
If your research
reveals that similar products or services are available on the
market at a cost much lower than what you could offer, you may have
to either adjust your profit margin, the return you expect, or
decide to provide enough specialized service or selection that the
market will pay the extra. Alternatively, you may be forced to
conclude that you cannot afford to make this item or provide this
service and look for something else to do.
NOTE: Remember
to cost materials at the level it costs to replace them- NOT at
original prices; include salaries as a business expense; include
interest in your business cost calculations -- interest that could
have been accrued had the money used in the company been invested
elsewhere (i.e. a bank); make allowances for future refunds,
servicing, bad debts, amortization of capital costs of equipment or
machinery.
"Rules
of Thumb" in Setting Prices
Some types of businesses
charge prices according to certain "rules of thumb". For
example:
price is always
twice labour plus materials, or twice materials plus labour
depending on which is higher; price is always materials and labour
plus 20% for fixed costs, plus 25% for profits.
Calculating
actual costs is the only proven way to make sure your prices cover
your costs. Labour/time charges are to be covered partly in the
costs of production and partly as a salary in the fixed/operating or
overhead costs. In summary, key points to consider in setting prices
are:
- marketing
strategy and your immediate goals;
- competitors'
prices, and the market;
- market demand
for the product and consumer buying trends;
- need to cover
costs and provide an adequate profit.
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