Choose a business that you are passionate about. And then, do market research in the field of interest to learn about its business environment. It is easier, to begin with secondary market research. That is to acquire information from publicly available media such as magazines, trade journals, online searches, and publications you might find in a library. Once you gained the general information about your field of interest, then do primary market research. Do your market research, such as drive around in your area, recognize what businesses are there, and talk to your potential customers. You will get first-hand knowledge. A customer is a person who will pay you for the product or service you provide. Typically, the information you gain from the primary market research gives you more up to date facts and insights for a competitive advantage.
In this section, describe the problems your potential customers have, or their desire to accomplish something. Customers will pay you money if you can fulfill their wants or wishes. Talking with prospective customers gives you a further understanding of the problem they are facing. The problem can be painful enough, such that customer is willing to pay money to solve it. Examples of agonizing pain could be a toothache, a stalled car, and a leaky water pipe. Or, identity the desires customer wants to achieve. A desire can be strong enough that the customer is willing to pay money to get it. Such desire could be to visit Machu Picchu Inca citadel, obtain a pilot's license, and own a piece of rare antique furniture. Successful businesses create value by enabling a customer’s desire and help their wishes come true. In the example of Jack's Sandwich Shop, customers’ preference was to satisfy their appetite for tasty, nutritious food.
In this section, describe what you will do for your customer. Once your product or service offering is clearly defined, do market research to determine if such a solution exists. Start with secondary market research, meaning search through the publicly available information. A little Googling can identify a lot of information about what is already available in the market. And then, do primary market research, which is to talk with your potential customers to gain further details. If you can provide a sample product or do a service demonstration, ask customers for feedback. Find out what it is that makes your offering more attractive to customers. If you are a producer of goods, prototype your solution the best it can be at this point and seek feedback. Even if you can’t demonstrate, ask your potential customers about what they prefer. Be clear about what you think is the value of your product or service and verify if it matches or exceeds their expectations. For instance, you are opening a routine service business, such as a barbershop. Chances are most customers know what to expect based on their haircuts in the past. If a new service, ask customers about their latest expectations. Your solution has to be better than what is available now. “Me too” solution is offering the same as what is already available. Offering “me too” will end up providing your products or services at a lower profit margin to attract any customers.
Running a business is all about earning your customers' preference. For example, have you seen a restaurant with the customer waiting in a line, when other restaurants in the same block have no waiting lines? What makes people prefer one vs. other alternatives? Could it be a quality of products, accessibility, food services, or ambiance? Or something else? Whatever it might be, know the customer’s preference.
Some customers simply prefer the lowest price. Your pricing can be Cost-driven, Value-driven, or Market-driven. Cost-driven is the price determined by your cost plus a profit margin. Value-driven is the list price based on the value perceived by the customer and how much they are willing to pay for it. Market-driven is priced competitively among other competitors. The right pricing of your product or service is not an easy task. Your pricing should include all your costs into account, including your fixed, variable and overhead costs. If you are running a retail store, you need to mark up your goods two times or more to cover your inventory, labor, and other running costs. To make a sufficient profit, have flexibility built into your pricing to meet market fluctuations and changes in your competition. Consider other factors that could alter the market, such as inflation or shifts in demand that will make an influence on your customer’s perception of what they will pay for it. Competing on price will hurt your business profit margin. Rather than offering the lowest price, it is better to provide market average price and compete on service, quality, and features.
Fortunately, most customers prefer your product or service when you provide more values, superior customer service, offer more convenience, and uniqueness of your offerings. Providing more value means extra benefits to customers. Examples of excellent customer services are helpful, reliable, and quick to respond to your customer needs. And provide generous guarantees, cleanness of your store or job, the freshness of your product, and better quality. You can provide more convenience to customers by better accessible locations, longer hours of service, and a broad product and service offering array. Some customers prefer your business because of uniqueness. Some examples of uniqueness are:
an innovative product that is hard to copy
you offer up to the minute information about a fast-developing field
your distinctive business styles
utilizing better technology
the first in the market
your solution delivery is more efficient
your unique knowledge and expertise
a way of doing business
If you are a manufacturer of goods, you can provide customers with useful value. For example, user training, warranty, refund policy, ongoing support, repair service, and on-time delivery are beneficial to customers. If you are a retailer, your business can be a notable convenience factor for your customers. For example, the customer might prefer your good geographic location with ample parking spaces, types of shops nearby, near the main road, or easy access to public transportation.
Know your customer's needs well enough to earn their preference by providing products or services they want and need. For example, many of Jack's customers are young people who are most comfortable making transactions on their smartphones. He understands their preference, and he made the shop's menu and ordering process available on mobile devices.
Let’s identify the unique features of your offering and the benefits customers receive to make customers prefer your product or service. The “feature” is what your product or service offers, and the “benefit” is resulting from making use of that feature.
It is easier to deliver value where you can define and quantify the target customers. A simple value proposition statement will do. Such a statement could be stated as; for the [target customer], who [desires], unlike [main competitive alternative], we provide [key benefits] with [product or service]. A statement stated in this form communicates the value you are offering concisely
There is a big difference between customer satisfaction and customer preference. Just because a customer is satisfied with the previous transaction does not mean the customer will return. That customer may be just as happy transacting with a competitor. In contrast, if a customer prefers to buy from your business, the customer will return to your store again.
In this section, describe the ideal profile of people who will be buying from you. They are your target customers and your best prospects in your delivery area. Your target customers are most likely to buy your product or service. They have some common characteristics that unite them. For instance, the concentrated area of your ideal customer lives, age group, education level, interest, stage of life, spending power, lifestyle, and buying behavior are examples of shared characteristics. You'll want to know everything about them and their purchasing habits to enhance your sales. Once you understand potential customers' defining characteristics, you can go after more people who fit the same mold. The more clearly you know your target group, you can estimate the market size of your offering. Then, it will be easier to design a marketing and sales campaign to establish your sales potential.
Identifying your particular niche (a unique segment of the market) is crucial to small business retailers and small manufacturers. Serving a specialized sector is much easier to focus, rather than serving a general-purpose area. Serving a small niche target group will help you coexist among larger enterprises. You can dominate that niche segment of the market. And then, go after that specific group of people you want to reach with your marketing message.
In the case of Jack’s Sandwich Shop, Jack focused on the customers who want to satisfy their appetite with nutritious food on the go, not those who want to enjoy fine dining with wine. Furthermore, Jack targets customers who are health-conscious working people who seek a nutritious lunch. Jack estimates there are roughly 500 business and government office workers in his neighborhood and approximately 3000 residents who live in the nearby apartment complex.
Your distribution channels can also consider your target customers if you are using a distributor to sell your product to the end-user customer (or consumer).
In this section, describe what you will do to compete with other solution providers. Competitors are other businesses who offer a similar solution, aimed at the same target customer base as you do. They are contenders against your business because customers will compare available solutions and pick the most attractive ones.
Generally speaking, for a micro business like yours, it is not worth spending time overanalyzing the competition for a couple of reasons. One of the reasons is much better off spending your energy focus to make your customer happy. Another reason is you probably do not have a threat of being outcompeted due to your business scale. But the reality is there are some people shop around before making a buying decision. Consumers compare the choices they have before deciding to buy. It is especially true for a service business. Rely on reputation and word-of-mouth recommendations. It is not easy for a customer to get an exchange or get a refund if the service is already performed. So, you cannot completely ignore any competitors in your business. At least be aware of them, and use them to your advantage.
Every viable business has competitors. Know who they are. You can get clues from your local business directories, local Chamber of Commerce, and Googling on the Internet. Once you identified your competitors, find out much about the competitors to take advantage of spaces in their value proposition. The easiest and useful way to acquire this information is to ask customers about your competitors. A combination of market intelligence and customer feedback helps you understand competitors’ strengths, weaknesses, and market position. Other ways are learning from their website, reading marketing literature, and asking people how they see your competitors' strengths and weaknesses. Find out how competitors market them to customers, conduct their business, the prices they charge, who owns the business, and what sort of person. Ask your suppliers what their other customers (could be your potential competitor) are buying or doing. If you have an opportunity to meet competitors at events, get to know them. You share the same external factors affecting your business with them, such as a change in the business climate, and government regulations. You might need each other one day to collaborate.
Customers have money to buy products or services. You and your business partners may work together to vie for customers' business by offering superior value than your competitors. From the customers' point of view, the better value you deliver increases your chances of winning their business. To provide a better value, look for ways to tailor your product and service to meet your customers' needs more, especially in areas where competitors lag. If you know your competitors well and know what they are offering, it can help you plan your marketing of a product and service.
When it comes to earning a reasonable profit margin, competition is usually a fair game for the service business because you compete with the other local rivalry enterprises. As a small store retailer, you have an unfair competitive disadvantage to take on the big-box merchants. They have the buying power to acquire goods at volume discounts. As a retailer, you need to markup products at least two times or more to cover the cost of running a business to make a decent profit. Especially if you are getting a bank loan to carry your goods inventory, you must sell enough in time to cover for monthly loan payment. Also, this competitive disadvantage applies to your small scale business manufacturers. When competing with more prominent companies who use low-cost foreign operations and are well-capitalized for big efficient machinery. To compete with larger outfits, concentrate on serving niche segments that larger companies will not touch. As a small business, there are various tactics you can use to your advantage. Some examples are:
return phone calls promptly
convenient business hours for customers
treat customers as a friend with a great smile
your ability to deliver solutions more efficiently
customers have better access to your business
cleanness and ambient of your establishment
innovative service which is hard to imitate
deep unique knowledge in the line of business
There are things you can do to protect from losing your business to other larger competitors. Increase the barrier to entry, for instance, by signing an exclusive operating license if no other competitors are currently operating in the area. In the technology space, business to build a hardware solution has a higher barrier to entry than a work creating a software solution. Anyone with an idea can create a software solution without high startup costs.
Even if there is no visible competitor, there will be new rivals if the segment you serve is lucrative. New competitors will emerge, especially if entry barriers are low, meaning entering the market is relatively easy and inexpensive. Whereas if entry barriers are high, there is less likely to have new combers. Meaning entering the market requires high startup cost, high operating cost, requires a particular skill, unionized, or needs specialized equipment. Other than new enterprises entering your market space, the emergence of new technology could replace your product or service.
Watch out for new technologies and products that better satisfy customers' needs than the current solutions. If customer preference shifts toward the latest technological solution, it could jeopardize your business continuity, unless you innovate. The proliferation of new technology has made a significant impact on the market. In some cases, it has disrupted business. For instance, internet technology enables customers to help themselves. It is replacing middle-layer services such as those of travel agents and brick-and-mortar stores. In a moment, consumers will gain their education without physically attending school. Instead, they will use online learning. Even the sizable businesses such as Kodak Film, Blockbusters, and Tower Records are affected by changes in customer preferences resulting from new technologies. In recent years, technology has advanced rapidly and made a significant impact on so many markets. Devices that cost lots of money a few years ago now cost almost little. As a result, customer preference is migrating to solutions that use the latest technology that is cheaper but more powerful.