E 2: Entrepreneurship and E-Commerce Building and Expanding Economic Opportunities Dr. Kent Wolfe University of Georgia May 16 -20, 2005 Oklahoma City, Oklahoma
What is Market Research n Marketing research is the systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services. n Okay, but what does that mean. Source: Small Business Administration, http: //www. sba. gov/starting_business/marketing/research. html
Why use Market Research n First n It is impossible to sell products or services that customers do not want. n Second n Learn what customers want. n Third n Package and present the produce or service in accordance with customer demands. Source: Small Business Administration, http: //www. sba. gov/starting_business/marketing/research. html
Why Conduct Market Research n Focuses and organizes marketing information. n It ensures that such information is timely and permits entrepreneurs to: n n Reduce business risks Spot current and upcoming problems in the current market Identify sales opportunities Develop plans of action Source: Small Business Administration, http: //www. sba. gov/starting_business/marketing/research. html
Projects n Oilseed crushing and processing facility - $50 million n Pelletized Poultry Litter facility - $4 million n Farm Raised Tilapia, eel and prawn - $2 million n Grass Fed Beef Processing Facility - $1 million n Impact of Ag on States Economy - $9 billion dollars (farm gate value all commodities)
Essential Questions for Product Development and Effective Marketing Strategies n n n n n Who are my customers and potential customers? What kind of people are they? Where do they live? Can and will they buy? Am I offering the kinds of goods or services they want - at the best place, at the best time and in the right amounts? Are my prices consistent with what buyers view as the product's value? Are my promotional programs working? What do customers think of my business? How does my business compare with my competitors? Source: Small Business Administration, http: //www. sba. gov/starting_business/marketing/research. html
Competitive Analysis n Business takes place in a highly competitive, volatile environment, so it is important to understand the competition. n n n Who are your five nearest direct competitors? Who are your indirect competitors? Is their business growing, steady, or declining? What can you learn from their operations or from their advertising? What are their strengths and weaknesses? How does their product or service differ from yours?
Collecting Competitor Information n Start a file on each of your competitors and collect information on: Advertising n Promotional materials n Pricing strategies n Hours of operation n Marketing channels n Packaging n
What This Can Tell Us n How often competitors advertise n Do they sponsor promotions n Do they offer sales n Seasonality - when they advertise n Sales strategies n Target Market n Marketing mix
What Else Can it Tell Us? n The most popular package size. n Where customers are looking for the product or service. n Product extension opportunities n Whether market is expanding or contracting n Whether the product is a commodity or differentiated product n Opportunities to improve existing products to better meet customer needs
Target Market n Your current customer base: age, sex, income, neighborhood n How your customers learn about your product or service - advertising, direct mail, word of mouth, Yellow Pages n Patterns or habits your customers and potential customers share - where they shop, what they read, watch, listen to n Qualities your customers value most about your product or service - selection, convenience, service, reliability, availability, affordability n Qualities your customers like least about your product or service - can they be adjusted to serve your customers better? n Prospective customers whom you aren't currently reaching Source: Small Business Administration, http: //www. sba. gov/starting_business/marketing/research. html
New Agribusiness Opportunities – First Step is ID Target Market n Target Market – A segment of the population that is most likely to use your product or service. n Usually described using demographic variables like, Gender, Income, Race, Age n Used to: n Determine market potential n Develop product packaging n Choose marketing channels n Develop marketing mix and advertising strategy
Who is your Target Market?
Hybrid Car Driver - Profile n Highly Educated n Affluent – Household income of $100, 000 + n They’re more likely to be female. n Older than the average car buyer—closer to fifty Beyond these demographics, n They drive fewer miles on average n Keep car longer than the average n Willing to pay more for an environmentally-friendly (or “green”) product. n They personally want to do something to help reduce vehicle pollution. “ n They expect fuel prices to grow a lot faster than other people do.
Target Market Examples Demographic US Pop. Hot Sauce Enthusiasts Pork Consumers* Frozen Pizza Consumers Gender Male 50% 80% 43% 8. 9% Female 50% 20% 57% 90. 8% 35. 5 29 55 47 $34, 076 $60, 000 $31, 000 $43, 641 23. 6% 78% <10% 26% 2. 65 1. 45 2. 65 2. 47 Age Income Education – College grad. Household Size
Market Segmentation n A 1995 National Pork Producers Council study identified five very different pork consumer segments and they are as follows: n n n Main Street Today Quality Carnivores Good N’ Plenty Guys Apathetic Eaters Politically Correct Eaters
Market Segmentation Product Age Group Consumption % 30 -39 44% 60+ 50% Gin 60+ 50 -59 29% Tequila 20 -29 52% Vodka Bourbon
Market Potential n Market Potential – the maximum sales opportunities achieved by all sellers in the market. n Sets the upper limit on consumption units
Estimating Market Potential n Crucial to evaluating a business opportunity or idea. n Is the market large enough to support my business n Is my market area sufficient to support the business
Information Needed to Estimate Market Potential n Must define the market area. n Selling in the county n Selling regionally n Selling nationally n Selling globally n Identify your target market or the group of people most likely to use or purchase your product or service.
Information Needed to Estimate Market Potential n Estimate current purchase or usage patterns n Is the product used frequently- food n Is the product purchased infrequently- i. e. , Truck or TV n Per capita consumption of ice cream n Per capita consumption of eels n Usage of conference facilities n Usage of lawn maintenance materials
Estimating Market Potential n MP=Nx. Q; where n n n MP= Market Potential N= number of buyers (Target Market in market area) Q= average number purchased by each buyer n Adjustments will most likely have to be made, i. e. , Soft drink Market Potential is significantly larger than Coke Market Potential.
Steps to Estimating Market Share n Determine the market area n Estimate the total market potential n Identify each of your competitors and estimate their market share n Decide or estimate what you think your market share might be or what portion of the market you intend to capture
Simple Example Market Share Calculation n Market share for new hot sauce to be marketed locally n A supermarket visit identified 10 sauce competitors n Market share data is not available, assume each product captures and equal share of the market (10%)
Example Market Share Calculation- Con’t. n New product will mean there are 11 competing products n Assuming equal market share, you can assume to capture roughly 9. 1% of the market n Does 9. 1% of the market generate enough sales to make your business feasible?
Estimating Market Share - Example Table 6. Total Sales from 216 Georgia stores for Wheat and Multigrain Crackers for a 52 week period ending May 15, 2004 - Includes data from 219 stores Wheat Based Product Annual Sales % Change Units Sold Annually Gross Margin Annual Sales Per Store Private label Multigrain Wheat Square Box 9 oz. $78, 960. 27 41. 2% 76, 180 $20, 432. 53 $ 360. 55 Private label Wheat Square Box 9 oz. $58, 565. 87 -4. 4% 55, 307 $16, 692. 00 $ 267. 42 Private label Low Salt Wheat Squares 9 oz $20, 096. 27 2. 8% 19, 212 $40, 001. 87 $91. 76 Nabisco Veg Thins Snack Crackers 8 oz $42, 671. 20 -16. 2% 16, 619 $11, 342. 93 $ 194. 85 Nabisco Wheat Thins 16 oz $227, 007. 73 10. 4% 73, 920 $58, 146. 40 $1, 036. 56 Nabisco Wheat Thins ranch 9. 5 oz $ 58, 531. 20 -18. 4% 22, 845 $15, 291. 47 $ 267. 27 Nabisco Wheat Thins reduced Fat 14. 5 oz $310, 984. 27 20. 6% 101, 074 $80, 007. 20 $1, 420. 02 Nabisco Big Wheat Thins 8 oz $100, 394. 67 -9. 1% 39, 194 $25, 324. 00 $ 458. 42 Nabisco Multigrain Wheat Square Box 9. 5 oz. $ 53, 851. 20 -26. 5% 21, 171 $13, 932. 53 $ 245. 90 Keebler Wheatables Original 10 oz $ 30, 357. 60 -31. 6% 11, 922 $10, 015. 20 $ 138. 62 Keebler Wheatables Reduced Fat Original 9 oz $ 46, 172. 53 -35. 6% 18, 089 $14, 709. 07 $ 210. 83 Keebler Wheatables Honey Original 9 oz $ 45, 780. 80 -26. 3% 17, 992 $14, 615. 47 $ 209. 04 Keebler Wheatables 7 grain 9 oz $ 32, 347. 47 -34. 3% $10, 441. 60 $ 147. 71 3, 678
Store Sales Market Share – Total Product Sales Wheat Based Product Units Sold Share of Sales Private label Multigrain Wheat Square Box 9 oz. 76180 16% Private label Wheat Square Box 9 oz. 55307 12% Private label Low Salt Wheat Squares 9 oz 19212 4% Nabisco Veg Thins Snack Crackers 8 oz 16619 3% Nabisco Wheat Thins 16 oz 73920 15% Nabisco Wheat Thins ranch 9. 5 oz 22845 5% 101074 21% Nabisco Big Wheat Thins 8 oz 39194 8% Nabisco Multigrain Wheat Square Box 9. 5 oz. 21171 4% Keebler Wheatables Original 10 oz 11922 2% Keebler Wheatables Reduced Fat Original 9 oz 18089 4% Keebler Wheatables Honey Original 9 oz 17992 4% 3678 1% Nabisco Wheat Thins reduced Fat 14. 5 oz Keebler Wheatables 7 grain 9 oz
Store Sales Market Share – By Brand Wheat Based Product Units Sold Share of Sales Private Label 150, 699 32% Nab isco 274, 823 58% Keebler 51, 681 11%
Store Sales Market Share – By Package Size Units Sold Share of Sales 8 oz 55813 14% 9 oz 190458 47% 9. 5 oz 44016 11% 10 oz 11922 3% 14. 5 oz 101074 25% Wheat Based Product
Actual Market Analysis Example n Identified seven potential markets in addition to Agri. Recycle, Inc. Homeowners n Cattle feed ingredient n Nurseries n Landscaping contractors n Golf courses Sod producers n Timberland companies n
Potential Customer Population Estimates Market Homeowners Georgia 2, 029, 299 10, 399, 813 1, 712 3, 722 126 1, 638 90 NA – Distance issues Landscaping. Co. Nurseries Golf Courses (100 miles Douglas) Sod Producers (100 miles Douglas) Cattle Blocks Timberland Companies (land owners) Southeast 200 NA – Distance issues 313, 000 Unsure 6. 4 Million head Unsure
Market Prices n Marketing Channels n Households - $300/ton (organic) n Cattle blocks - $200/ton n Commercial - $49/ton § § n Nurseries Golf Courses Landscaping Companies Sod Producers Agri. Recycle - $55/ton
Georgia’s Estimated Market Potential by Segment Outlet Home owners Estimated Market Potential (tons) $/ton Estimated $$$ 56, 811 $300. 00 $17, 043, 300 Landscaping. Co. 744 $49. 00 $36, 474 Nurseries 109 $49. 00 $5, 353 49 $49. 00 $2, 397 8, 100 $49. 00 $396, 900 Cattle Blocks 33, 375 $200. 00 $6, 675, 000 Total 99, 188 Agri. Recycle 36, 000 Golf Courses Sod Producers $24, 159, 424 $55. 00 $1, 980, 000
Estimated Revenue n Agri. Recycle - $55/ton n 36, 000 tons * $55/ton =$1, 980, 000 n Market Direct - $300/ton home owners (20 lb bags of organic soil conditioner) 36, 000 tons * $300/ton =$10, 800, 000 n 36, 000 tons represents only 64% of the fertilizer and soil conditioners GA households use annually n
Southeast Estimated Market Potential by Segment Outlet Home owners* Estimated Market Potential (tons) $/ton Estimated $$$ 291, 146 $300. 00 $87, 343, 800 Landscaping Co. * 3, 722 $49. 00 $182, 372 Nurseries* 1, 411 $49. 00 $69, 127 Cattle Blocks** 133, 500 $200. 00 $26, 700, 000 Total 429, 779 Agri. Recycle 72, 000 $114, 295, 299 $55. 00 • *GA, SC, NC, AL, FL & TN • ** Cattle from Georgia, North Carolina, Virginia, and Kentucky $3, 960, 000
Market Analysis Summary n Identified seven potential markets in addition to Agri. Recycle, Inc. n n Homeowners – Large market, bagged product, high price Cattle feed ingredient – Large market, future uncertain, bagged, high price n n Nurseries –Small market, low price, bagged Landscaping contractors – Small market, bagged, low price n n Golf courses – Very small market, bulk, low price Sod producers – Moderate market (distance), bulk, low price n Timberland companies – no identifiable potential
Estimating Retail Sales n The potential retail sales for a specific retail operation can be estimated n n n by using a standard formula: ES= P x EXP x (ADI/MDI) x MS where ES= Estimated Sales P= Trade Area population EXP= Average expenditures for retail outlet category ADI = Area Estimated Average Household Disposable Income MDI = Georgia Average Household Disposable Income MS= Estimated Market Share
Micro Brewery n Micro brewed consumers consume an average of $250 worth of beer annually. n Younger people were more likely to have tried a microbrew. Thirty-six percent of beer drinkers between the ages of 25 and 34 had tried a microbrew. n In contrast, 27% of beer drinkers between the ages 34 through 45 and 20% of those 45 and older had tried microbrews. n The appeal of micro brewed beer was strongest among White beer drinkers were almost twice as likely as black Americans to try a microbrew.
Estimated Retail Sales - Example n 50% of Americans consume beer. n Thirty-six percent of microbrew drinkers are 25 -34, 27% are 34 - 45 and 20% are 45 and older. n Microbrew consumers have average incomes of $54, 000 n Microbrew consumers spend between $250 annually on these products n Microbrewery Market Area Demographic Information n n 50, 000 residents 15% are 25 -34 16% are 34 -45 29% are 45+ 25% have incomes over $54, 000 n Area Estimated Average Household Disposable Income=$67, 000 n Georgia Average Household Disposable Income =$30, 240
Trade Area Sales Estimate n ES= P x EXP x (ADI/MDI) x MS n P= 50, 000 x 50% (percentage of beer drinkers) =25, 000 n 25, 000 x 15% = 3, 750 n 25, 000 x 16% = 4, 000 n 25, 000 x 29% = 7, 250 15, 000 n 37% of area residents have incomes over 50 K n 15, 000 *37% = 5, 550 n EXP=$250 n (ADI/MDI)=($67, 000/$30, 240) n MS = Estimated Market Share = 10% n ES= 5, 550 x $250 x ($67, 000/30, 240) x 10% = $307, 416
Another Estimated Retail Sales Example n Specialty food shoppers spend between $500 and $1, 000 n Area population = 83, 000 n Condiments constitute 12% of specialty food purchases – or a $128 annually per specialty food shopper n Area Estimated Average Household Disposable Income/Georgia Average Household Disposable Income ($67, 000/30, 240) n MS = Estimated Market Share = 10% n ES= 83, 616 x $128 x ($67, 000/30, 240) x 10% = $2, 371, 332
Easy Demographic Data (WWW. EASIDEMOGRAPHICS. COM) Miles Population: Households: White Population: Black Population: Asian Population: Hispanic Population: Median Age: n Med. HH Inc. ($): n Av. HH Inc. ($): 20 82, 683 31, 974 77, 003 4, 881 623 719 37. 0 $29, 572 $40, 855 15 59, 644 22, 806 56, 126 2, 901 473 518 36. 7 $30226 $41, 877 10 36, 409 13, 773 34, 497 1, 506 307 275 36. 4 $32, 214 $43, 165
Demographic and Population Sources for Demographic Information: n Chamber of Commerce n University (www. agecon. uga. edu/~caed/) n www. georgia. stats. uga. edu US Census Bureau (WWW. CENSUS. GOV) n Easy Demographics (WWW. EASIDEMOGRAPHICS. COM) n
Price Determination n Don't know how much to sell your product for? n Essential to developing a successful business. n Price too low – may not cover total costs and loose money n Price too high – may price the product out of the market n One method of determining price- e. Bay n Try putting it on e. Bay. Your correct price point will become very clear after only a few auctions. Source: The Importance of Market Research, Steven Strauss – Biz. Land. com
Price Determination n Depending on the product or service, pricing flexibility changes significantly. n Factors to consider: n Is the product a commodity? n Traditional agricultural commodities n Consumer electronics, i. e. , VCR’s, Computers, TV’s. n Is the product highly differentiated? n Cars – i. e. , Porsche, Kia n Produce- i. e. , organic vs. traditionally produced n Leasing hunting land vs. providing guide services n Is the product a luxury item? n Spa treatments n Vacations – Hunting service ($150 ½ day of squirrel hunting) n Jewelry, furs,
Price Determination n What others are charging – n Make a list of similar products or services and how much other companies charge for them. n This information will tell you what the market is accustomed to paying. n Review per unit costs for producing the product or service and compare to market price
Price Determination n Build in a Profit! n Need profits: n to grow n pay off debt n continue to be a viable enterprise. n Profit varies by industry, service, potential liability and general overhead.
Price Determination n Rule of thumb in retailing is to at least double your fixed costs (Keystone pricing) in determining a retail selling price. n Allows for discounting or running sales, i. e. , 10 -40 percent off sale still allows for a profit. n Raise prices in accordance with inflation, need to maintain an acceptable profit margin
Use Market Research in Marketing On-line
“Adding Value to Georgia’s Agricultural Economy Through Research and Extension” www. caed. uga. edu College of Agricultural & Environmental Sciences
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