Your business market

Market opportunity

Your business idea will probably be related to a gap you’ve noticed in the market – that is, no-one else is meeting the need the way you believe it should be met. The next step is to look more closely at the need and then work out ways to build a business from that.

There may be a need in a particular market due to various factors. These include:

• there is a requirement or need for a product or service that does not yet exist
• growth in desire for a product or service due to trends
• existing products or services are underperforming
• a product or service can be tailored towards a niche (for example, low-impact exercise equipment designed for seniors or people with mobility limitations)
• a product or service can be produced or performed at higher quality
• a product or service can be produced or performed at lower cost.

The above factors may help you decide on a target market. When deciding on your target market, it will pay to determine market size. This is easier when the product already exists as you can research competitors to gain insights. Researching competitors will also allow you to build your own competitive advantage to entice customers to buy from you instead.

Read this case study about how LILO Desserts identified a market opportunity. This case study also touches on other subjects covered previously in this module and others covered later in this topic.

Researching your competitors

Here are some key aspects to consider when researching your competitors:

1. The range, features, quality, and pricing of products and services.
2. Market share and growth - what is the share of the market available to you - and how can you grow that?
3. Marketing campaigns, channels used, and messaging conveyed.
4. Customer engagement such as customer service practices and customer feedback.
5. Adoption of new technologies and its impact on operations and customer experience.
6. How competitors navigate and comply with regulations, identifying potential challenges or advantages.
7. Key personnel and their expertise.
8. Partnerships and collaborations and how they contribute to success.

Some information sources that provide insight into your competitors are:

• Website
  The easiest way to find information on competitors is to visit their website. However, a website provides a one-dimensional view, and you do not get to understand the true wants and needs of customers. That said, you may be able to find some useful information such as strategic plans and performance reports.  Also consider how their ‘story’ is similar to or different from your own.  What sets you apart from them?  Can you leverage this for your advantage?
• Social media
  You will gain a lot from visiting the social media pages of your competitors. Not only will you be able to see the types of people who follow the business, but you will see the questions they ask, the posts they interact with and much more. Most importantly, you will get a feel for whether people want the service and if it is thriving.
• Reviews
  Internet reviews could be written or fabricated by anyone, including the business itself, or its competitors. Therefore, whilst the information should be taken lightly, you can still get a feel for any specific or recurring compliments or concerns, and even how the business deals with its feedback and complaints.
• Competitor analysis reports
  There are some businesses and institutions who offer competitor analysis reports, usually for a fee. These businesses use cutting-edge analytic systems to scan information and prepare reports based on certain criteria.

Market structure

Identifying who your competitors are, how many of them there are and how similar their offerings are to your own, will help you determine the structure of your market.

Remember the term ‘enterprise’ from earlier in this module? An enterprise is an organisation or entity engaged in the production of goods or services. A business is a type of enterprise. The following terms are introduced in the content below; these definitions are in the context of market structure:

• Homogeneous refers to products or services that are identical or nearly identical in terms of their characteristics, features, and quality. In a market with homogeneous products, customers perceive little or no difference between the offerings of different enterprises.
• Differentiated means that products and services have unique features that distinguish them from competitors. These distinctions can include design, branding, quality, functionality, or other unique characteristics.
• Strategic interactions refer to the decision-making processes where enterprises consider the reactions of their competitors to optimise their own position in the market.

There are four main types of market structures, each is characterised by the level of competition and the degree of market power held by enterprises. These are:

Perfect competition:

• Many small enterprises exist, and none can influence the market price.
• Homogenous products are sold.
• There is easy entry to this market.
• Perfect competition doesn’t exist, but it is a good concept to understand as it provides context for other types of competition.

Monopoly:

• A single enterprise dominates the entire market.
• The enterprise is a price-maker, determining the price of the product.
• Significant barriers to entry exist, giving the monopoly enterprise substantial market power.
• For example, in Aotearoa, the electricity sector historically had elements of monopoly, with some regions served by a single power company. Since the reforms, customers can choose from a range of retailers, but before the reforms, one could think of a single enterprise having a dominant position in supplying electricity in a specific region.

Oligopoly:

• A small number of large enterprises dominate the market.
• Products can be either homogeneous or differentiated.
• High barriers to entry exist, and enterprises often engage in strategic interactions.
• For example, in Aotearoa, a small number of major enterprises like Spark, Vodafone, and 2degrees dominate the telecommunications industry. These companies have significant market share and interact strategically in providing telecommunication services.

Monopolistic competition:

• Many enterprises exist, but each has some control over the price.
• Products are differentiated, allowing enterprises to have some market power.
• There are relatively low barriers to entry.
• For example, Aotearoa’s fast-food industry has various restaurant chains offering differentiated products. Each enterprise, like McDonald's, Burger King, and KFC, has some control over its prices due to the perceived differences in their offerings.

It's important to note that in the real-world, market structures often exhibit characteristics of more than one type, and the dynamics can change over time due to various factors such as technological advancements, government regulations, and changes in customer preferences.

Researching your target market

Once you have decided on a target market, it can be useful to research everything about them. Understanding your market’s needs, preferences, behaviours, and spending habits will allow you to market your products and services in a way that is most likely to grab their attention.

Understanding your target market and market size will help you to plan various business elements including the types of products you want to provide, the volumes and the price point.

You may consider investing in reputable market research reports. A good market research report allows you to discover a myriad of insights, including everything from what suburbs have the highest number of young families to what time your target market is most active on social media. Market reports can offer insights into your target market’s behaviours, which will help steer your business planning activities.

Ways of conducting your own target market research include:

• One-on-one interviews
  This may be in the form of in-person interviews or telephone interviews. This process involves asking the potential customer a set of questions. Questions may include asking about their preference or challenges that they face. Ensure that questions are straightforward and relate to products or services.
• Focus groups
  This method involves talking to a group rather than an individual and can often be more conversational and may even involve activities. Focus groups “must be well planned and managed. The facilitator creates an environment that encourages participants to share their perceptions and opinions on a predetermined set of topics. The number of participants varies, though four to six is common. Groups larger than eight can be harder to manage.” (What Works, no date b)
• Surveys
  These are forms that you give to your potential customers to gather data. The forms can be either digital (online) or physical (printed). Note that it can be easier to compile data from digital surveys. There are plenty of free and paid online survey tools available, such as Survey Monkey or Google Forms, though you’ll need to ensure that the data gathered is kept secure and confidential – this applies for non-digital surveys as well of course. Whichever method you choose, consider some of the features of a good survey:
  • has questions that are clear and simple
  • addresses the market research objectives
  • encourages the respondents to provide accurate and complete information
  • keeps respondents interested in the research.

Informed consent

“Informed consent means getting a person’s permission to use information you collect about them. If you don’t get informed consent, then you can’t use the information you have collected about or from that person.” (What Works, no date a)

As covered earlier in this module, the Privacy Act 2020 governs how organisations can collect, store, use and share individuals’ information. In the context of researching your target market, participants need to be made aware of things like:

• who is carrying out the research
• why you are conducting the research
• what is required of the participant
• how the collected information will be used
• how you will store the information to ensure privacy and confidentiality
• when or if you’ll destroy the information.

Kaupapa Māori research

Regardless of who is involved in the research, there is much to benefit from learning about the Kaupapa Māori research approach. Take a look at this webpage for an introduction to this approach and eight guiding principles.

Market segmentation

Where there is diversity in your target market, market segmentation can be a useful tool as it is the process of dividing a market into distinct and more manageable parts based on common characteristics. These parts, or segments, can be in the form of target market profiles. You can use the following four key categories to create target market profiles:

• Demographic: can include age, gender, income, education, marital status, and occupation.
• Geographic: can include region, country, city size, climate, or population density.
• Psychographic: can include lifestyle, values, interests, personality traits, and attitudes.
• Behavioural: can include purchasing patterns, product usage, brand loyalty, and response to marketing efforts.

Here is an example of a target market profile using market segmentation for a personal trainer business based in Wellington.

Target market profile: Active professionals

Demographic
Age: 25-40 years old
Income: $60,000 - $100,000 annually
Occupation: Professionals with full-time jobs
Education: University-educated

Psychographic
Lifestyle: Active and health-conscious individuals who prioritise fitness and well-being.
Values: Value work-life balance and seek activities that enhance both physical and mental health.
Interests: Interested in holistic wellness, including fitness classes, mindfulness, and healthy nutrition.

Behavioural
Fitness behaviour: Regularly engage in fitness activities, such as gym workouts, yoga, or group fitness classes.
Technology adoption: Comfortable using fitness apps, wearables, and technology to track and monitor health goals.
Social engagement: Seek fitness activities that provide a social element, such as group classes or workout communities.

Geographic
Location: Residents or professionals working in Wellington city and its surrounding areas.
Suburbs: Key suburbs with a higher concentration of young professionals include Te Aro, Mount Victoria, and Kelburn.
Proximity to fitness facilities: Preference for locations with easy access to fitness centres, parks, and recreational areas.

Using statistics and data

Another way to research your target market and competitors is by utilising statistics (stats) and data.

Watch this case study video to hear about how a start-up used stats and data to develop and hone their business offering.

Tatauranga Aotearoa Stats NZ provides plenty of free-to-access information and has tools specifically for businesses here.

If you are selling overseas or planning to, have a look at:

• The research in New Zealand Story’s toolkit
• The market guides in myNZTE’s resource library

Capabilities

As part of your market analysis you will need to assess the capability of your business to take advantage of the opportunities and to minimise the impact of the threats. Consider aspects such as the skillsets of you and your team, the suitability of the equipment and premises of your business and the financial resources available to it.

Analysis methods

SWOT and PESTLE are two analysis methods that can be used to assess and better understand your business and your market.

SWOT analysis

The acronym SWOT stands for:

• Strengths
• Weaknesses
• Opportunities
• Threats

The table below expands on each of these.

	Positives	Negatives
Internal focus	Strengths Internal positive attributes and resources that give a business a competitive advantage or contribute to its success. These can include skilled personnel, strong brand reputation, advanced technology, or efficient processes.	Weaknesses Internal factors that hinder a business' performance or put it at a disadvantage compared to competitors. Weaknesses could include outdated technology, lack of skilled personnel, or inefficient processes.
External focus	Opportunities External factors in the environment that a business can capitalise on to enhance its performance or gain a competitive edge. Opportunities may arise from market trends, technological advancements, or changes in customer behaviour.	Threats External factors that could negatively impact a business’ performance or pose challenges to its success. Threats may come from competitors, economic downturns, legal and regulatory changes, or other external forces.

Below is an example of a SWOT analysis of a small photography business.

	Positives	Negatives
Internal focus	Strengths The photographer specialises in wedding and event photography and is highly experienced in this area. Ownership of high-quality photography equipment ensures the production of professional and visually appealing images. A strong local reputation for delivering exceptional photography services, evidenced by positive customer reviews and word-of-mouth referrals.	Weaknesses The business faces a constraint in terms of marketing budget, restricting its ability to reach a broader audience through advertising and promotions. The business heavily relies on the owner, and the absence of a backup photographer may lead to scheduling challenges or service disruptions. The photographs produced have a very particular style, potentially limiting the customer base to those interested in that style.
External focus	Opportunities Leveraging social media platforms and online marketing can help expand the business's reach and attract a wider customer base. Partnering with local wedding and event planners, venues, or businesses for joint promotions can open new avenues for business growth. Exploring additional services, such as photography workshops or photo editing services, can cater to a broader market and generate supplementary income.	Threats The local photography market is relatively saturated, making it challenging to stand out among competitors and attract new customers. Rapid advancements in camera technology may necessitate regular equipment upgrades to stay competitive, posing a financial challenge. The business experiences fluctuations in demand as it relies heavily on seasonal events such as weddings.

PESTLE analysis

While a SWOT analysis looks at both internal and external factors, a PESTLE analysis focuses on the external factors that can affect your business, i.e. opportunities and threats in greater depth. These are categorised by the following:

• Political factors: Political factors refer to the influence of government policies, regulations, and political stability on a business or industry. These factors encompass the impact of government decisions, political stability or instability, government attitudes toward business, and the overall political climate.
• Economic factors: Economic conditions such as inflation rates, exchange rates, economic growth, and overall stability can influence business operations.
• Social factors: These encompass societal and cultural influences, demographics, lifestyle changes, and social trends that might impact customer behaviour and preferences.
• Technological factors: The analysis considers technological advancements, innovations, research and development, and their potential impact on the industry or business.
• Legal factors: While closely related to political factors, legal factors specifically focus on the impact of laws and regulations on business operations. Political factors can affect a business even if there are no changes in laws, while legal factors directly involve compliance with existing legal frameworks.
• Environmental factors: This includes factors related to the natural environment, sustainability, climate change, and other ecological considerations.

While it is important to consider what’s happening ‘now’ with the above factors, it’s also important to keep in mind that future changes to an industry or government policy may also have an effect on your business. For example if a new technology is rumoured to be coming to Aotearoa and is very popular for most customers in their everyday life, will this have an effect on your business? What will you need to consider or adapt to, as your business environment changes?

Think about how phones with cameras virtually replaced stand-alone cameras overnight, or how watches that take health data about the wearer and feed it back to them - what effect would something like this game-changing technology have on your business?

Assessment

You should now be ready to complete the second assessment: SBE01A1: Market analysis and business structure.

Once you have identified and analysed your business market, you can use this information to formulate a marketing strategy. You will learn about marketing strategies in the next module, however, to help you choose the right marketing strategy, it is important to first understand the different types of marketing concepts. There are five main marketing concepts:

The Production Concept

This applies when a business’ main priority is the ability to produce products on a large scale. This may be at the cost of quality. A key component to the success of this concept is that products are accessible and affordable. The business relies on economies of scale, where the cost of producing higher volumes of products is economically more efficient than producing lower volumes.

The Product Concept

This applies when the product itself is the star. The product is made with high quality in mind, and therefore, the price is usually higher than some lesser quality alternatives. Some good examples of the product concept are products within the technology industry. The quality of items such as smartphones, computers and even artificial intelligence technologies is ever-increasing. Technology companies regularly offer upgrades to their products and are always striving to design the next big feature. While this seemingly exponential increase in quality is appealing to customers (think of the images of people camping outside of Apple stores to be the first to get their hands on a new iPhone), it also comes at a major disadvantage: the cost.

At some point, no matter how appealing the quality, businesses need to be mindful of pricing themselves out of the market—unless of course, this is part of their strategy, where they are marketing to a niche, wealthy market, who value being unique or different from everyone else.

The Selling Concept

This applies when a business focuses on selling products as its sole priority. Businesses who use the selling concept may apply aggressive marketing, or hard sell techniques, to sell their products. These techniques are used to target customers, whether or not the customer actually needs or wants the product. This is often at the cost of poor relationship-building with buyers, which can mean that repeat sales are low. Accordingly, the selling concept may not be a suitable strategy for longevity in a market.

The Societal Marketing Concept

The societal marketing concept applies when a business takes into account their social responsibility in the products they market. This may include whether the product is healthy for the customer, good for the community or good for the environment.

When a business uses the societal marketing concept, it may risk making a smaller profit to ensure ethical considerations are maintained in its products and services. For example, a particular ingredient may be cheaper and produce a similar product; however, if that ingredient is considered to be ethically questionable, such as farming in a cruel way, the business will opt for a more expensive product that satisfies their ethical concerns. While there may be some margin for increasing cost for products that use ethical ingredients (consider the cost of organic vegetables vs. regular vegetables), businesses who use this model need to find a balance with pricing, so as not to deter customers. This can sometimes mean that the business itself makes a lower profit by choosing the societal marketing concept.

On the flip side, however, businesses that use the societal marketing concept will often have a following of loyal customers, who are prepared to pay a higher price point for ethical products and services. This can also provide the business with longevity in the market.

The Marketing Concept

This applies when a business thoroughly researches its market and develops products according to its specific wants and needs, which are superior to, or more sought after, than those of its competitors.

Businesses that use the marketing concept, focus on keeping their customers happy even as their needs and wants change. A business using this concept may invest heavily in market and customer research to ensure they can keep up with changing demands, while also delivering on satisfaction.

Note: Regardless of the concept(s) your business chooses to focus on, knowing your customers is important.

Supplier relationships

Suppliers are an important business contact since the quality of the products and services the organisation provides depends upon the supplier's product quality and/or their ability to deliver on time.

Establishing the relationship

Establishing good business relationships with suppliers involves doing the following:

• Getting to know the supplier: Meet with them and find out about their processes, the extended supply chain and how this may affect your business’ schedule.
• Updating the supplier: If key aspects of your business change that may have an impact on external stakeholders (for example, a change in management or internal processes such as how accounts are processed) it is a good idea to keep suppliers up to date.
• Referring them to other contacts: referrals are covered later in this topic.

Maintaining the relationship

Once a relationship between the organisation and the supplier has been established, you can use the following strategies to maintain the relationship:

• Avoid rush orders: These place stress on the relationship as sufficient time for the manufacturer and/or supply of goods is often not possible, and products may not be of high quality.
• Release payments on time: Late payments create bad impressions on the supplier and may gravely affect their cash-flow. Timely payments and communicated delays help build trust and enable better deals to be negotiated with the supplier.
• Keep in touch regularly: Meeting face-to-face with the supplier allows for the supply of information about organisational changes as well as finding out about the supplier's plans for development and expansion.
• Address any issues promptly: Issues that are left unresolved can damage the long-term relationship, compound small problems making them larger, and need to be dealt with promptly.

Customer relationships

Some of the points above listed for establishing and maintaining relationships with suppliers also apply for customers. Addressing customer complaints without delay is also a legal obligation mentioned earlier in this module.

Rewards and loyalty programmes can be used to entice new customers and retain existing ones. Surveys were mentioned earlier as a way to research your target market – this can and should be ongoing to ensure you are keeping customers happy.

Below are some digital tools that can be used to establish and maintain relationships with customers. Note that marketing methods and strategies will be covered further in the next module.

Website

A website can help customers to find you and what you have to offer. You can use your website to:

• provide information about your products or services
• provide the option to purchase products or book appointments online
• provide contact details, a contact form or online chat functionality.

Take a look at this comprehensive guide to selling online, including methods, comparisons, considerations, related tools and links for more information.

Watch this video case study (1:50) to see how selling online saved a sewing supplies store in Tauranga from going under during COVID-19 and has helped the business to grow since by increasing customer reach.

Social media

Social media can be a powerful way for a business to reach customers through increasing the awareness of a brand and creating an online community.

Creating posts on your business’ social media profile provides opportunities for:

• Promoting particular products or services or your business in general.
• Customer engagement with your posts. Interactions such as likes and comments can be helpful for gathering feedback or further promoting your business.
• Keeping in touch with existing or potential customers by sharing updates on your business or something they may find interesting or relatable such as an image or article.
• Reaching a wide or specific audience when you utilise paid post-promotion options on some platforms.

Online chat

“People who use chat are almost three times more likely to buy than someone who doesn’t.”
(business.govt.nz, no date f)

Encourage customer engagement through online chat on your website for increased sales. Timely responses to enquiries help develop a reputation for customer care and fosters customer loyalty. If you don’t have the staff to provide 24/7 chat support, consider:

• providing chat services during peak hours (you can use tools like Google Analytics to identify busy periods and coordinate with promotions).
• using automated options like chatbots.

Social media platforms will usually have online chat functionality. Facebook, for example, has Facebook Messenger which provides special features for business pages such as linking to the chat from your website and enabling transactions.

Tools such as Intercom and Zendesk can bring together chats from multiple platforms into one space and provide chat bot functionality and insights on the kinds of questions your customers ask. If this is something that interests you, take a look at this video (1:29 minutes) for an overview of these features and how they can work for your business.

Customer relationship management (CRM)

CRMs help you manage customer information, communications and more. Watch this video (3:37 minutes) for an introduction to CRM by Salesforce, a global leader in CRM.

You can use a spreadsheet or simpler tool to manage some customer information if this is suitable for your business needs. Watch this video from 3:45 to 5:48 minutes to hear George Hampton from Exsalerate (a New Zealand made CRM) compare using a spreadsheet to a CRM and reducing manual entry.

Networking

Networking involves establishing and maintaining relationships with people in your industry, community, or related fields. Networking is a beneficial activity for small business owners as it offers opportunities for growth, collaboration, and support. Here are some avenues for networking in Aotearoa:

• Joining industry-specific associations and organisations is a great way to connect with professionals in your field. Examples include the Bed & Breakfast Association New Zealand and Master Builders.
• New Zealand Chambers of Commerce provide networking opportunities for businesses. These events often include seminars, workshops, and networking events.
• Utilise online platforms like LinkedIn to connect with professionals, join industry groups, and participate in discussions.
• Attend conferences, seminars, and workshops related to your industry. Events like the Techweek, Tourism Summit Aotearoa, and other industry-specific conferences offer excellent networking opportunities.
• Consider joining a co-working space such as 3Mile in Carterton or SODA Inc in Hamilton, where you rent a desk or have access to meeting rooms, Wi-Fi, office desks and kitchen facilities. These are becoming more common, including in medium or smaller towns and provide a meeting space for people who are also in business.  Some co-working spaces also have volunteer rosters where you can be rostered on to meet and greet people using the space, which is great for helping you to introduce yourself.
• If you attended a university, polytechnic, institute of technology or other education provider in Aotearoa, consider joining their alumni association. These groups often organise events and activities for graduates to connect.
• Explore local business networking groups that meet regularly. These groups often include professionals from various industries and provide a platform for exchanging ideas and contacts.
• Consider volunteering for local events or community organisations. Not only is it a great way to give back, but it also provides an opportunity to meet and network with people who share similar interests.

Remember that networking is not just about attending events but also about building meaningful relationships over time. Be proactive in reaching out to people, attending relevant gatherings, and staying engaged in your industry and community.

Referrals

In the context of networking and business relationships, a referral is a form of word-of-mouth marketing where existing customers, suppliers, or other business contacts voluntarily promote a product or service to others.

This results in the business gaining new customers or customers who are likely to be highly motivated to purchase products and services because they have received a recommendation from someone they know and trust.

There are three types of referrals:

• Experience-based: A satisfied customer might suggest a business or service to others. This type of referral requires excellent customer service, products and/or services, good value for money, and a professional business environment/facility.
• Reputation-based: Someone who is familiar with a business but may not necessarily have been a customer might provide an endorsement or referral-based purely on their market reputation, prior project success, and/or brand awareness.
• Specialisation-based: People who are aware of a business that provides a unique service or product that is quite rare or difficult to source and may refer a customer to the business based purely on their need for this specific product or service.

Summary

There are several key aspects of marketing and your business market to understand in order to develop your business idea and make the most of the opportunities available to boost the potential success of your business. By now you should have an understanding of:

1. how to identify market opportunity
2. how to research your target market and competitors
3. how to analyse your business market
4. key marketing concepts
5. types of business relationships and the opportunities they present.

This is the final topic of this module. In the next module we will build on what you’ve learnt in this module so that you are able to develop a business plan and marketing plan as well as preparing you for a soft-launch of your business.