It is important that you get the sequence right. The marketing plan is the building block upon which all other components of your business plan is based. It will allow you to make better decisions about:
• Location; this is related to the business information that you have about the location of your customers or your business partners
• Pricing your product or service; this will be related to the pricing intelligence you have about your customer preferences and commercial benchmarking data about your competitors.
• Production method and scale; this is related to the business information you have about supply-demand and the amount of items you need to produce.
• Timing; This is related to your forecasting intelligence and your market-data driven foresight about industry evolution and your industry's phase of development. It would be a strategic error to launch a business that will be impacted by an upcoming recession or is experiencing decline.
• Product-technology developments; this is related to your insights about trends & developments regarding scientific breakthroughs, skills in the labor market, commercial innovations, and market adoption processes.
For market launch, customer acquisition, product development or business expansion purposes, conducting market research can provide you with valuable business information and intelligence. In this blog post, you will learn how to transition from conducting market research to developing your sales strategy and then to develop plans and initiatives as part of your strategy implementation process for the development of a differentiated value proposition to your customers
As digital, AI, and manufacturing technology develops and new venues for product development emerges, it is increasingly becoming possible for product managers to turn their breakthrough concepts into a reality. But just because you can make something, it doesn't mean you should. Product Managers tend to focus on innovation, but they ought to innovate with a goal. Mainly, they should provide as much as possible unique market offerings that can actually drive profit for their organizations by building commercially viable products and financial successful businesses around those offerings. And to build successful products, they need to achieve primarily two things
1) build products the customer actually needs or wants and is willing to pay for.
2) build products that the competition is not already offering to a sufficient extent.
To determine what the customer needs, you should conduct market research. By doing so you will identify opportunities in the market and identify customer problems for which you can provide solutions. What is learned from the research will either validate your product hypothesis and allow you to proceed with confidence or reveal evidence that customers won't adopt your product. So, what exactly is market research?
Market research is a process of collecting data about a product's target marketplace as well as the product's competitive landscape which sometimes is ignored. The state of the target customer base and the competitive environment are interrelated. The data generated from research then enables product managers to provide a product that specifically fulfills the market's requirements. It delivers an overview of the competitive landscape and how attractive your product or brand is. General market overview information including market size, customer segments, and trends can be identified, as well as competitive intelligence related to market structure, key players and brands in the market, and their relative share of the market.
Industry attractiveness and profitability does not only depend on the perception of the customer but also on the competitive intensity or overall industry health. For example your potential customer size might be large but if the competition floods the market with a similar product offering, the eventual customer base to which you will actually be able to sell will shrink. It's generally accepted that systematically monitoring your external business environment is a very important contributor in guiding product managers in improving your business decision-making, adapt your sales strategy and preventing costly miscalculations.
More detailed research about target customers relates to buyer perceptions, needs, and brand and supplier preferences, whereas additional research can concentrate on product usage patterns of the products currently available in the market. If new products are being developed, research may focus more on finding customer pain points and the customer's existing degree of satisfaction with available solutions. A tool to identify this level of satisfaction is the the 'good enough versus not good enough' distinction suggested by innovation management guru Clayton Christensen within the framework of the 'jobs to be done approach'.
And finally, market research can track developments and fluctuations in product pricing, price sensitivity of consumers, and generate a map of prevailing price structures in the market. A research is usually concluded by a market research report containing an assessment of the main competitors, overview of historic and future market trends, M&A activities, existing market segments, market share segmentations, and product pricing strategies. So by testing your market proposition and by making continuous improvements you will end up with a more user-focused product, that will enhance the user experience. It can deliver you business information on who your customers are, what the locations of your customers are, and what the chances are of them buying your product.
Additionally, market research can reveal where and how customers are obtaining information on your product, on what matters, the types of criteria that influenced their purchasing decision, and what motivated them to pay for a product. Similar market intelligence can be obtained often more efficiently through competitors research. SMB entrepreneurs generally hire external market research companies with in-house data collection capabilities to generate market research reports.
All in all, the topics that market research addresses are critical to marketing and sales efforts.
Before conducting market research, it's useful to make a distinction between primary and secondary research sources. Both are used for different research goals and utilize different methods. It's beneficial to look at each method in more detail to compare the benefits of one approach against the other.
Primary research, also known as field research, is the collection of first hand information regarding your market and its customers. It is related to going directly to the source which in the case of SMB entrepreneurs are your target customers or other stakeholders, and asking questions specifically with regards to your product and its consumption by those target customers. Primary research can be carried out through various platforms, including one to one interviews, focus groups, phone interviews, and online surveys.
Secondary research uses pre-existing data from internal and external sources. Internal sources may be your organization's marketing and sales data, financial reports, case studies, and previously commissioned research reports. Examples of external resources include government reports, industry data, public records, and analysis published by market or industry experts. For more in-depth information about the selection of the appropriate research methods, read our blog post
Another major differentiator in market research methods is the the difference between qualitative versus quantitative research. Underneath we have structured the major differences between both research types. For more info and visual representations on the differences see our blog post
Your aim should be to understand and specificaly describe the nature of your customers and competition. Research and analysis of the market for your proposed product or service should have enough depth that validates for yourself and any investors:
• The existence of a feasible market for your product.
• Entry to the market can be successfully achieved within the time planned.
• Your product is distinctive enough to attract your prospected customers.
In general your product will not sell if there is no real or perceived need for it, regardless of how great the producer thinks it is. The product or service must do one or more of the following in order to be successful.
• It fulfills the need of an unfilled market niche. For example it focuses on a niche of a market characterized by non-consumption where certain consumers have not been consuming the product due to a lack of attractive propositions or by low-end consumers where certain consumers are willing to pay a lower price for a lower quality of the same product or more convenient service.
• Contains an obvious or perceived superior quality.
• Have little competition or does not augment scarce supplies in large increments.
• Requires highly specialized experience to make or to use.
Your research will help you confirm the need for the proposed product or service. You can use a combination of primary sources; people you contact during networking activities, and secondary sources such as online and published information developed by external market
• Your Product and Customers: Define and list the different types of products or services you will deliver. Provide as much detail as possible. The main segmentation categories are applied as follows:
• Type of product category (size, power, dimensions etc)
• Type of market (consumer or commercial; wholesale or retail; industrial, institutional, governmental)
• Type of retail channels (white label, private label, branded etc)
• Demographics of customer (age, income, education level, occupation) in case of business to consumer market
• Size and industry niche of customer in case of business to business market
Using the resulting working definitions, learn as much as possible about the characteristics of your customers and competitors. For the primary research such as networking, you will need a self-introduction that helps your contacts understand your information needs or you might hire an external market research company for a customized research.
• Market Size: Offer a description of the existing market size in units and dollars. Ensure that you have set the industry boundaries correctly. Defining your industry too broadly risks overlooking important threats and opportunities, whereas defining your industry too narrowly risks overlooking commonalities with segments that matter to your market strategy formulation. Porter's five forces model may also be applied for this task. The rule of thumb is that if at least two of the five forces show considerable supply chain differences the conclusion should be that you are probably dealing with an entirely different industry. Another useful tool is conducting technological or geographical scoping in order to generate accruate industry definitions, and is explained within our informational video.
• Market Share: Percentage share that each of your competitor holds of the market. Also substantiate how you arrived at the percentage share you aim to capture.
The following part of your report is one of the most important elements of your business plan as this information will lead to the development of a monthly sales forecast. This will aid you arrive at realistic financial projections.
• Market Trends/Growth Rate: Describe new and potential markets, potential technological and regulatory changes or issues, and changing customer needs. One
commonly adopted technique for mapping the macro external environment is the PESTEL technique, which stands for Political, Economics, Social, Technological, Environmental, and Legal through which you can map system level institutional dynamics that impact on the competitive landscape.
• Competition: Develop an analysis of who they are, how they operate, and their strengths and weaknesses. Investigate and analyze competitors' market strategies, market niches, means of market differentiation, product/service development strategies, financial performance, life cycles and market types (industrial, commercial, residential, franchise, government) served and under consideration. Competition goes well beyond your existing industry peers and includes other forces that directly influence on competitive intensity and industry profitability. One of the best industry analysis techniques is Porter's five forces model. For more information see our informational video. Another competitors intelligence technique is competitor benchmarking through which industry peers can be assessed from different angels including financial
• A SWOT analysis: addressing the product or organization's strengths, weaknesses, opportunities, and threats, as well as an overview of the organization's capacity to effectively market the product. Given the wide array of topics and areas that a business plan needs to take into consideration, carrying out market research can be an arduous task especially for those new to product management. There are however, several best practices you can adopt to guide you through the process, such as the ones mentioned above. You can also consider getting the help from external market research suppliers for data collection, industry assessment and industry profiling.
Your purpose is to clarify your market, customer, and product definitions and make key decisions about how your business will approach and react to the market. Some of the tasks for doing that are:
• Compare your business to the competition.
• Identify those aspects of your business that make it unique.
• Assess realistically the opportunity for a small firm to compete. This depends on certain sources of competition such as market concentration and market share of the leading players.
• Sufficiently define your target industry by setting the appropriate industry boundaries.
• Make your your product or service descriptions more refined, and clarify your target market, and your target market share.
• Adapt if necessary the steps you will take to produce your products or services.
Summarize your findings in the form of a statement of market strategy that identifies what you will sell, to whom, and why they will buy your product rather than those of the competition. Explain how your strategy enables you to capitalize on opportunities and meet identified threats in the marketplace. To market effectively, you start by segmenting your market. Then you target the most valuable segments, after which you position your offering in each target market.
Positioning strategies are often needs-based, variety-based, or access-based.
One strategy formulation best practice is based on once again Michael Porter's generic strategies concept. This is a group of four generic categories of competitive strategy through which most of the variety of strategic directions adopted by organizations can be categorized and summed up: Differentiation, Cost Leadership, Focus (Cost), Focus (Differentiation).
In summary, the competitive strategies are as follows:
Cost Leadership - Minimizing the costs incurred to business customers in providing value (product or service) to a customer or client.
Differentiation - Implies making ones product unique or differentiated, compared to other competitors or substitute products in the market often based on adding value through quality and investments
Cost Focus - Implies minimizing costs in a focused market segment.
Differentiation Focus - Implies an orientation toward differentiation from other competitors/products within a focused market segment.
The choice for one of these generic strategies inevitably will involve trade-offs and not being willing to sacrifice for your choice will result in the organization getting stuck in the middle with associated negative consequences for branding, positioning, and competitive advantage. Especially wanting to simultaneously adopt both a cost leadership position as well as a differentiation strategy is often not attainable.
There are various specific marketing initiatives to convert the marketing strategy into practice throughout the product life cycle. We have made an overview of such initiatives which constitutes an oversimplification of the BCG matrix (growth share matrix) also known as the cash cow quadrant:
The sales strategy arises out of your market strategy. It contains key decisions about how you will package, price, promote and sell your product or service (5 P's). The sales strategy, combined with the plans that you have made for obtaining market share, will be applied to design the Sales Plan. The Sales Plan also contains monthly sales forecasts for the first year, quarterly forecasts for each of the following two years, as well as your detailed action plan for achieving the plan.
Once you have explored your strategic options, written a business plan and completed a marketing plan, the time to launch the business will have arrived. The sales plan will represent the critical missing link between your strategic marketing orientation and achieving your financial projections within the framework of your business plan and strategy implementation.
1. Market Sizing.
Set out revenue figures monthly for the first year, and quarterly for years two and three. This is your projection of the total sales available in your market. The research and analysis conducted for your Marketing Plan will be most helpful in this endeavor. You may also utilize known figures from identical markets for benchmarking purposes. Taking your intiatial industry definition as the basis, double check that the other markets have sufficient similarities with your industry so that it can be defined as a similar one.
2. Assess sales strategies, the purchasing behavior of your prospect customers, and compare with your competitors
It is highly recommened to take into consideration industry wide best practice methods in terms of selling the services, the use of distribution channels, market segmentation and promotion strategies, pricing trends, and sales cycle. The five P's of marketing is a common technique to distinguish between the core blocks of sales strategy and to apply this during your strategy implementation stage. The 5 P's acronym stands for: Price; Place; Product; Promotion; People. I will address the sales strategy aspect somewhat more extensively towards the end of this blog post.
3. Determine Major Factors That Will Affect Sales
If your research didn’t reveal any significant factors that would cause your business to behave differently from the businesses or other reference points used to estimate market size, you may maintain your estimate. However, major implications deriving from geography or scope or one of the five forces may require an adjustment in your estimate.
4. Identify the Selling Cycle.
Rarely will sales be constant throughout the year. There will be high months and low months. Your research will identify these patterns as well as the causes such as seasonalities, supply-demand mechanisms etc.
5. Set Out Your Sales Forecast.
Method 1: Published Research – Existing written material or internal data may provide average monthly sales figures for the business sector. You may also hire an external market research service provider to access the required data. Modifying factors: business size, age of business, distinctiveness of location, surrounding area, intensity of competition.
Method 2: Supply chain comparables – Either the competition or similar businesses in similar but separate locations. Similarities: Identify resemblances in demographics, psychographics, location, product technology, store size, staff size, amount of competitors, amount of advertising, distribution, age of store, breadth of product line, etc.
Differences: Idem dito to the above. A higher number of observations provides a more solid basis for a more accurate comparison and benchmarking.
Method 3: Expert Experience – In case you’ve been in a similar sort of business as an employee, you may be able to estimate the monthly sales. Use specific data to back up your forecast.
Alternative sources: Industry insiders with experience in the field, such as former employees, managers or owners of existing businesses who can't be considered to be your direct competitors. For example, in a different geographic area
Method 4: Trial Sales Period – To the extent that you make some pre-launch sales of samples in advance, you will have concrete information to support your estimates.
Indicators: The amount of service/product units that were sold by category etc.
Method 5: Survey – You may interview or send out questionnaires to prospects to collect data about their customer attitudes. Include in your survey questions such as, “Would you buy this service?”, and “How frequently would you buy?” Detailed analysis is required to produce valuable business information from survey data. An expression of intent to buy does not equal purchase! Instead of relying on the maximum numbers within the data, select a percentage with which you are comfortable
Summary of calculations: include sample size vs. response rate (percentages), and average purchase x number of customers.
6. Design a sales plan
A good action plan begins with goals and objectives. Your planned market share growth rate and sales forecast function as your overall monthly sales objectives and goals. Next, specify the steps needed to accomplish these goals. For example, based on your research, what is the amount of sales calls needed to close a sale? Based on the the projected ratio of sales calls to sales, how many sales men will your plan need? Once you determine the scope of work to be done by your sales force. Whether you decide to sell, or plan to hire or partner up with a sales partners, take into consideration the following competencies and qualifications that top quality salespersons should ideally posses.
Finally, you should strive to predict the amount of customer contacts by mail, store visit, telephone or other promotional medium required per sale. The assessment of distribution channels and promotion methods such as packaging, publicity, advertising, and display that led to decisions summarized in your sales strategy can now be converted into a concrete sales promotion plan. Deliver as much detail as possible, including in terms of materials, quantities, frequency and target start dates for each activity. As you complete this section of the Sales Plan, you will produce the sales and marketing expense data for your Financial Plan. Then continuously track progress in meeting KPIs and steer direction timely when needed. The latter step is more the domain of strategic management and will be subject of another blog post. You can already find a more extensive description of the main strategic frameworks in one of our informational videos.