Entrep Handouts 2 Understanding the Market PDF

ATENEO DE DAVAO UNIVERSITY Km 7 Central Park Blvd., Talomo, 8016 Davao City, Philippines Tel N...

ATENEO DE DAVAO UNIVERSITY Km 7 Central Park Blvd., Talomo, 8016 Davao City, Philippines Tel No. +63 (82) 221.2411 local 8608 E-Mail: [email protected] * www.addu.edu.ph In Consortium with Ateneo de Zamboanga University and Xavier University SENIOR HIGH SCHOOL ENTREPRENEURSHIP HANDOUTS LESSON 2: Understanding the Market A. MARKET AND MARKET IDENTIFICATION PROCESS DEFINED 1. THE MARKET An entrepreneur needs a proper understanding of the term market, which, for different people, means a different thing. For one, it could be the physical location where buying and selling take place, the “palengke.”; or on other side, one would describe as selling efforts, as how a person aggressively markets his goods. All the descriptions are true but the meaning that the discussion entails to emphasize is a different type of market. It is the market that means a group of customers or potential customers who have buying power and unsatisfied needs. The three main ingredients in the definition of the market- the customers; customers with buying power; and customers with unsatisfied needs. a. A market must have buying units, or customers. These units may be individuals or business entities. It is also important to take note that even though customers and consumers have a very similar meaning, they still have basic differences. Customers are the ones who purchase the goods and services to the seller. Consumers, on the other hand, consume or use the goods or services. While most of the time consumers and customers refer to one person only, sometimes they are not the same. Best example would be a person who buys baby food for her daughter. She purchases the goods, but the baby consumes it. b. Customers in the market must have buying power. Consumer buying power is the capacity of an individual or specific market to buy certain quantities of goods and services. Generally, consumer buying power is relative to the income and purchasing power of the person. For instance, if the person has more income, he has higher buying power compared to low income earner. c. The market must contain customers with unsatisfied needs, too. They will not buy unless the motivated to do so. They will only buy if their unsatisfied needs are recognized and turned satisfied. So it is vital to know and understand customer needs for it is essential to business’ success. Why is there a need for an entrepreneur to clearly identify and define the customers of his proposed business venture? The answer is very simple; NOT ALL will become his customers of the business venture. This is where market identification comes in. 2. MARKET IDENTIFICATION Market identification is a strategic marketing approach and process that is intended to define the specific customer of the product. It is composed of three strategic marketing approaches that will assist the entrepreneur in defining the specific market of the product:  ATENEO DE DAVAO UNIVERSITY Km 7 Central Park Blvd., Talomo, 8016 Davao City, Philippines Tel No. +63 (82) 221.2411 local 8608 E-Mail: [email protected] * www.addu.edu.ph In Consortium with Ateneo de Zamboanga University and Xavier University SENIOR HIGH SCHOOL Illustration Market Identification I. MARKET SEGMENTATION Market segmentation is an entrepreneurial marketing strategy designed primarily to divide the market into small segments with distinct needs, characteristics, or behavior (Kotler & Armstrong, 2014). The entrepreneur now divides the total market and focus his business strategy to a smaller market that have similar interests, preferences, needs, wants and other related variables. The commonly used methods for segmenting the market are: Geographic, Psychographic, Behavioral, and Demographic. GEOGRAPHIC SEGMENTATION In geographic segmentation, the total market is divided according to geographical locations in the Philippines like provincial regions, cities, provinces, municipalities and even barangay units. When the entrepreneur divides the total market into smaller segments using geographical segmentation, the following variables must be considered: Climate Dominant Ethnic Group Culture Density Classification of the geographical unit PSYCHOGRAPHIC SEGMENTATION In psychological segmentation, the market is divided in terms of what the customers think and believe. It is more difficult to identify because it is subjective or based on the following variables: Hobbies, activities, or interests Social status Personality or attitude Values, beliefs or opinions Brand Concept Lifestyle BEHAVIORAL SEGMENTATION In behavioral segmentation, the market is divided based on the following variables: Perceptions Knowledge and Reactions Benefits sought Loyalty Usage Rate DEMOGRAPHIC SEGMENTATION  ATENEO DE DAVAO UNIVERSITY Km 7 Central Park Blvd., Talomo, 8016 Davao City, Philippines Tel No. +63 (82) 221.2411 local 8608 E-Mail: [email protected] * www.addu.edu.ph In Consortium with Ateneo de Zamboanga University and Xavier University SENIOR HIGH SCHOOL The market is of course divided into demographic variables of the consumers. The common variables are the following: Gender Age Income Occupation Education Religion Ethnic Group Family Size This is the most popular method used in segmentation because it is easy to use. Researches also say that the demographic profile of the consumers exist with direct relationship with its needs and wants. FACTORS TO CONSIDER IN SEGMENTATION: a.) Size of the market segment. b.) Accessibility of the market segment. c.) Distinction of the market segment. II. MARKET TARGETING After the segmentation process, which is the first stage of market identification, the entrepreneur moves to the second stage called market targeting. Market targeting is a stage in the market identification process that aims to determine the set of buyers with common needs and characteristics. They are the market segment that the entrepreneurial venture intends to serve. The number of segments to serve determines the appropriate entrepreneurial marketing strategy to use. There are two steps in targeting a market; 1) evaluating the attractiveness of the segment and objective and resources of the company, 2) selecting market segments. Generally, the entrepreneur can select one segment or all segments of the total market with different entrepreneurial marketing strategies. The basic strategies relative to the selected segment are the following: a. INDIVIDUAL OR ONE-ON-ONE MARKETING In individual or one-on-one marketing, the business provides a product that is suited or fitted to the needs of the consumers. It is based on the concept that consumers have different needs and wants. For example, tailoring shops use one-on-one marketing strategies since they make clothes for specific people based on their respective requests. Furniture manufacturers can also use this basic strategy for clients who order customized furniture. b. SEGMENTATION MARKETING (DIFFERENTIATED OR CONCENTRATED MARKETING) Differentiated marketing is a variation of the segmentation marketing strategy. Here, the entrepreneur covers several segments of the total market and designs a product for each segment based on the capability of the business.  ATENEO DE DAVAO UNIVERSITY Km 7 Central Park Blvd., Talomo, 8016 Davao City, Philippines Tel No. +63 (82) 221.2411 local 8608 E-Mail: [email protected] * www.addu.edu.ph In Consortium with Ateneo de Zamboanga University and Xavier University SENIOR HIGH SCHOOL For example, the different toothpaste and milk products in the market are intended for different segments. Each type of toothpaste and milk product is prepared to serve a different set of customers from several segments. Concentrated marketing, on the other hand, can be sometimes called the niche marketing strategy where the business selects only a few segments but intends to serve many customers in the chosen segments. This set of customers is the niche. This type of target marketing is beneficial to small businesses with limited amounts of resources. c. MASS OR UNDIFFERENTIATED MARKETING Mass or undifferentiated marketing strategy takes into consideration the fact that the customers have common needs and wants. The entrepreneur does not have to differentiate them according to their needs and wants but rather assumes that his products will cater to all types of customers in general. This strategy is usually applicable when the product is a simple commodity that can be used by all types of customers regardless of their geographical, demographic, psychological and behavioral differences. A good example is when an entrepreneur engages in the production of refined white sugar. He does not have to segment the whole market but rather mass produce sugar for the whole buying market. III. MARKET POSITIONING Market positioning refers to the process of arranging a product to occupy a clear, distinct, and desirable place in relation to other competing products in the mindset of target consumers. It is considered the last stage in the product identification process after the entrepreneur has conducted market segmentation and already identified the segment to serve. The first logical step that the entrepreneur must perform in the market positioning is to determine that the product is truly differentiated from competitors, primarily in terms of value and benefits that the customers will gain from it. For instance, Nike is known for its high- quality products. Another example is a handbag maker that may position itself as a luxury status symbol (Chanel, Gucci, Fendi, etc.) POSITIONING STATEMENT: A positioning statement is a concise description that communicates how a product or brand is distinct from competitors and why it's valuable to the target audience. It defines the unique space the product occupies in the minds of consumers and highlights its key benefits or attributes. FORMAT To (target segment and need) our (brand) is (concept) that (point of difference). EXAMPLE: To tech-savvy consumers seeking a user-friendly and innovative mobile experience, our brand, Apple, is the cutting-edge smartphone solution that seamlessly integrates advanced technology with elegant design, setting new standards for functionality and style in the mobile industry. TYPES OF POSITIONING STRATEGIES: a. Product price: associating product/brand with known vs generic brands  ATENEO DE DAVAO UNIVERSITY Km 7 Central Park Blvd., Talomo, 8016 Davao City, Philippines Tel No. +63 (82) 221.2411 local 8608 E-Mail: [email protected] * www.addu.edu.ph In Consortium with Ateneo de Zamboanga University and Xavier University SENIOR HIGH SCHOOL b. Product quality: associating product/brand with high quality standards such as perceiving Lexus as a high end model for Toyota brand. c. Product attributes and benefits: associating product/brand with certain characteristic or beneficial value such as Apple and Samsung. d. Product use and application: associating product/brand with a specific use such as Nike for running and basketball shoes vs Northface for trekking shoes. e. Competitors: Making consumers think that your product/brand is better than your competitor such as Coca-cola vs Pepsi. B. DIFFERENT TYPES OF CUSTOMERS Customers play the most significant part in business. In fact, the customer is the actual boss in a deal and is responsible for the profit for the organization. Customer is the one who uses the products and services and judges the quality of those products and services. Hence, it’s important for an organization to retain customers or make new customers and flourish business. To manage customers, organizations should follow some sort of approach like segmentation or division of customers into groups because each customer must be considered valuable and profitable. Customers can be of following types: 1) Loyal Customers- These types of customers are less in numbers but promote more sales and profit as compared to other customers as these are the ones which are completely satisfied. These customers revisit the organization over time hence it is crucial to interact and keep in touch with them on a regular basis and invest much time and effort with them. Loyal customers want individual attention and that demands polite and respectful responses from suppliers. 2) Discount Customers- Discount customers are also frequent visitors, but they are only a part of business when offered with discounts on regular products and brands or they buy only low-cost products. More the discount is, the more they tend towards buying. These customers are mostly related to small industries or those that focus on low or marginal product investments. Focus on these types of customers is also important as they also promote a distinguished part of profit into business. 3) Impulsive Customers- These customers are difficult to convince as they want to do the business in urgency or caprice. They don’t have any specific item into their product list but are urged to buy what they find good and productive at that point of time. Handling these customers is a challenge as they are not particularly looking for a product and want the supplier to display all the useful products they have in their tally in front of them so that they can buy what they like from that display. If impulsive customers are treated accordingly, then there is a high probability that these customers will be responsible for a high percentage of sales. 4) Need-Based Customers- These customers are product specific and tend to buy items only to which they are habitual or have a specific need. These are frequent customers but do not become a part of buying most of the time, so it is difficult to satisfy them. These customers should be handled positively by showing them ways and reasons to switch to other similar products and brands and initiating them to buy these. These customers could possibly be lost if not tackled efficiently with positive interaction. 5) Wandering Customers- These are the least profitable customers as sometimes they themselves are not sure what to buy. These customers are generally new in industry and usually visit suppliers only to confirm their needs on products. They investigate features of most prominent products in the market but do not buy any of those or show least interest in buying. To grab such  ATENEO DE DAVAO UNIVERSITY Km 7 Central Park Blvd., Talomo, 8016 Davao City, Philippines Tel No. +63 (82) 221.2411 local 8608 E-Mail: [email protected] * www.addu.edu.ph In Consortium with Ateneo de Zamboanga University and Xavier University SENIOR HIGH SCHOOL customers, they should be properly informed about the various positive features of the products so that they develop a sense of interest. An organization should always focus on loyal customers and should expand or multiply the product range to leverage impulsive customers. For other types of customers, strategies should be renovated and enhanced for turning out these customers to satisfy their needs and modify these types of customers to let them fall under the loyal and impulsive category. REFERENCES (7th APA) Web: (n.d.). WIPO - World Intellectual Property Organization. https://www.wipo.int/edocs/lexdocs/laws/en/ph/ph001en.pdf Akrani, G. (n.d.). Stages process steps of new product development. KALYAN CITY LIFE BLOG. https://kalyan-city.blogspot.com/2012/02/stages-process-steps-of-new-product.html CFI Team. (2023, October 15). Market positioning. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/strategy/market-positioning/ Common branding strategies | Introduction to business. (n.d.). Lumen Learning – Simple Book Production. https://courses.lumenlearning.com/wm-introductiontobusiness/chapter/common-branding- strategies/ G, G. (2023, January 22). Types of products. Economics Discussion. https://www.economicsdiscussion.net/marketing-management/types-of-products/types-of-products/32118 Industrial vs. consumer goods: What’s the difference? (2015, May 4). Investopedia. https://www.investopedia.com/ask/answers/050415/how-are-industrial-goods-different-consumer- goods.asp New product development stages. (n.d.). Product Life Cycle Stages. https://productlifecyclestages.com/new-product-development-stages/ Positioning statement. 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