MARKETING ASPECT

DESCRIPTION
Before starting a business, the would-be entrepreneur needs to have a plan. A plan is like a map that
tells the entrepreneur where to go and how to get somewhere. Without a map, the person will be going
around in circles and not reaching the destination. With so many opportunities in front of the person,
being lost can likely happen.

The market study is a systematic approach to determine the presence or absence or how many people
there are who will be interested in buying a product or using a service. It is an initial attempt at
specifying the marketing intentions and objectives of a prospective business. In starting a business, one
has to prepare very well and understand the behavior of prospective consumers.

OBJECTIVES
This topic will enable the students to:
 collect market information
 analyze market information
 make market decisions
 prepare the market plan for their selected business enterprise.

THE STORY OF THE TWO ENTREPRENEURS

There is a story of two entrepreneurs who made slippers for a living. They both wanted to sell the
slippers in a far-flung area to expand the business. The first entrepreneur went to that faraway place;
she saw that the people in that place were not wearing slippers. They walked on their bare feet.
Disappointed, she went back home and told her people they have no market in that area; people walked
on bare feet there. She thought the people would not want to wear slippers so she gave up on that
market.
Meanwhile the other entrepreneur went to the same place and found the same situation. This
entrepreneur said, "Aha, they are not wearing slippers! They are walking barefoot. That means if I show
them how convenient slippers are, they will buy my slippers." Indeed, that was what happened. The
people were so happy and proud to wear slippers that all her stocks were sold out.

Sometimes, when someone is planning to go into business, she may feel frustrated and see nothing
but darkness. One feels trapped in a cocoon. For some, a cocoon is a dead end, and they may give up.
But for others, it is the start of an exciting business idea, which will later turn into a radiant butterfly.

Of course, one might ask, why go into all the trouble of writing a business plan? Some people just follow
their gut feeling, or write their ideas down on a paper napkin in a restaurant, and presto, they start a
business. Indeed, some people have successfully started a business that way and today, the business
may still be running.
But the problem with that is the bigger chance that their business might fail. Of course, if one has plenty
of money to gamble in business, it may be all right. But if resources are scarce, it is still a prudent
practice for one to take the time to write a good business plan that will act as a roadmap and really
lead the would-be entrepreneur to success.

Studying the market comes ahead of all the plans a would-be entrepreneur makes because without the
market, a product will simply gather dust. Someone has to be interested to buy the product, service, or
merchandise. Without the market (also called customers), who will need those products and services
and shell out enough money to pay for them, there will be no business. This is why in this section,
students will learn about market planning so that they can properly prepare themselves to think of
products and services that the prospective market will need and want.

The market segments are groups of people or customers who needs specific products or crave specific
wants. The process of marketing involves the movement of products, goods, d services from the
production point to the place where the products are finally sold, consumed, or utilized. Between these
two points are market functions that lead to the perfection of the whole process.

THE MARKET

The market for a business refers to all the people within a specific geographical area who need a product
or service and are willing and able to buy it. Every business sells some type of product or service to
people. Potential customers can be described as people who:
 need or want the product or service
 are able to buy the product or service
 are willing to buy the product or service

Market can be defined as a group or groups of people or organizations with 1) needs and wants that
must be satisfied; 2) money to spend; and 3) the willingness to spend it.

Within a market, there are always differences among customers. For example, students in a class would
buy different merienda types of items during recess. Some would settle for biscuits and soft drinks while
others would prefer a bowl of hot noodles and a sandwich.

When the would-be entrepreneur knows what the consumers want, that entrepreneur will be able to
produce the product or service the consumers want, and of course, will pay for. These groups of
consumers are called market segments. A would- entrepreneur can observe what they buy or directly
ask them what they like so these likes and dislikes the entrepreneur can be satisfied would offer. It is
wise for, to be to observe what the market wants and strives for, to be able satisfy the market and
ensure sales.

The would-be entrepreneur will also need to know if there are competitors and how competition will
affect sales. With too competitors many for the same market segment, the entrepreneur have to decide
to withdraw from this market segment and go for another market segment. Or, the entrepreneur could
offer a totally different or innovative product to capture that market way from the competition.

Information on markets and competitors, trade associations (publications), chambers of commerce,

government agencies (Department of Trade and Industry), newspapers and magazine are available in
the Internet.

WHAT SHOULD ENTREPRENEURS KNOW ABOUT POTENTIAL CUSTOMERS AND THEIR COMPETITORS?

1. Know the customers: The market can be segmented by either dividing it into meaningful buyer
groups or dividing it according to characteristics such as age, sex, marital and family status,
employment, income and trends in any of these characteristics.
2. Know what the customer wants: By segmenting the market into groups, it is easier to determine
what products or services each group wants or needs.
3. Know where the customer buys: The entrepreneur needs to find out where the customers in her
market are presently buying, and determine what factors will cause them to switch and buy from
the new business.
4. Know when the customer buys: By knowing when Customers buy (daily, weekly, monthly, yearly, and
seasonally), one will be able to determine such things as possible hours of operation, when to
advertise and quantity of merchandise to have on hand at specific times of the year.
5. Know how the customer buys: Knowing how the customer pays for products and services can help
a business owner to determine a credit policy as well as a pricing policy for the business.
Guidelines to follow in selecting a target market

Selected target markets should be compatible with the goals of the business and its image. Even if they
are the least numerous n population in a community, an entrepreneur might want to choose a different
market segment because it is compatible with what she wants to produce. For example, she might want
to select the 26 to 30 age group rather than the 16 to 20 age group because she is thinking of a product
that sells better among the older ones, who already have jobs, and therefore can afford Er product
rather than the younger ones who depend on their parents for allowance.

There should be a match between the market opportunities resented in the target market with the
company's resources. Perhaps an entrepreneur would prefer to serve the older ones nave extra pocket
money to spend on a product for reasons of vanity or prestige. A business should seek markets that
will generate enough sales volume despite lower cost to result into profit.

In summary, the market is the set of actual and potential buyers of a product or service. The market
segment is the specific group of people who will want to buy a product or avail of a service. A product
must satisfy a selected market segment. Even the most wonderful product on earth will not sell if it does
not satisfy and is not consumed by a specific market segment.

For a proposed business, the entrepreneur has to make a market plan, that is, she has to do the
following:
1. Determine the needs of their customers (market research).
2. Analyze their competitive advantages (marketing strategy).
3. Select specific markets to serve (target marketing).
4. Determine how to satisfy those needs (marketing mix).

WHAT IS MARKET RESEARCH?

Assessing the market

The market is a good place to look for business opportunities. By observing how people in the market
behave, the entrepreneur can spot dozens of opportunities that can lead to countless ideas. The
following methodologies would be helpful in assessing the micro-market environment for business.

Analyzing the environment

Conducting environmental analysis means looking at the factors inherent in an environment that may
have some impact on the business. This qualitative analysis involves identifying, scanning, analyzing,
and forecasting environmental variables, which requires gathering, reviewing relevant data to
determine trends, growth opportunities, and areas of weakness.

Environmental analysis considers a vast array of macro environmental forces that affect the actors in
the micro-market including demographic, economic, natural, technological, politico-legal, and socio-
cultural. It is important for the firm to observe how the environment changes for them to adapt their
strategies appropriately.

Assessing the competition

Part of environmental analysis is assessing potential competitors In order to help plan strategies and
achieve competitive advantage. Today's competition is increasingly global in scope and it is important
for the firm to recognize that competition can happen at different levels. Conducting an ocular survey
of the area, observation and interviewing key informants could assist in identifying the direct and
indirect competitors.

Recognizing the strengths and weaknesses of competitors can allow managers to exploit weaknesses,
emulate strengths, or avoid competing in areas where other companies are especially strong. Failure to
account for the presence of competitors can result in bad business decisions. The data gathered in the
assessment of the competitors can be used as benchmark for projecting possible number of potential
customers. The easiest and most common method of assessing competitor is through observation.
Determining buyer behavior
In today's economic and competitive environment, it's important to understand customers' buying
behavior because it helps firms improve their marketing strategies. Questions such as who, what, when,
where, why, and how are important issues to be considered. This means that producers must ask who0
will buy the products they will offer and why they will buy it. They should also find out when will
consumers be interested in purchasing the products, where they can avail and what are the factors that
will motivate them to buy, and how they choose among competing products available in the market.

The firm needs to understand the people who buy the product and their characteristics. A study
conducted by Susan Powell Mantel focused on analyzing the roles of "attribute-based processing" and
"attitude-based processing" when analyzing consumer preference. According to the study, product
attributes (qualities such as price, size, nutritional value, durability, etc.) are often compared
disproportionately, i.e., one is the more focal subject of comparison, thus eliciting more consideration
when the consumer decides which brand is the “best”.

Conducting a traffic count and estimating demand

In every organization, sales are a series of small step working towards increased profitability and
examining these steps will help improve productivity. Increase in production sales be measured but
finding out the effectiveness of different promotional tools are difficult to measure. Conducting a traffic
count can be a good forecasting tool to gauge the volume of transactions and the best time of day for
customer transactions at particular location. The presence of retail centers, malls office buildings,
recreational facilities, tourist attractions, public transport systems and housing developments all impact
traffic counts as these are considered 'traffic generators'.

Most companies improve the performance of their business by conducting a traffic count i.e., observing
and optimizing the number of customers who pass through the business doors. Companies can gain
accurate insights into traffic flow to better balance the market demand and understand the market
potential.

A small market research program, based on a questionnaire given to present customers and/or
prospective customers, can point out the problems and areas of dissatisfaction that can be easily
remedied, or new products or services that could offered successfully. Market research should also
identify trends that may affect sales and profitability levels. Increase in population, political
developments, and the local economic situation can affect one’s market at any time.

One should also keep abreast of competitors' activities; competitors may be entering or leaving the
market. For example, it is very useful to know what competitors' strategies are (for example, what are
the ways by which they complete?)

Preparing a market research study starts with getting information or data on who will want a particular
product or service, what the preferences of these people are, how much they are willing to pay for the
product or service, and what will make them want to patronize the shop or the store. Market research,
therefore, is finding out in as systematic way as possible answers to those questions above.

Positive indications from a market research will tell that there are enough numbers in the market
segment who will be willing to buy the product or avail of the services. Another good indication is the
presence of a few competitors in the same area where one plans to operate. It is also good if the
business is close enough or is accessible to the sources of raw materials, buyers, suppliers, banks, and
other places frequented by the business owner. Finally, the most important indicator of a good potential
market is to have channels or ways to reach market segments easily.

WHAT IS A MARKETING STRATEGY?

Marketing strategy includes identifying customer groups (target markets) which a small business can
serve better than its large competitors, and making its product offers, prices, distribution, promotional
efforts and service towards that particular market segment (managing the marketing mix). ldeally, a
strategy should address customer needs which are not currently being met in the market and which
represent adequate potential size and profitability. A small business cannot be all things to all people,
so it must analyze its market and its own capabilities to focus on a target market.

What is target marketing?

Owners of small businesses have limited resources to spend on marketing activities. Concentrating their
marketing efforts on one or two key market segments is the basis of target marketing.

The major ways to segment a market are:

Geographical segmentation: Serving the needs of Customers in a particular geographical area (for
example, a neighborho0d shop may send advertisements only to people living within one and a half
kilometers of the shop).

Customer segmentation: Identifying groups of people who are most likely to buy the product before
trying to attract new customers.

What is the marketing mix?

The marketing mix is used to describe how the entrepreneur can combine the following four areas into
an overall marketing program.

Products and services: Effective product strategies for a business may small include concentrating on a
narrow product line, developing a highly specialized product or service, or providing a product-service
package providing containing an unusual amount of service.

Promotion: This marketing decision area includes advertising, salesmanship and other promotional
activities. In general, high quality salesmanship is a must for small businesses because of their limited
ability to advertise heavily.

Place/distribution: The manufacturer and wholesaler must decide how to distribute their products.
Working through established distributors or manufacturer's agents is generally more feasible for small
manufacturers. Small retailers should consider cost and traffic flow as two major factors in location site
selection. In other words, low-cost, low-traffic location means spending more on advertising to build
traffic.

Price: Determining price levels and/or pricing policies (including credit policy) is the major factor
affecting total revenue. Generally, higher prices mean lower volume and vice-versa; however, small
businesses can often command higher prices because of the personalized service they can offer.

The nature of the product/service is also important in location decisions. If people buy largely on
impulse (e.g., soda or candy), then you can locate where there is high traffic and visibility. On the other
hand, location is less important for products or that customers are willing to go out of their way to find
(for example, appliances or clothes).

ANALYZE THE COMPETITORS

Before an entrepreneur commits her resources to the business, she should measure whether there is a
sufficiently large unsatisfied market left for her to satisfy.
 Is the market growing at a rate that allows another new business to enter?
 In a declining market, how will she capture business from competitors?
 How do her products or services differ from those of her competitors?
 Has she identified a market segment that needs servicing?

The information sources can be divided into the following:

 Secondary data sources: These data already exist and may be used by the entrepreneur in the
research. This information may not have been collected for a specific purpose. It may be obtained
from trade or manufacturer's associations or published data.
  Primary data sources: The information here originates from direct search or interviews conducted
by the entrepreneur. For a furniture survey, for example, information obtained from furniture
manufacturers or wholesalers would be primary data sources.

TIPS FOR CONDUCTING A MARKET SURVEY

The following tips can help your students to conduct a market Survey effectively and systematically.
1. Personal bias can be a negative factor in collecting information from various types of people.
2. Be patient and persistent in gathering information during the survey.
3. Do not pass information to others.
4. Write down the information immediately after visiting someone.
5. Sequencing of questions, involvement, and commitment to get information are the key factors in
conducting a successful market survey.
6. Ask questions about your competition; for example, why the interviewee patronizes or does not
patronize the competition, satisfaction over products or services of the competition, etc.

When the survey is completed, write a detailed report on your findings. The market survey report will
help you to assess the feasibility of marketing your product. It may also be an important document to
convince financial institutions to lend to you if you need credit.

Steps to get to know your competitors.

Step 1: identify possible competitors

1. Direct competitors: List each by name, address, and type of business.
2. Indirect competitors: List the name, address, and type of business of each firm that provides
products and/or services that, while not the same as yours, can be a substitute for yours.

Step 2. Analyze businesses that have recently been set up and those that recently failed.
1. List competitive businesses that have started within the past two years.
2. List competitive businesses that have gone out of business within the past two years.
3. Analyze the possible reasons for the businesses that have failed in the last two years. What factor
or combination of factors explains the optimism or the new businesses that have succeeded? What
factor or combination of factors explains why the others failed?

Step 3: Analyze competitors' business

1. Estimate the sales and turnover of each of your competitors.
2. Hate your competitors in terms of price, quality of product or service, facilities, advertising,
promotion and sales. What prices do they charge? What is the quality of their merchandise? How
much do they advertise? What extra services do they offer? Are their sales terms liberal? Is their
location expensive, moderate, or cheap? Are their production processes and equipment modern?
Are their employees well-trained? Are their employees well paid?
3. Determine if there is a correlation between the firms that have high sales and their methods of
operation. That is, do these firms have similar pricing, selling. and/or production methods? A
thorough analysis of the methods of operation based on the firm's sales should yield valuable
information.

Step 4: Compare proposed business operations against the competition

1. Indicate the advantages your products and/or services will have in terms of price, performance,
quality, durability, and visibility over the competition.
2. Be able to explain why your method of operating your business will be more successful than that
of your competitors.
3. If you plan to operate in businesses in a manner similar to other businesses, you should be explain
why.
4. Determine whether the market is enough to profitably support you and the other firms.
5. Determine if your business will be more efficient and/or more effective than your competitors.
6. If you plan to operate in a manner completely different from the competition, you should be able
to why no one else is operating that way. Are other they businesses not aware or the opportunity?
0r, do they know something that you don't?
 DEVELOPING THE SALES FORECAST

An important element of the market survey report is the sales plan. An entrepreneur who is in business
must have a realistic idea as to how many products or services her business can sell in the near future.
If the business offers several products or services with different prices, the forecast should be made for
each product or service individually. However, a wholesaler or a retailer with a large number of products
will make the sales plan for the main groups of products with an average price.

A sales plan contains three elements: the quantity of products to be sold, the price of the product per
unit and in volume (e.g by the dozen or by the ream), and the price of the turnover. The turnover is the
amount of money that a business receives from its sales during a month (monthly turnover) or during
a year (yearly turnover). Here is an example of a sales forecast:

Sales Forecast for Company XYZ

Daily Weekly Monthly Yearly

No. of items to be sold 30 pieces 180 pieces 720 pieces 7,920 pieces
Unit selling price, in pesos 10 10 10 10
Total sales, in pesos 300 1,800 7,200 79,200
Note: Multiply the daily items to be sold by the unit selling price to get the total sales.

Sales Plan for Company XYZ

Year _______________

Month Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

Product 1

Product 2

Turnover

The sales plan will also reflect seasonal variations of the business, e. a restaurant on the beach will have
more customers in summer than in winter; a tailoring shop will sell more school uniforms when the
school year starts.

From the sales plan, an entrepreneur will know when she needs to buy raw materials or goods and how
much money she can expect every month. An entrepreneur who has been in business for a long time
will know from the past how the business will function during a year.

However, a market survey should be done regularly, in particular when the planned sales are not
reached or the entrepreneur wants to expand the business and offer new products. Someone who wants
to start a new business must pay a great deal of attention to the market survey because she must be
quite sure that the products or services can be sold in the number and for the prices that were set in
view of the development of a realistic sales plan.

Remember, the whole business depends on the money from the sales.

THE MARKET STUDY

Which comes first, the market or the product?

A product is a manifestation of created utility and intrinsic value added with a corresponding market
value or price. A market is the potential group of people who will buy and use the product or service.
It is essential that the entrepreneur who has identified a business opportunity zero in on a specific
market that would need and Welcome the product. Without a prospective market, the product will not
move or sell. One of the first things a would-be entrepreneur should ask herself is, "Who or what is my
perfect customer or client?". The would-be entrepreneur has to figure out an answer to this question
as she continues developing her product or service.

In starting a business, one cannot rely on the statement, "Shoot for the moon; if you miss, you'll land
among the stars." It just doesn't work that way in business. The entrepreneur will land in the black
expanses of space--where no one exists. The best initial advice is, "Sit down and look at what the market
needs and see if what you are offering will match or serve this specific market." With a match between
market and product, the Chances of success will be great.

The entrepreneur needs to know exactly (or as exact as she can possibly make it) who her customers
are. Itis called demographics and the entrepreneur needs to find it out early in the business planning
stage. It will not do well for the entrepreneur if she has no idea who she will be talking to about her
product and service in the first place, that is, who she is sure will buy her product or service.

Geographic, demographic, and psychographic approaches are the three main ways the entrepreneur
can find her target market. Geography has something to do with the place or location where the
business will be set up to reach the target market. Demography describes the vital external
characteristics of the target market as human beings: where they live, how they live, how much money
they earn, where they studied, where they send their children to school, where they worship.
Psychographic details say what the target market feels and thinks about the kind of product or service
the entrepreneur plans to offer.

Once the would-be entrepreneur knows whom she is going after, then she can begin to design a plan
on how her product will reach this particular group or market segment. She can plan on how the
members of the target market can see her product, begin to learn and like both the entrepreneur and
her product or service so they come and buy from her.

If the entrepreneur tries to cover everyone and imagine they will buy simply because her product is
available, she may lose in the short- or long-run because she will have no steady buyers or consumers.
If the entrepreneur knows her target market, she will know how to reach it easier and find that she will
not have to risk so much to get the results she wants.

More about the product

The product's name and properties

A commodity can be introduced by discussing its purpose and existence, and how it contributes to the
well-being of the customer or client who patronizes it.

The product's distinctive features or uniqueness

Another way of describing the product is through its distinctive features, uniqueness, and degree of
differentiation. Here the entrepreneur compares its novelty and its higher value added components
with the other offerings available in the market. The entrepreneur focuses on the physical aspect of the
product (e.g., weight, height, design, color, and the like) if the commodity is tangible. If the commodity
is intangible, the entrepreneur can describe it through its unique contribution to the welfare of the
market segment, through its innovativeness in answering the market segment's needs and desires.

The benefits that the product brings

Presenting the product can also be done through a comprehensive discussion on the benefits it brings
to the intended end-user. It is on this part that benefits can be enumerated and articulated as well.
These dimensions can be described separately or in combination so the market can be convinced about
the essence, functionality, and purpose of the product or service and thus support or buy it.
There are two kinds of products:
 Tangible product
This refers to products that can be seen, touched, tasted, and smelled. Physical existence is a primary
criterion (e.g., automobiles, white board markers, computers, etc.).

 Intangible product
This finds itself. refers to products that are unseen but felt. Here, the focus is on the concept,
processes, procedures, and service performed by the product (e.g., spa, cargo-forwarding business,
tourism-related business, etc.).

The market entrepreneur's aim is to find the best "fit" between the segment and the product she is
offering. This is a major requirement to attain a sound best financial position in business. The "fit" refers
to the right product for the right target market. This synchronicity must be established in order to realize
the objectives of the business plan and the actual business profits of the once it has started operating.

Location of the business

The choice of location for business and operation (both for office production purposes) must be
articulated with justification on the parameters of:

 Proximity
The would-be entrepreneur must make the business right choice of location, considering the to the
accessibility and distance to the suppliers, raw materials, labor skills required and the target market.
Costs required and the in the transportation and the product to delivery of the market can pull the
properly taken into account. profits down if not properly taken into account.

 Office and plant layout

The office and plant layout must have the right technical measurements and dimensions. Cost
implications should be determined and, which should then be integrated both to the
technical/operation plan and to the financial plan. A sketch of the office and plant layout providing
the landmark sites and thoroughfares is an important part of the business plan. Foot traffic as well
as parking spaces for stores or point of sales location should be considered carefully.

If structural infrastructure is not part of the plan, lease (rent) cost should be indicated properly to
account for all costs in building the capacity of the proposed organization.

Environmental analysis
As the cliché goes, "when one goes to battle, one should be prepared at all times”. Such a mindset is
critical for anyone to win over one's obstacles. One should acknowledge the importance of knowing
the terrain of the battlefield through intelligent surveillance of the environment. A Successful
entrepreneur must be adept at gathering information and interpreting it.

The intelligent entrepreneur knows how to scan the environment for best results. Knowing the depth
and extent of the market its quirkiness, and patterns is essential before the business idea could be
pushed forward. Most often, the failure of a business is caused by a poor comprehension of the
environment where it finds itself.

Environment scanning can be done on the firm level-this involves market competitors and allies
At the firm level, the commonly used means of building a strong appreciation and understanding of
the microenvironment are the following:

A. Strength, Weaknesses, Opportunities, and Threats (SWOT) Analysis

This is a comparative analysis that identifies the weaknesses, strengths, opportunities, and threats
of the business as compared to those of its competitors.

B. Michael Porter's Competitive Forces

One of the most commonly used analysis in environmental scanning is the competitive five forces
designed and developed by Michael Porter. Based on the concept, one should determine the
competitive forces that significantly affect the existence of the firm. When one understands these
 forces, one stands a better chance of survival through strategic design and positioning o the
product or service.

Porter's competitive forces mentioned the presence of market commonality, which is defined as the
number, and significance of markets that a firm competes in with rivals. It is imperative to list down
the firms that directly compete with the business being proposed. This is strategic thinking.

Another perspective is acknowledging that there resources similarities that refer to the extent to
which the type and amount of a firm's internal resources are comparable to rival. It is vital to have
a deep understanding of the extent to which resources can be similar because this can mean a
space to innovate and be different in several dimensions of the business idea that is being pursued

Figure 1 illustrates the directional effects and influences of the five forces that determine the level
of competitiveness of a firm that is new in the market.

Figure 1. Porter's Five Forces Model

Source: http://www.notesdesk.com/notes/strategy/porters-five-forces-model-porters-model/

Competitive analysis: Porter's Five Forces Model

Five competitive forces are at work in Porter's model. These five competitive forces are the following:
1. Threat of substitute products: This shows how easily one's customers can switch to a competitor's
product or service. Profits and prices are highly affected by substitutes. The new entrant must
closely monitor price trends. In substitute industries, if competition rises or technology modernizes
then prices and profits decline. Signs of threat of substitute products include the following:
a. easily available substitute products
b. easily available substitute products at a cheaper cost and easy to find locations
c. higher quality from substitute products and
d. higher-earning company that produces substitute product so it can reduce prices easily.

2. Threat of new entrants: Sometimes, when new firms enter into industry, low performing companies
leave the market easily. When both entry and exit barriers are high then profit margin is also high
but companies face more risk because poor performance companies stay in and fight it out. The
worst condition is when entry barriers are low and exit barriers are high. In this case, firms easily
enter the industry but find it very difficult to exit in bad times. Threat of new entrants is high when:
a. Less capital requirements are needed to start the business.
b. Few economies of scale are in place.
c. Customers can easily switch (low switching cost). The key technology is not hard to acquire or
isn't protected well.
d. The product is not differentiated.
 3. Intense rivalry among existing players: This depends upon the number of competitors in the
industry and their capabilities. These situations are the causes for advertising wars, price wars,
modifications, ultimately costs increase and it is difficult to compete. Intense industry rivalry
happens when:
a. Competitors are few and there is no clear market leader.
b. Customers have low switching costs.
c. The industry is growing.
d. Exit barriers are high and rivals stay and compete.
e. Fixed cost is high resulting in huge production and reduction in prices.

4. Bargaining power of suppliers: When suppliers have strong control over production, they become
very powerful. The price of the entrepreneur's product becomes less attractive to customers. It is
good to have various sources of supply, if possible. Indications include the following:
a. The suppliers are concentrated and well organized.
b. Few substitutes are available for production.
c. The suppliers' product is most effective or unique (no other source available).
d. The cost of switching to another supplier is prohibitive
e. The entrepreneur's company is not important to the supplier.

5. Bargaining power of buyers: This means the amount of control buyers have to drive down the
product's price. The buyers' bargaining power may be lowered by offering differentiated products
to the market. Serving a few huge quantity-ordering buyers is dangerous because they acquire the
power to dictate the price to the manufacturer or entrepreneur. Indications of high bargaining
power of buyers include the following:
a. Few buyers chasing too many goods.
b. Buyer purchases in bulk quantities.
c. Product is not differentiated.
d. Buyer's cost of switching to a competitors' product is low.
e. Shopping cost is low.
f. Buyers are price sensitive.

A simple matrix can help a prospective entrepreneur decide on whether to enter in the selected industry
or not. Too many ng assessments would indicate a warning sign for the entrepreneur to rethink the
plans or change these as needed.

Forces Low Medium High

Rivalry among competing firms
Potential entry of new competitors
Potential development of substitute products
Bargaining power of suppliers
Bargaining power of consumers

C. Competitive Profile (CP) Matrix

According to Fred David (2010), it is essential for someone who would like to understand the intensity
of the competition to develop capability in identifying a firm's major competitors and its particular
strengths and weaknesses in relation to a firm’s strategic position.

David illustrated how the CP Matrices can be developed by observing the following steps:

1. List key external factors (15-20) including both opportunities and threats that affect the firm and its
industry. List the opportunities first and then the threats. Be specific as possible, using percentages,
ratios, and comparative numbers whenever possible.
2. Assign each factor a weight that ranges from 0.0 (not important) to 1.0 (very important). The weight
indicates the relative importance of that factor to being successful in the firm's industry. Appropriate
weights can be determined by comparing successful with unsuccessful competitors. Sum of all weight
= 1.0.
3. Assign a rating between 1 and 4 to each key external (critical success factors) to indicate how
effectively the firm's current strategies respond to the factor, where 4 = superior; 3 = above average;
2 = average; 1 = poor. Ratings are based on effectiveness of the firm's strategies. Ratings are thus
company-based, whereas the weights in Step 2 are industry-based.
4. Multiply each factor's weight by its rating to determine a weighted score.
5. Sum of the weighted scores for each variable will determine the total weighted score for the
organization.

Environment scanning can also be done on the external level - this involves industry competitors and allies

D. External Factor Evaluation (EFE) Matrix

Parameters need to be identified to see the firm's surrounding terrain clearly. Understanding these
parameters allows the entrepreneurs to summarize and evaluate economic, social, cultural,
demographic, environmental, political, governmental, legal, technological, and competitive information.

Examples of these factors are the following:

1. Economic - gross domestic product, gross national income, disposable income, consumption level,
production and productivity performance.
2. Social - family, social networks, religion, ethnicity, education, locality
3. Cultural - religion and beliefs as these influence the choice OT Consumption, like if one would like to
cater to the Moslem market, the product must be halal-certified; values and beliefs that affects the
behavior in decision-making.
4. Demographic - changes in average age, gender, economic Status, geographical location, population
trend, and race.
5. Environmental - carbon dioxide emission, rate of deforestation, and other variables that pertains to
nature and natural resources.
6. Governmental or political environment - government policies that affect employment, business, and
industry.
7. Legal aspects – laws that ensure protection of workers, secures the safety and health of the
consumers, etc.
8. Technological trends - dynamic changes in technology such as the rise in automation in most of the
workplace, the increased propensity to internet usage, efficient improvements in
telecommunications, etc.

To create an EFE Matrix the same five steps should be observed as that of the Competitive Profile Matrix.

A suggested exercise is for the teacher to assign the students to evaluate and scan one particular
industry using SWOT Analysis, Porter's Five Forces, Competitive Profile Matrix, and External Factor
Evaluation Matrix.

Demand and supply determination

Definitions

Demand: To penetrate a specific market, one should have a clear understanding of the presence of
human needs, wants, and desires. This means that the person is clear about the demand for the product
or service to be offered. Establishing the presence of demand for the product is essential. In fact, it is
the first step in doing business. Demand is an indicator of the markets' requirements reflecting the level
of satisfaction that should be addressed appropriately.

Supply: The summation of goods and services available in the market comprises the supply side. The
supply side indicates the amount of commodities that the producers have created in their respective
production line. Supply represents the goods and services one can buy in the different market channels.

There are several types of demand and supply, namely:

Demand
 Historic demand: These are secondary data representing the previous demand for a certain time
frame of particular goods and services.
 Current demand: These are data or information about the present consumption or patronage of a
product.
 Projected demand: This pertains to the forecasted value of demand utilizing statistical forecasting
tools.
 Potential demand: This is an estimated and possible need, wants, or desires that requires response
from a business entity to provide an appropriate satisfaction.
 Satisfied demand: This is a demand that has been met by a supply or an existing need that has been
provided a definite satisfaction. A product has been consumed.
 Unsatisfied demand: A demand gap is an indicator of unsatisfied demand. If demand exceeds supply,
there are needs that have not been appropriately served in the market.

Supply
 Historical supply: Previous data that represents the amount of goods and services that has been
produced and consumed.
 Current supply: This consists of the present amount of commodities available in the market for
procurement and consumption.
 Projected supply: Scientific estimates of the future amount of goods and services that can possibly
be produced or supplied by the producers, suppliers, manufacturers, or entrepreneurs.

Gaps
The demand and supply gap determines the viability or feasibility of a business idea. The demand for a
certain product should be greater than the supply available in the market. If demand exceeds supply, it
means that there is a market vacuum to be filled by the suppliers. So, it is essential to determine if a
gap exists between demand and supply before starting the business. Establishing such a gap and
forecasting its presence in the market is a vital factor in pursuing the proposed business idea.

For example, if one intends to establish a technical vocational school in a municipality, the investor must
be able to articulate the existence of the market gap. The gap enables the investor to decide upon the
right course of action. The table below is an illustration of the projected demand-supply gap.

Projected Demand-Supply Gap in the Technical/Vocational School Industry (X City)

Tools and techniques in forecasting

Reid and Sanders (2012) have articulated available forecasting models that can be used in building the
case for viability of the proposed business idea. The tools and techniques are as follows:

A. The naive method model

This is the simplest and easiest forecasting method. The forecasted value is determined by assuming
that the next period’s forecast is equal to the present period s ' actual value. The equation form is:
 Example

Months Monthly Sales of Product A (Tons) Forecast

January 250
February 360
March 290
April 290

B. Simple mean or average model

Also considered as one of the simplest model, this technique gets the average of a set of data. Thus,
the forecasted value is determined by:

Example

Months Actual Demand Demand Forecast

January 2,100
February 2,300
March 1,800
April 2,000
May 2,050

c. Simple moving average model

This is similar to the simple mean technique except that the data being averaged are the most recent
ones only. This is determined by the formula:

Example:
For 2-period simple moving average

Year Actual Demand Demand Forecast

1 5,250

2 5,750

3 6,000

4 5,500
5 5,750

Note: The period covered starts from the recent data

For 3-period simple moving average

 Year Actual Demand Demand Forecast
1 5,300

2 5,750

3 6,200

4 5,150
5 5,700

Note: The period covered starts from the recent data

D. Weighted moving average model

The difference between the simple mean and the simple moving average and the weighted moving
average is that each observation is given an equal weight. Unlike the weighted moving average, the
observations are assigned different weight values. The weight value is determined based on the
significance of observations relative to the others. Thus, the higher its significance the greater the
weight is apportioned to it, the less significance the lower the weight value.

Example:
For 4-period simple moving average

Year Sum of the Product

Between the Actual

Actual Demand Weighted Value Demand and Weighted Value

Weighted value
1 3,000 0.10 300

2 2,500 0.20 500

3 3,500 0.30 1,050

4 1,500 0.40 600

5 0.50 2,450 2,450

The forecasting tools and techniques will not be effective in determining future values of demand and
supply without the historical data. These historical data are vital for the forecasting process as shown in
the examples provided for in the previous pages. Once the demand and supply has been both projected,
the next procedure is to get the projected demand and supply gap. Such projected figures illustrate
that part of the market that is not yet captured by other competitors.

The projected demand and supply gap (or the projected unsatisfied demand) indicates the future value
of potential demand. These projected potential demand is available for grab by the competitors in the
market, it is from these potential demand that one should get the projected market share.

Determination of the projected market share is done through building assumptions that are anchored
on several important elements: (a) result from the survey questionnaire, (b) conservatism rate, and (c)
realistic information such as productive capacity and personnel capability of the proposed business
idea. Remember, as a new entrant to the market, a company is limited in its productive endeavors.

Given the constraints provided by the three elements, one can tell the extent of the market share the
proposed business entity could get from the projected potential demand.

The three constraining elements in projected market share determination

A. Result from the survey questionnaire
A constructed questionnaire is essential to administer a survey to the appropriate respondents. The
survey's goal is to extract the necessary information to assist the business proponents for sound
decision-making. The primary purpose of the questionnaire is to estimate the consumers’ level of
acceptance to the proposed business idea.

There are times that secondary data are not sufficient. An investor must supplement it with a survey
through a researcher (investor) constructed questionnaire. The rule of the thumb, the sample size of
the appropriate respondents should be 100, and such constructed questionnaire should be validated
first prior to actual distribution of survey form.

B. Conservatism rate
Forecasted potential demand (or forecasted unsatisfied demand) x acceptability rate - 20% conservatism
rate

To compute for the forecasted demand (or forecasted unsatisfied demand) must be multiplied to the
acceptability rate then deduct from it the 20% conservatism rate.

Acceptability rate is derived from the statistical result of the survey done through administration of the
questionnaire, while the 20% conservatism rate is deducted to bring down the figures to a realistic
situation.

Given the projected market share for the next 3 years, one still has to assess if such demand size is
realistic in the context of the capacity of the company to produce at any given time. This is where the
capacity building comes in to provide the limitations in the production of the company.

C. Capacity building
Capacity is the maximum output rate of a facility, meaning, the production might of a business entity
depends on the limitations of its own strength. One cannot embrace the total potential demand
because the technology, machinery, equipment, and labor that it owns cannot produce beyond their
maximum productivity. Thus, based on the forecasted unsatisfied demand, the enterprise should look
at its capacity to produce and that will determine its market share.

Marketing mix
It is commonly known as 4Ps, which refers to the four important elements in marketing, and these are
price, product, place, and promotion. These elements are being mixed to create a market advantage
against the competitors. A brief definition of the marketing elements is essential before moving on to
the objectives of mixed marketing:
1. Price: The amount of money the buyer is willing to purchase the product (service) and how much
the seller is willing to sell it.
2. Product: This can be intangible or tangible commodity that customer buys in order to achieve a
certain degree of satisfaction.
3. Place: The manner the product is being distributed to the customer, and therefore refers to the
distribution channel.
4. Promotion: This creates awareness and interest to the product so the market can be persuaded to
patronize it.

The diagram below illustrates the significance of the market mix to determine the strategic position of
the firm in creating a niche.
 Figure 2. Marketing Mix

Currently, seven Ps are mentioned as an extended marketing mix; three Ps have been added, namely,
packaging, positioning, and people. Each one should also be articulated in the Market Plan.

The marketing plan

Strategies
Based on the information and findings developed in the environmental scanning, marketing mix
comparative analysis, and survey, one can now build several strategies that will bring about a well-
defined unique selling point and strategic marketing mix (e.g., pricing strategy, product strategy,
promotion strategy, etc.).

Budget
This is a detailed listing of all the activities and materials used in the marketing plan such as promotional
expense, advertising costs (if necessary), the expenses incurred in writing the business plan, overhead
costs, and other related costs for market study. These itemized expenses must be with corresponding
peso amount because the total expense for the market study will be integrated in the financial aspect
of the business plan.

REFERENCE

Small Enterprises Research and Development Foundation. WINDOWS TO ENTREPRENEURSHIP A

TEACHING GUIDE