Dr' Kent Wolfe

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E2 Entrepreneurship and E-CommerceBuilding and
Expanding Economic Opportunities

• Dr. Kent Wolfe
• University of Georgia
• May 16-20, 2005
• Oklahoma City, Oklahoma

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What is Market Research

• Marketing research is the systematic gathering,
  recording, and analyzing of data about problems
  relating to the marketing of goods and services.
• Okay, but what does that mean.

Source Small Business Administration,
http//www.sba.gov/starting_business/marketing/res
earch.html
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Why use Market Research

• First
• It is impossible to sell products or services
  that customers do not want.
• Second
• Learn what customers want .
• Third
• Package and present the produce or service in
  accordance with customer demands.

Source Small Business Administration,
http//www.sba.gov/starting_business/marketing/res
earch.html
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Why Conduct Market Research

• Focuses and organizes marketing information.
• It ensures that such information is timely and
  permits entrepreneurs to
• Reduce business risks
• Spot current and upcoming problems in the current
  market
• Identify sales opportunities
• Develop plans of action

Source Small Business Administration,
http//www.sba.gov/starting_business/marketing/res
earch.html
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Projects -

• Oilseed crushing and processing facility - 50
  million
• Pelletized Poultry Litter facility - 4 million
• Farm Raised Tilapia, eel and prawn - 2 million
• Grass Fed Beef Processing Facility - 1 million
• Impact of Ag on States Economy - 9 billion
  dollars (farm gate value all commodities)

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Essential Questions for Product Development and
Effective Marketing Strategies

• Who are my customers and potential customers?
• What kind of people are they?
• Where do they live?
• Can and will they buy?
• Am I offering the kinds of goods or services they
  want - at the best place, at the best time and in
  the right amounts?
• Are my prices consistent with what buyers view as
  the product's value?
• Are my promotional programs working?
• What do customers think of my business?
• How does my business compare with my competitors?
  

Source Small Business Administration,
http//www.sba.gov/starting_business/marketing/res
earch.html
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Competitive Analysis

• Business takes place in a highly competitive,
  volatile environment, so it is important to
  understand the competition.
• Who are your five nearest direct competitors?
• Who are your indirect competitors?
• Is their business growing, steady, or declining?
• What can you learn from their operations or from
  their advertising?
• What are their strengths and weaknesses?
• How does their product or service differ from
  yours?

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Collecting Competitor Information

• Start a file on each of your competitors and
  collect information on
• Advertising
• Promotional materials
• Pricing strategies
• Hours of operation
• Marketing channels
• Packaging

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What This Can Tell Us

• How often competitors advertise
• Do they sponsor promotions
• Do they offer sales
• Seasonality - when they advertise
• Sales strategies
• Target Market
• Marketing mix

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What Else Can it Tell Us?

• The most popular package size.
• Where customers are looking for the product or
  service.
• Product extension opportunities
• Whether market is expanding or contracting
• Whether the product is a commodity or
  differentiated product
• Opportunities to improve existing products to
  better meet customer needs

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Target Market

• Your current customer base age, sex, income,
  neighborhood
• How your customers learn about your product or
  service - advertising, direct mail, word of
  mouth, Yellow Pages
• Patterns or habits your customers and potential
  customers share - where they shop, what they
  read, watch, listen to
• Qualities your customers value most about your
  product or service - selection, convenience,
  service, reliability, availability, affordability
  
• Qualities your customers like least about your
  product or service - can they be adjusted to
  serve your customers better?
• Prospective customers whom you aren't currently
  reaching

Source Small Business Administration,
http//www.sba.gov/starting_business/marketing/res
earch.html
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New Agribusiness Opportunities First Step is ID
Target Market

• Target Market A segment of the population that
  is most likely to use your product or service.
• Usually described using demographic variables
  like, Gender, Income, Race, Age
• Used to
• Determine market potential
• Develop product packaging
• Choose marketing channels
• Develop marketing mix and advertising strategy

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Who is your Target Market?
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Hybrid Car Driver - Profile

• Highly Educated
• Affluent Household income of 100,000
• Theyre more likely to be female.
• Older than the average car buyercloser to fifty
• Beyond these demographics,
• They drive fewer miles on average
• Keep car longer than the average
• Willing to pay more for an environmentally-friendl
  y (or green) product.
• They personally want to do something to help
  reduce vehicle pollution.
• They expect fuel prices to grow a lot faster than
  other people do.

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Target Market Examples
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Market Segmentation

• A 1995 National Pork Producers Council study
  identified five very different pork consumer
  segments and they are as follows
• Main Street Today
• Quality Carnivores
• Good N Plenty Guys
• Apathetic Eaters
• Politically Correct Eaters

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Market Segmentation
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Market Potential

• Market Potential the maximum sales
  opportunities achieved by all sellers in the
  market.
• Sets the upper limit on consumption units

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Estimating Market Potential

• Crucial to evaluating a business opportunity or
  idea.
• Is the market large enough to support my business
• Is my market area sufficient to support the
  business

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Information Needed to Estimate Market Potential

• Must define the market area.
• Selling in the county
• Selling regionally
• Selling nationally
• Selling globally
• Identify your target market or the group of
  people most likely to use or purchase your
  product or service.

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Information Needed to Estimate Market Potential

• Estimate current purchase or usage patterns
• Is the product used frequently- food
• Is the product purchased infrequently- i.e.,
  Truck or TV
• Per capita consumption of ice cream
• Per capita consumption of eels
• Usage of conference facilities
• Usage of lawn maintenance materials

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Estimating Market Potential

• MPNxQ where
• MP Market Potential
• N number of buyers (Target Market in market
  area)
• Q average number purchased by each buyer
• Adjustments will most likely have to be made,
  i.e., Soft drink Market Potential is
  significantly larger than Coke Market Potential.

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Steps to Estimating Market Share

• Determine the market area
• Estimate the total market potential
• Identify each of your competitors and estimate
  their market share
• Decide or estimate what you think your market
  share might be or what portion of the market you
  intend to capture

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Simple Example Market Share Calculation

• Market share for new hot sauce to be marketed
  locally
• A supermarket visit identified 10 sauce
  competitors
• Market share data is not available, assume each
  product captures and equal share of the market
  (10)

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Example Market Share Calculation- Cont.

• New product will mean there are 11 competing
  products
• Assuming equal market share, you can assume to
  capture roughly 9.1 of the market
• Does 9.1 of the market generate enough sales to
  make your business feasible?

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Estimating Market Share - Example
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Store Sales Market Share Total Product Sales
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Store Sales Market Share By Brand
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Store Sales Market Share By Package Size
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Actual Market Analysis Example

• Identified seven potential markets in addition to
  AgriRecycle, Inc.
• Homeowners
• Cattle feed ingredient
• Nurseries
• Landscaping contractors
• Golf courses Sod producers
• Timberland companies

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Potential Customer Population Estimates
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Market Prices

• Marketing Channels
• Households - 300/ton (organic)
• Cattle blocks - 200/ton
• Commercial - 49/ton
• Nurseries
• Golf Courses
• Landscaping Companies
• Sod Producers
• AgriRecycle - 55/ton

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Georgias Estimated Market Potential by Segment
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Estimated Revenue

• AgriRecycle - 55/ton
• 36,000 tons 55/ton 1,980,000
• Market Direct - 300/ton home owners (20 lb bags
  of organic soil conditioner)
• 36,000 tons 300/ton 10,800,000
• 36,000 tons represents only 64 of the fertilizer
  and soil conditioners GA households use annually

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Southeast Estimated Market Potential by Segment
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Market Analysis Summary

• Identified seven potential markets in addition to
  AgriRecycle, Inc.
• Homeowners Large market, bagged product, high
  price
• Cattle feed ingredient Large market, future
  uncertain, bagged, high price
• Nurseries Small market, low price, bagged
• Landscaping contractors Small market, bagged,
  low price
• Golf courses Very small market, bulk, low price
  
• Sod producers Moderate market (distance), bulk,
  low price
• Timberland companies no identifiable potential

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Estimating Retail Sales

• The potential retail sales for a specific retail
  operation can be estimated by using a standard
  formula
• ES P x EXP x (ADI/MDI) x MS where
• ES Estimated Sales
• P Trade Area population
• EXP Average expenditures for retail outlet
  category
• ADI Area Estimated Average Household Disposable
  Income
• MDI Georgia Average Household Disposable Income
• MS Estimated Market Share

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Micro Brewery

• Micro brewed consumers consume an average of 250
  worth of beer annually. 
• Younger people were more likely to have tried a
  microbrew. Thirty-six percent of beer drinkers
  between the ages of 25 and 34 had tried a
  microbrew.
• In contrast, 27 of beer drinkers between the
  ages 34 through 45 and 20 of those 45 and older
  had tried microbrews. 
• The appeal of micro brewed beer was strongest
  among White beer drinkers were almost twice as
  likely as black Americans to try a microbrew.

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Estimated Retail Sales - Example

• 50 of Americans consume beer.
• Thirty-six percent of microbrew drinkers are 25
  -34, 27 are 34 - 45 and 20 are 45 and older.
• Microbrew consumers have average incomes of
  54,000
• Microbrew consumers spend between 250 annually
  on these products
• Microbrewery Market Area Demographic Information
• 50,000 residents
• 15 are 25-34
• 16 are 34-45
• 29 are 45
• 25 have incomes over 54,000
• Area Estimated Average Household Disposable
  Income67,000
• Georgia Average Household Disposable Income
  30,240

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Trade Area Sales Estimate

• ES P x EXP x (ADI/MDI) x MS
• P 50,000 x 50 (percentage of beer drinkers)
  25,000
• 25,000 x 15 3,750
• 25,000 x 16 4,000
• 25,000 x 29 7,250
• 15,000
• 37 of area residents have incomes over 50K
• 15,000 37 5,550
• EXP250
• (ADI/MDI)(67,000/30,240)
• MS Estimated Market Share 10
• ES 5,550 x 250 x (67,000/30,240) x 10
  307,416

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AnotherEstimated Retail Sales Example

• Specialty food shoppers spend between 500 and
  1,000
• Area population 83,000
• Condiments constitute 12 of specialty food
  purchases or a 128 annually per specialty food
  shopper
• Area Estimated Average Household Disposable
  Income/Georgia Average Household Disposable
  Income (67,000/30,240)
• MS Estimated Market Share 10
• ES 83,616 x 128 x (67,000/30,240) x 10
  2,371,332

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Easy Demographic Data (WWW.EASIDEMOGRAPHICS.COM)

• Miles 20 15 10
• Population 82,683 59,644 36,409
• Households 31,974 22,806 13,773
• White Population 77,003 56,126 34,497
• Black Population 4,881 2,901 1,506
• Asian Population 623 473
  307
• Hispanic Population 719 518
  275
• Median Age 37.0 36.7
  36.4
• Med. HH Inc.() 29,572 30226 32,214
• Av. HH Inc. () 40,855 41,877 43,165

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Demographic and Population Sources

• Sources for Demographic Information
• Chamber of Commerce
• University (www.agecon.uga.edu/caed/)
• www.georgia.stats.uga.edu
• US Census Bureau (WWW.CENSUS.GOV)
• Easy Demographics (WWW.EASIDEMOGRAPHICS.COM)

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Price Determination

• Don't know how much to sell your product for?
• Essential to developing a successful business.
• Price too low may not cover total costs and
  loose money
• Price too high may price the product out of the
  market
• One method of determining price- eBay
• Try putting it on eBay. Your correct price point
  will become very clear after only a few auctions.

Source The Importance of Market Research,
Steven Strauss BizLand.com
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Price Determination

• Depending on the product or service, pricing
  flexibility changes significantly.
• Factors to consider
• Is the product a commodity?
• Traditional agricultural commodities
• Consumer electronics, i.e., VCRs, Computers,
  TVs.
• Is the product highly differentiated?
• Cars i.e., Porsche, Kia
• Produce- i.e., organic vs. traditionally produced
• Leasing hunting land vs. providing guide services
• Is the product a luxury item?
• Spa treatments
• Vacations Hunting service (150 ½ day of
  squirrel hunting)
• Jewelry, furs,

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Price Determination

• What others are charging
• Make a list of similar products or services and
  how much other companies charge for them.
• This information will tell you what the market is
  accustomed to paying.
• Review per unit costs for producing the product
  or service and compare to market price

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Price Determination

• Build in a Profit!
• Need profits
• to grow
• pay off debt
• continue to be a viable enterprise.
• Profit varies by industry, service, potential
  liability and general overhead.

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Price Determination

• Rule of thumb in retailing is to at least double
  your fixed costs (Keystone pricing) in
  determining a retail selling price.
• Allows for discounting or running sales, i.e.,
  10-40 percent off sale still allows for a profit.
• Raise prices in accordance with inflation, need
  to maintain an acceptable profit margin

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Use Market Research in MarketingOn-line
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Adding Value to Georgias Agricultural Economy
Through Research and Extension
www.caed.uga.edu College of Agricultural
Environmental Sciences