Dr. Kent WolfeUniversity of Georgia

May 16-20, 2005Oklahoma City, Oklahoma Cente

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E2: Entrepreneurship and E-CommerceBuilding and Expanding Economic Opportunities

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/research.html

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/research.html

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/research.html

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)

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/research.html

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?

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

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

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

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/research.html

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

Who is your Target Market?

Hybrid Car Driver - Profile Highly Educated

Affluent – Household income of $100,000 +

They’re more likely to be female.

Older than the average car buyer—closer to fifty

Beyond these demographics,

They drive fewer miles on average

Keep car longer than the average

Willing to pay more for an environmentally-friendly (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.

Demographic US Pop.Hot Sauce Enthusiasts

Pork Consumers*

Frozen Pizza Consumers

Gender

Male 50% 80% 43% 8.9%

Female 50% 20% 57% 90.8%

Age 35.5 29 55 47

Income $34,076 $60,000 $31,000 $43,641

Education – College grad.

23.6% 78% <10% 26%

Household Size 2.65 1.45 2.65 2.47

Target Market Examples

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

Market Segmentation

Product Age Group Consumption %

Vodka 30-39 44%

Bourbon 60+ 50%

Gin 60+50-59

29%29%

Tequila 20-29 52%

Market Potential

Market Potential – the maximum sales opportunities achieved by all sellers in the market.

Sets the upper limit on consumption units

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

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.

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

Estimating Market Potential

MP=NxQ; 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.

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

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%)

Example Market Share Calculation- Con’t.

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?

Table 6. Total Sales from 216 Georgia stores for Wheat and Multigrain Crackers for a 52 week period ending May 15, 2004 - Includes data from 219 stores

Wheat Based Product Annual Sales % ChangeUnits Sold Annually Gross Margin Annual Sales Per Store

Private label Multigrain Wheat Square Box 9oz. $78,960.27 41.2% 76,180 $20,432.53 $ 360.55

Private label Wheat Square Box 9oz. $58,565.87 -4.4% 55,307 $16,692.00 $ 267.42

Private label Low Salt Wheat Squares 9 oz $20,096.27 2.8% 19,212 $40,001.87 $91.76

Nabisco Veg Thins Snack Crackers 8 oz $42,671.20 -16.2% 16,619 $11,342.93 $ 194.85

Nabisco Wheat Thins 16 oz $227,007.73 10.4% 73,920 $58,146.40 $1,036.56

Nabisco Wheat Thins ranch 9.5 oz $ 58,531.20 -18.4% 22,845 $15,291.47 $ 267.27

Nabisco Wheat Thins reduced Fat 14.5 oz $310,984.27 20.6% 101,074 $80,007.20 $1,420.02

Nabisco Big Wheat Thins 8 oz $100,394.67 -9.1% 39,194 $25,324.00 $ 458.42

Nabisco Multigrain Wheat Square Box 9.5 oz. $ 53,851.20 -26.5% 21,171 $13,932.53 $ 245.90

Keebler Wheatables Original 10 oz $ 30,357.60 -31.6% 11,922 $10,015.20 $ 138.62

Keebler Wheatables Reduced Fat Original 9 oz $ 46,172.53 -35.6% 18,089 $14,709.07 $ 210.83

Keebler Wheatables Honey Original 9 oz $ 45,780.80 -26.3% 17,992 $14,615.47 $ 209.04

Keebler Wheatables 7 grain 9 oz $ 32,347.47 -34.3% 3,678 $10,441.60 $ 147.71

Estimating Market Share - Example

Wheat Based Product Units Sold

Share of Sales

Private label Multigrain Wheat Square Box 9oz. 76180 16%

Private label Wheat Square Box 9oz. 55307 12%

Private label Low Salt Wheat Squares 9 oz 19212 4%

Nabisco Veg Thins Snack Crackers 8 oz 16619 3%

Nabisco Wheat Thins 16 oz 73920 15%

Nabisco Wheat Thins ranch 9.5 oz 22845 5%

Nabisco Wheat Thins reduced Fat 14.5 oz 101074 21%

Nabisco Big Wheat Thins 8 oz 39194 8%

Nabisco Multigrain Wheat Square Box 9.5 oz. 21171 4%

Keebler Wheatables Original 10 oz 11922 2%

Keebler Wheatables Reduced Fat Original 9 oz 18089 4%

Keebler Wheatables Honey Original 9 oz 17992 4%

Keebler Wheatables 7 grain 9 oz 3678 1%

Store Sales Market Share – Total Product Sales

Wheat Based Product Units Sold Share of Sales

Private Label 150,699 32%

Nab isco 274,823 58%

Keebler 51,681 11%

Store Sales Market Share – By Brand

Wheat Based Product Units Sold Share of Sales

8 oz 55813 14%

9 oz 190458 47%

9.5 oz 44016 11%

10 oz 11922 3%

14.5 oz 101074 25%

Store Sales Market Share – By Package Size

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

Potential Customer Population Estimates

Market Georgia SoutheastHomeowners 2,029,299 10,399,813

Landscaping. Co. 1,712 3,722

Nurseries 126 1,638

Golf Courses (100 miles Douglas) 90 NA – Distance issues

Sod Producers (100 miles Douglas) 200 NA – Distance issues

Cattle Blocks 313,000 6.4 Million head Timberland Companies (land owners) Unsure Unsure

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

Georgia’s Estimated Market Potential by Segment

Outlet

Estimated Market Potential (tons) $/ton Estimated $$$

Home owners 56,811 $300.00 $17,043,300

Landscaping. Co. 744 $49.00 $36,474

Nurseries 109 $49.00 $5,353

Golf Courses 49 $49.00 $2,397

Sod Producers 8,100 $49.00 $396,900

Cattle Blocks 33,375 $200.00 $6,675,000

Total 99,188 $24,159,424

AgriRecycle 36,000 $55.00 $1,980,000

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

Southeast Estimated Market Potential by Segment

Outlet

Estimated Market Potential (tons) $/ton Estimated $$$

Home owners* 291,146 $300.00 $87,343,800

Landscaping Co.* 3,722 $49.00 $182,372

Nurseries* 1,411 $49.00 $69,127

Cattle Blocks** 133,500 $200.00 $26,700,000

Total 429,779 $114,295,299

AgriRecycle 72,000 $55.00 $3,960,000

•*GA, SC, NC, AL,FL & TN•** Cattle from Georgia, North Carolina, Virginia, and Kentucky

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

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

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.

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 Income=$67,000 Georgia Average Household Disposable Income =$30,240

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

EXP=$250 (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

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

Easy Demographic Data (WWW.EASIDEMOGRAPHICS.COM)

Miles 20 15 10

Population: 82,683 59,644 36,409Households: 31,974 22,806 13,773 White Population: 77,003 56,126 34,497Black Population: 4,881 2,901 1,506 Asian Population: 623 473 307Hispanic Population: 719 518 275Median Age: 37.0 36.7 36.4 Med. HH Inc.($): $29,572 $30226

$32,214 Av. HH Inc. ($): $40,855 $41,877

$43,165

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)

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

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., VCR’s, Computers, TV’s.

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,

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

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.

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

Use Market Research in MarketingOn-line

“Adding Value to Georgia’s Agricultural Economy Through Research and Extension”

www.caed.uga.edu

College of Agricultural & Environmental Sciences

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