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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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