There are many aspects of markets that need to be covered. The ideas in this article are not exhaustive but should get you thinking. You are trying to explain the essential aspects of your markets to the readers so that it forms a background to your proposition, and they will believe that you will meet your forecasts.
Only you can decide what is essential and should be included.
Briefly outline the market you compete in or propose to compete in is. Define it and explain it. The essence is, why do or will people buy your goods or services? What essential benefits does it give them?
For example, a food product provides sustenance; people have to eat. It gives a pleasurable taste. Your particular product may also be easy to prepare and therefore offer convenience. It may provide a self-image to the buyer: young, incredible, sexy, etc. All these are benefits to be listed in the business plan. An industrial product, a service, anything that is sold must also have benefits that make the customer want to buy it.
Who are your customers? Describe them. It is material if you sell to an older age group growing or a younger one that is shrinking. What are the problems of expanding a business in a shrinking market?
How big is the market? Unless the answer is obvious, you will need to provide some indication of size so that the reader will understand what demand share you anticipate. This is also a soundcheck for you — are you forecasting an unbelievable growth in market share?
Market structure is material for assessing the attractions of your proposal. Explain it.
For example, retail bookselling in the UK has been a fragmented industry with many independent bookshops who generally trade from small premises of less than 100 sq m, a couple of large newsagents’ chains controlling 15 to 20 percent of the market, mainly focused on a limited range of bestsellers, and chains of specialist bookshops that have developed in the past 20 years.
On the other hand, the supermarket business has only a handful of considerable competitors in most countries. Size confers economies of scale, so you will need to explain how you can replicate or sidestep these cost advantages as a new entrant in such a market.
Is the market international? Perhaps you have an engineering consultancy firm where you compete globally in many languages and many markets. How will you do this successfully? You may need to explore individual national markets.
Maybe your customers are international: you are a legal practice based in one country but servicing multinational clients. How will you provide them with a global service? Perhaps by merging, forming alliances, or simply being so expert in your specialty that they have no choice but to use you in one country?
It is amazing how many plans seem to describe businesses without competitors. Even if there are some acknowledged competitors, they are usually blighted by having inferior products. At the risk of sounding pompous — just because a competitor has a low outcome, that does not mean that you will beat them in the struggle in the marketplace. Many people felt that Sony’s Betamax video recording system was technically superior to the VHS system that triumphed. The European Union will license one system of high definition TV. That may be the one that is technically the best, but it may also be produced by a European rather than a Japanese or American company.
These competitors are people who are intent on driving you out of business. They are important. What are you going to do to get the upper hand against them? What will they do to strike at you?
Look at both existing competitors and new entrants:
Describe what you can about their size, strengths, weaknesses, and means of operation, putting all this in the context of what you will do to defeat them.
New entrants to the market can be the dangerous ones. You feel you are tougher than the existing competitors, but what about the massive company from another country or another industry? This aspect can be essential in two types of drive:
#mature industries often only provide opportunities for growth in other countries that may be less well developed or have smaller competitors;
#industries that exhibit significant technological change may stimulate new competitors.
That affected the UK bookselling industry in the 1990s; foreign companies US companies began to look at the UK. One large corporation took over and expanded a local — building a solid market presence very quickly, and business internet bookselling began to make serious inroads technology in this period.
Issues such as distribution, pricing, packaging, and promotion and how strong competitors are the determinants of success. It is essential to set out these issues, possibly briefly, in a business plan. A potential backer’s confidence is boosted by ‘the perception that you know your competitors and customers.
The customer is the second ingredient missing from many business strategies. Who are yours? If you know that your retail car parts business serves primarily socio-economic group Cl/C2 males aged between 18 and 30, then do say so. You build confidence that you know what you are doing, disarm potential questions, and it allows you to say that your market is stable, growing, has high disposable income, etc. Your market may be primarily supermarket buyers and only secondary to the end-users. It would help if you got on to the shelves before worrying about competing for the consumers’ money. Talk about your primary market — the buyers — but don’t ignore the end-users. If they don’t buy from the shelves, then the supermarket buyers will not reorder. How quickly do your customers pay?
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