Market evaluating

All businesses thrive or disappear thanks his success or failure on the market. People very often talk about a particular market or business sector being profitable, but without any idea why. Years of research into factors why some companies on the market are successful or not leads to the following conclusion:

“The stronger the competition on the market is, the lower capital employed return is.”

Even if it in itself there is not so big surprise, giving to us some direction how the market can be evaluating. It follows that any budget or plan must be based on real proper assessment of the competitive forces of the market, otherwise the primary objective of profit would not be easily achievable.

For someone who has not yet started a business, this process may seem as another complex of obstacle. Conversely, for those who already do business, this process can provide some guidance on which areas should focus on, as well as to identify likely problem areas.

Before you start planning any other details of your business, you should know the answers to the following questions:

  • Where's my market? The starting point of each market assessment must be to define how much market share you seek. For a small shop, it can only be a few dozen streets. A specialized restaurant can define its market with an area of several dozen km. While it is very useful to know more general things like the market trends etc., your main activity is happening in your defined area.

You can also create a remote approach and try to sell in several different types of markets. A small manufacturing business may be focused on export. People too often do their survey on the wide defined market. For example, it says an "automotive industry", even if actually they had in mind cars selling in some town, or “health food” even if they actually had in mind some kind of the bread in some village.

  • Who are my potential and real customers? Some products are aimed at the general public, others on specific shops or professions, only for men or women, or even large institutions. or government offices. Some products interleave these customer groups.

Focus on specific people, which could just your product buy which gives you a better imagines about how many products people likely to buy. No less important is that this exercise help you better understand, why people should products buy just from you. This approach is a real key on the market to your business and its growth.

In order to better understand this important part of process, which is happening in the implementation of the business, let us note the case of some entrepreneur, which decides to start the business based on sale of the drinks vending machine shop. His first task was to find a suitable and reliable vending machines that could be easily repaired and maintained. Just picking the right slot machine took him two months. Furthermore, it was necessary to find suitable fillings with an economically acceptable offer of hot and cold drinks. Finally, it was necessary to select an appropriate financial institution to allow lease of vending machines for its customers. All of these vital activities "in the background" took him almost four months before he finally went on sale. However, he quickly found that his potential customers were new or small businesses, which, although the vending machine would like, were not acceptable to the leasing company because of their economic performance.

What was next? He was trying to reach out to big companies that could solve his problem. Here, however, the problem was that his selected selling machines did not suit them from any kind of reason, and also not accept carefully chosen fillings whether of one reason or another. However, this customer segment now meant that he had to try to reach them and win by a direct phone call. (The flyer-based advertising campaign had long lasted without a sale at all, and he had already consumed half his working capital.) He had to make just over 80 false phone calls, two of which he mined, where a potential customer was willing to at least listen to the content and a total of 10 interviews were needed to show interest in the purchase. In the end, only one of them has been sold.

He ran out of money without gaining the necessary number of customers, coming a nervous collapse, which cooled his initial enthusiasm and the task of having to call his potential customers, directly despise.

What could he had done better to prevent this critical situation? First of all, well choose the circle of its customers. He should significantly focus on it when planning his business. To avoid the same mistake, you need to ask yourself the following questions:

  • How big is the market? You must know it. Next, you should know, whether your sell goals are reachable. If for example 1,000 customers exists for your product in the market segment and simultaneously are served by a few of your competitors, it is hard and foolish to supposed, that you gain 500 of them.
  • Is the market growing, stable or shrinking? In the growing market can be find opportunities for new companies or for small businesses and there is also the potential for their expansion. At a shrinking market, competition is growing rapidly, so there is very a little room for new entrants. You should know the direction and how fast the market is growing. It is important to note that not even condition of the common economy may not influence the market you are in. For example, the number of video rental companies peaked during the economic downturn of the economy in many countries.
  • Who are your competitors and what are their strengths and weaknesses? As you obviously know, most products have competitors. To some extent, it's reassuring because you know in advance that you can probably get some customers and achieve certain sales. But you must know who your competitors are and what impact it has on your business. You need to know as much as possible about them, preferably everything: what is their assortment, prices, discount structure, delivery terms, specifications, minimum quantity of orders, terms and conditions, etc. To get an overview and a comparison, you'll find many interesting tools on this site that will make this difficult work easier.

You must reveal also less visible types of competitors. First, those who haven't arrived on the scene yet. You need to explore conditions that could potentially attract new businesses to the market. For example, businesses that start with very little initial capital or have very little added value in their goods are always very vulnerable towards to new competitors.

On the other hand, a business that can protect your ideas with patents, or achieve large sales volumes quickly, is not so common. Secondly, in certain circumstances, customers may choose to buy a completely different or substitute product if you offer it, while satisfying their same needs. In other words, this is the so-called "secondary layer of competition".

  • Who are the suppliers? Most companies buy and process raw materials and semi-finished products of one or another type, adding value to them, selling and thus so earns. If there are few potential suppliers for a given type of goods, then they have an initiative on their side and set the terms and conditions. Often, it is a very big problem for a small business to find a supplier to supply it with a small amount of the necessary goods (the amount they can afford to buy). However, it is strategically important that you find at least two suppliers of the same strategic goods and negotiate the best possible agreements with them. Otherwise, you can't successfully compete in the market.

Here I am presenting just an outline of some of the procedures and questions you should ask yourself before entering the business and answering yourself them thoroughly. There are several publications that guide you through much more precise procedures at these topics. However, one basic difference should realize:

  • Most of financial questions and matters are common to most similar firms
  • However, most marketing activities are unique to a particular business

So, now is a time to evaluate your goals again.