e-Business Plan: Market Analysis

The market analysis section of your e-business plan demonstrates that you know your customers -- who they are, their characteristics, and why they are likely to buy from your business. The process of writing the market analysis requires you to define your target markets and analyze how you will position your product or service to arouse and fulfill their needs in order to maximize sales.

In a full-scale business plan the market analysis is part of the marketing plan section, which includes:

A business plan tutorial for a marketing course would cover all these areas in considerable detail. However, the most important section for e-commerce professionals is the market analysis, so that is the focus of this lesson. If the scope of your business plan assignment includes the other aspects of marketing planning, then your instructor will provide additional instructions and resources to do so.

The lesson outline is:
e-Business Target Markets
--What are the target markets?
--Identifying target markets
Target Market Research

e-Business Target Markets

What are the target markets? The first step in conducting a market analysis is to define your primary, secondary, and, perhaps, tertiary target markets. Your target markets are based on segmentation characteristics within the total addressable market. The segmentation is based on:

Determining the proper scope of the target markets is critical. If the definition of a target market is too broad, it will be hard to identify their information needs and you will waste money on promotion that won't get the results you want. If the target market is too narrowly defined, it will be difficult to find and generate a customer base that is profitable. This "market focusing" process is evident in the way marketers approach market analysis, working from the general (potential market) to the specific (market share), as described in the following paragraphs.

The potential market is the total number of people who could buy from your business. For example, if you are selling solely over the Web and only accepting credit cards for payment the potential market would be everyone in the world who owns a credit card and has access to the Internet. Obviously, this is a huge, but illusory, market.

The addressable market is the group of individuals in the potential market who are likely to have an interest in what your business has to offer. For example, for Purma Top Gifts the addressable market is people who have an interest in Purma, perhaps because they live there, want to visit or live there, or have visited or lived there in the past. This is close to being an appropriate target market if the business intended to be a Purma portal, but it is too large and unrealistic for Purma Top Gifts.

The target market is the group(s) of individuals in the addressable market that are likely to buy from your Web site, based on the segmentation factors listed above. In other words, who will buy your product or service provided consumer-environment conditions are perfect and there is no competition. This market, or markets, is the focus of this Market Analysis lesson.

Of course not everyone in your target market will buy from you because other factors strongly influence the share of the target market a business can reasonably obtain. For example, perhaps individuals in this market don't have a need for your specific product, your product costs too much, the customers never find your site, they don't have enough information or trust to buy from you, or because they find a better deal from a competitor.

The market share is the individuals in the target market who can be expected to make a purchase from your business. Your market share is affected by the structure of the industry, the impact of competition, strategies for market penetration, and the amount of capital the business is willing to spend in order to increase its market share. Market share is estimated in the demand forecast section of the marketing plan, which is beyond the scope of this lesson.

Identifying Target Markets: With this background and market-definition description in mind, it is time to identify your primary, secondary, and, if necessary, tertiary markets.

The primary market is the group of individuals in the addressable market most likely to buy your product or service. Think of the primary market as your "premium customer" or "who is most likely to find my site and buy something from it" or "who is chiefly interested in what I have to sell". Identifying the primary target market requires you to consider the potential and addressable markets, as well as the value proposition you wrote earlier. Conclude this process by describing this market using the segmentation factors outlined above.

For example, the primary target market for Purma Top Gifts is individuals in middle and upper socioeconomic classes living outside Purma who have visited Purma and retain an ongoing interest in the country. This tends to exclude (a) people who live in Purma, (b) tourists who have with little or no ongoing interest in Purma, and (c) low-income backpackers who have visited Purma. While Purma Top Gifts will gladly sell to anyone in these groups, for various reasons they are unlikely to make a purchase from the Purma Top Gifts Web site in large numbers. Similarly, a primary market such as "anyone who has ever visited Purma" is too broad, unrealistic, and it is difficult to define their information needs and justify promotion strategies that will reach them effectively.

The secondary market is another class of individuals who are "second most" likely to buy your product or service. In other words, look for another distinct group in the addressable market with different segmentation factors from the primary target market. For Purma Top Gifts, this group is Purmaians who are living abroad. These individuals may want to buy something from their home country for themselves or their friends, or they may want to buy a gift to send to a relative or friend living in Purma (e.g., a Mother's Day gift). These individuals will have similar shopping and information needs as the primary market, but different needs as well (e.g., differential shipping rates for in-Purma delivery, gift wrapping).

Occasionally there may be a tertiary market for your e-business (another class of individuals who are "third most" likely to buy your product or service) but the more target markets you identify the more difficult is to distinguish them from the primary and secondary markets. Unless you can think of a compelling, distinctly different, third target market, identify only primary and secondary target markets.

Assignment 9: Identify and briefly describe at least two and no more than three target markets for your e-business. Make sure your markets are scoped correctly -- not too broad and not too narrow. Your description should include as many demographic, geographical, psychographic, and consumer characteristics as possible. Follow the guidance provided by your instructor to submit, present, or save this description of your target markets.

Target Market Research

With 1-3 target markets identified, the next step is to conduct market research to provide some concrete data about them. In this section you are seeking answers to questions such as: What are the specific demographics (age, education, income, etc.) of these markets? How many individuals are in the target market? Do they use the Internet? Do they buy on-line? Are these markets growing? stable? declining?

Where will you find these data? We can't provide a specific answer to that question because it depends on the target markets you have identified and the information sources available to you. However, here are some suggestions:

Business Case Box 5
In conducting research about target markets, the business case writer has a big advantage over the business plan writer. Unless the company is proposing to launch out into an entirely new industry or business area, it is likely that the market knowledge contained in customer databases, existing focus groups, and the marketing department will be available to conduct a complete and accurate market analysis.

Don't be surprised to find a lack of data about the specific target markets you have identified. Sometimes you have to make an estimation to find the data you need (e.g., data about middle- and upper-class Purma tourists with an ongoing interest in Purma may not be available, but data about Purma tourists by socioeconomic class, adjusted for Purma interest, will be an adequate substitute).

A final point: Don't conduct this research in isolation of the other data you are going to need. Later in this tutorial you will have to gather data about competitors to conduct a competitor analysis and financial data that are used in financial projections. So, think and plan ahead to make your research time most efficient.

Assignment 10: Complete your description of your target markets by adding objective, quantitative data to the general description you completed in assignment 9. Based on your market research, you may have to make minor adjustments in your target markets. Follow the guidance provided by your instructor to submit, present, or save this market research data.

Navigation Guide for the e-Business Plan Tutorial
Introduction to the E-Business Plan Tutorial
--Top Ten Resources for Writing an e-Business Plan
Fundamentals of e-Business Planning
Writing a "Read Right" Plan
Executive Summary
Business Description
--Mission Statement
--Business Goals
--Project Objectives
Market Analysis
Competitor Analysis
Financial Statements
Making an Effective Business Plan Presentation
Appendix: e-Business Plan Tutorial Assignments

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