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The american marketing association: www.marketingpower.com defines market research as: "The systematic gathering , recording, and analysis of data about problems relating to the marketing of goods and services". Consumer analysis is an important part of this marketing research.
Without marketing research, it is quite impossible today to start any business. Consumer analysis is the first step of any marketing research.
In this module, our objective is to develop your skills in consumer analysis.
Lesson: 2 hours
External readings: 3 hours
Do it yourself: 20 hours
Total: About 25 hours
Consumer analysis allows you to identify your prospect and segment market. The objectives of this consumer analysis lesson are to give you the fundamental notions about:
By the end , consumer analysis techniques will enable you to establish your market segmentation.
The product must bring a benefit to the customer.
Customer benefit = Sales= Profit.
No customer benefit, no profit.
-Definition: A customer benefit is the value your product or your service gives to the customer.
The customer benefit is not the Unique Selling Advantage (USA). The customer benefit is included in the USA, but it focuses on the point of view of the customer and not of the investor. It implies that you put yourself in the shoes of the customer. It means that the customer benefit is a more precise concept than the USA.
There are two types of customer benefit: Functional and psychological benefits.
A functional benefit is measured in money, time, duration, or physical measures:
-The product is cheaper than another one: The benefit is measured in money.
-This new machine saves the consumer 50% of his time: The benefit can be measured in hours or minutes.
-This car has a duration twice another car: The benefit is measured in years.
-This chair is lighter than another one ( ten kilos instead of twenty). It occupies less space (One square meter instead of two): The benefit is here calculated with physical measures.
As time and space can be converted in money, a functional benefit is quite important for a business man. If your corporate sells its products to other corporate's ( business to business) you must emphasize the functional benefit.
A psychological benefit gives to the customer a pleasant feeling such as self esteem, feeling of power, pleasant view and so on.
-This product looks attractive and beautiful: Beauty depends on subjective choice.
-This big and expensive car allows you to enjoy speed: As traffic regulations limit speed, the benefit is only a feeling of power.
For starting a business, we recommend to focus on the functional benefit that does not depend on fads. It does not prevent you to add further some psychological benefits.
The next drawing shows a product offering both functional and psychological benefits.
As a good or a service offers different kinds of benefits. You have to rate them from 1 (low) to 5 (very high) according to their importance for the customer. Of course a low price is rated 5 because it represents a greater benefit to the customer than a high price. In the next drawing the product offers a low price (functional benefit) and is quite attractive (psychological benefit). On the contrary, it does not save any time: It can be a fashionable gadget.
Once again, try to forget your own point of view. May be, you think that your low price is an important benefit but in asking around you, you will realize that the customer emphasizes on the time saved, thanks to your product. This analysis is important because it allows you to target your advertisement on the benefits which really matter for the customers.
13-High and low involvement benefits
Now, we have to examine another topic: Are these functional or psychological benefits quite important for the customer. It means that we have to distinguish low and high involvement products.
Definition: If a consumer pays attention to buy a product, then it is considered as a high involvement product. If he does not pay too much attention, there is a low involvement product.
Of course, all the expensive products are always high involvement products: Flats, cars, antiques and so on. Nevertheless, some inexpensive products can be said high involvement products: For example, the consumers pay attention in buying cheap drugs because health is an important stake. What is more, this feature depends also on the customer: For example, a fashionable dress is a psychological benefit but it becomes also a high involvement item for a theater actor who is mainly judged on his appearance.
So, it is always fruitful to bring some high involvement topics to your product. For example, if you can assert that your yogurt contains specific vitamins, you bring a high involvement feature to a quite basic product. It enables you to differentiate your product from the competition and to charge a high price.
Finally, the product which gives the greater benefit to the consumer must gather both three characteristics: Functional benefits, psychological benefits, high involvement features.
In this drawing, the big circle represents a star because the product combines both functional, psychological and high involvement benefits.
14-User and purchaser benefit
During this analysis, you have to distinguish the user and the purchaser
In business to business, You sell a big computer or a software to the heads of the corporate and you are not keeping in touch with the final consumer. Nevertheless, you have to emphasize on the user benefit because the head will not buy a product deprived of benefits !
In business to consumer, you sell to a wholesaler or a retailer. Of course you must emphasize on the final customer benefit but you have also to take in account the wholesaler or retailer benefit. These business intermediaries should mainly focus on some functional benefit such as margins or time saving in the delivery of the product.
Real life example:
Times ago, the french chickens were scarcely presented on the German market. Nevertheless, the final consumers were currently saying that they preferred the french chickens because they were gusty.
One asked me to deal with this problem. After a close examination, I realized that the german wholesalers were reluctant to buy french chickens because the product was packaged in box weighting twenty five kilos. As they employed young people in their stores, they had better to buy to the Danes who packaged their chickens by ten kilos only.
When the french producers adopted this packaging, their sales began to shoot up on the german market.
The customer profile is deduced from the customer benefit. It includes also the customer buying process.
Definition: The customer profile describes the characteristics of the customer who could really benefit of your product or service.
Clearly, if you intend to sell fun boards, your customer profile is not those of aged persons!
You can start by defining your ideal customer and list all characteristics you will expect in this profile:
-Business to consumer: The main characteristics are quite unlimited: Geographic area, age, sex, income, level of study, employment and so on. So keep close to your benefit analysis and just list the characteristics that correspond to the benefits you offer: If you sell bathing suit, you will not care for people living in north pole. If you sell fur clothes, do not loose your time with the characteristics of people living in Central Africa!
-Business to business: The main characteristics are the company size, the products or services, the level of technology, the turnover, the staff number, the location and so on.
You must describe the required customer profile according to your product or service
Example: What's the customer profile for fun board
-Demographic characteristics: 15 to 25 years old, male, healthy
-Economic characteristics: Student or young professional, not less than $30,000 income coming from parents or work.
-Social characteristics: Middle and upper-middle class.
-Geographical area: North America, Australia, Northern Europe.
-Special interests: Sport like and sea like.
You just have to Think in order to define your customer profile: Of course, he is a young man. He has good money because you cannot afford to buy a fun board when you are short for your daily living. So, you can expect that he comes from developed countries. Obviously, he likes sports and sea very much.
Why do you need all these characteristics? The response is that you need the larger information to channel effectively your advertisement: For example, the fact to know where he is located will conduct you to advertise mainly in english and in sportsmen newspapers.
22-Customer buying process
According to your customer profile, you have to focus on the customer buying process. It is not the same thing to buy a candy, a car or a real estate. You have to emphasize on the following aspects. I call it the DTHP process:
-Who is the decision making person? In business to business, the purchaser may be a top ranking executive: The more hierarchical levels involved, the more difficult the sale.
In business to consumer, the buying process could imply on person or the entire family. The same observation applies: The more individuals or groups involved, the more difficult the sale.
-At what time or period, does he buy? Consider frequency and regularity of the purchases. Some business follow seasoning periods such as the toys, the bathing suit. This period can be short: For example, the selling of flowers on sunday, or the clothes during the discount periods.
-How does he buy: The buying decision includes the following process:
-The customer becomes aware of a need: The need could originate from an impulse (candy) or from a recognized deficiency (such as a refrigerator)
-The customer begins to explore how meeting the need: He reads newspapers, yellow pages, and so on. It is very important to know how does he explore to target advertisement channels.
-According to the need and his income, the customer refines the buying criteria and defines a budget.
-He narrows the field of his choice in comparing quality/price ratio. He could need physical touch or face to face interaction such as a test drive.
-Finally he closes the sales. In many process, he needs to be helped by a salesman!
How does he pay: Does he use cash, check, or credit card? Does he ask for times payment? Does he need a loan? If you could link some financial services to your product, such as times payments, it should give you a high advantage especially for expensive items.
The best way to get information about the buying process of your product is to talk with the retailers. You don't need a questionnaire or a customer form. Take it easy: just talk with people in an informal way, have chat about the weather, and ask some short questions to collect right information's.
You do not intend to sell to only one person. So knowing the customer profile, you have now to group all the persons sharing the same profile: It is your market customer
Definition: A market is a group of customers ( or prospects ) sharing the characteristics which cope with the benefits offered by your product or service.
-There is a group of persons eager to travel: there is the tourist market.
-There is a group of persons who use car. There is the car market.
Then we have to separate undifferentiated markets and market segments.
If your product brings benefits to everyone, you can treat the market as a whole. For example, anybody whatever his age, sex or revenue drink soda. Nevertheless, you have to take notice of the geographical area. For a retailer, the soda market is around his shop. For Coca cola, that is the entire world.
In most cases, inside a broad market, you have to differentiate segments. It means that the market segmentation is one of the most basic concept in marketing.
-Definition: The market segmentation is the process of splitting customers within a market customer, into different groups sharing some specific characteristics.
Compare with the definition of the market customer. The important word is the adjective "specific". Among the common characteristics of your market customer, you only focus on some "specific characteristics".
-If your project is to manage an hostel, the tourist market is your customer market but it is not very useful. The tourist market includes cruisers, hostels, tour trip, trekking and so on. Within the tourist market, you have to study the hostel market and inside this broad segment the specific one which corresponds to the benefit your hostel will offer ( Is it a five stars or a two stars hostel? is it located on sea shore or in the Rocky Mountains?)
-We have defined above the customer profile for fun board and consequently our customer market. Right now, we will focus on only one geographical characteristic. It means, for example, that we only focus on North America and inside it on USA. In doing so, we isolate a market segment within our broad market.
With a segment you can execute your advertising activities to yield your business targets. Without a segment, you risk wasting money.
Once again, three major variables are used :
- Geographic segmentations divide the market by country, region and city: It is often a good starting point to begin with a single geographical territory. Once you have completed the segmentation for it, you can test the applicability to other and larger areas.
- Demographic segmentations divide the population on measurable variables such as age, sex, income, educational level and so on,
- Psychological segmentation is often quite difficult and needs costly surveys.
The next reading shows a list of detailed criteria currently used: Click on www.businessplans.org . Click on "business planning resources" and then on "segmentation". You will find here many ideas about possible criteria. Some of them could apply to your product. In using them, you will be able to narrow your segment.
Anyway, each segment must be:
-Homogeneous: It's the first quality required for a segment. It means that a segment must be clearly different to others segments in the same broad market. For example, a segment having people income ranking from $20,000 to $200,000 is not homogeneous and worthless for a marketing strategy.
-Consistent: If your segment counts only three prospects, and except you sell nuclear plant, it's not enough to develop sales and profits. A segment must count a arge number of prospects.
The factors which can influence the size of the segment are the increase in population, the situation of employment and the changes in income, the supply of resources, the evolution of laws, the consumer tastes and preferences and notably the fads.
-Profitable: A segment must generate profit. It means that the prospects in the segment have a sufficient income with regard of the product price. If you sell luxurious car, it's not very smart to isolate a segment which only contains deprived people!
-Executable: It means that you can reach the segment through advertising, sales force, distribution. It is worthless to isolate a segment if you are unable to join the eople who are inside it. For example, there is certainly a consistent segment for fun board in China but If you do not speak chinese, you will never make a dollar with it.
From a practical point of view, your first task is to evaluate the size of the segment. Easy to say but it's a real hurdle, because you have to calculate the entire sales volumes of all the suppliers in the segment. It means that you should add all the turnovers of the competitors existing in this segment. How could you manage that in the specific case of our fun boards?
With chambers of commerce, producer associations, and so on, you can know how many cars, how many tons of cotton, rice, crude oil and so on, have been produced and imported in the US, and consequently consumed. By the same way, you can know the global amount in $ of the sport sales in the USA by year 2002
Let's suppose that your own segment is in Arizona. First you do the following calculations:
Total sales USA*Arizona population/ US population=Arizona sales
You know the amount of sport stuff sold in Arizona by 2002. Now, you will meet in your area three big retailers selling sport articles and you should just ask them one question: When you are selling $10,000, what is the percentage of fun boards? Suppose they answer one fifth ($2000). Then you have just the calculate:
Sport articles sales in Arizona/5= Estimated fun board sales in Arizona.
You have the total sales of fun board in Arizona. Now, evaluate the average price of a fun board ( just visit a lot of shops and quote the prices) and divide the sales volume by the average price:
Fun board sales in Arizona/ average price= number of fun board sold.
You were in the dark at the beginning and now you know the estimated numbers of fun board sold in Arizona by 2002! These calculations look rough but do not worry. By experience, I know that the consulting group which are charging heavy fees just proceed like that!
Be very serious about stats: Too often, people do not like too much the figures and only trust their intuition. In this matter, intuition appears often to be wrong.
Real life example:
In the sixties, an European consulting group decided to study the world milk market. Most of the top executives were convinced that the market was made up with crude milk in bottle and concentrated milk in can. At this time, the European were not familiar with powder milk.
In charge of this study, I scrutinized the import and export stats of about 120 countries. It was not a cool job! In reward, I discovered that the world market was made up of powder milk by 80%! The executives who had trust their intuition were quite astonished by these results!
When you get a homogeneous, consistent,profitable and executable segment, it means that you have a marketable product.
To target your customers, you can split the segment into little groups according to a multi-criteria approach:
Example: With our fun board market, we have defined a market segment in Arizona. Now, we shall split this segment in clusters, according to new criteria's: People who focus on price, people who had subscribed life insurance, people who only buy from well known brand.
To see the methods used, look at: www.sdrnet.com and click on "analytical services" and then on "market segmentation".
As data do not give answers about such characteristics, you can create a sample. It's a little group of persons that represent all the characteristics of a larger population. It may be created with friends, relations, chambers of commerce and so on. You must be sure that it is really representative of your whole segment.
When your sample is established, send to each person a short questionnaire. Ask questions that produce answers and only focus on the important topics: four or five questions; no more! Test your questionnaire before to field it.
Thanks to the internet, some consulting groups suggest to split the cluster into individuals. Nevertheless, this ultimate approach raises some problems.
In short, the advanced marketing segmentation looks like the precision guided munitions! I am quite cautious about it, because it needs complex computer software, pool opinions, sample analysis and high fees charged by consulting groups. It 's good for big corporate's that can afford it.
Anyway, remember that the market segmentation is a compulsory step to define a marketable product. Keep also in mind that only marketable products make money. This point must be underlined
A product or a service must bring a benefit to the customer. The customer benefit may be functional and psychological. It may represent a low or a high involvement.
The best benefit gathers both functional, psychological and high involvement features. Any benefit analysis must be conduct both for the user and the purchaser.
The customer profile is deduced of the customer benefit. A market gathers the customers who share the same profile and who could benefit from the product.
A market segment focuses on some specific characteristics of the customer profile. It must be homogeneous, consistent, profitable and executable.
DO IT YOURSELF:
1-You have now to establish for your own business project:
-Your Customer benefit
-Your Customer profile
-Your Market customer
-Your Segment market
Please, follow the logical process you have just learnt: It means that if your customer profile is a young man, your segment can't include a grand mother! Starting with a broad approach, you will more and more focus on your target!
To perform this job, you will need a lot of data. They are mainly available on the web. So search it by yourself in using keywords. For example, you can use the census web site: www.census.gov
2-Put this analysis in your business plan
Open your plan ware folders and put the analysis under the chapter " Marketing"
Remember that without this analysis you have no hope to succeed in your future business!
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