Section Three: Understanding Your Market

Introduction

You will recall that marketing attempts to identify the needs of a particular target group, and then satisfy those needs in the best way possible.

To be successful, your business must be perceived as being unique or better in some way. You will need to be aware of what’s going on in any industries related to your business and what your competitors are up to.

This section will help you zero in on a specific group of customers so that you can develop a customer profile, identify the current status and trends occurring in related industries, and figure out who your competitors are.

Target Audience

If your business is like other companies, you will have to attract new sales with limited resources. You will want to target specific customers, or identify niches, where you feel you will have the greatest success. This is called your target audience.

Selecting your target market is one of the most important strategic decisions an entrepreneur can make. The easiest way to achieve this is to concentrate on carefully selected, well defined market segments or niches.

Market Segments

A business market consists of many common groups of customers, or market segments, each with its own profile and set of needs.

Each segment represents a different opportunity. Effective marketing comes from understanding the make-up of these segments and delivering the appropriate sales message to each one.

Defining Market Segments

Market segments can be defined in a number of ways:

1. Geographical area 

Where are you willing or capable of serving?

2. Business, industry, or sector

Does your product or service apply to a particular business or industry segment such as pharmaceuticals or agriculture?

3. Demographics 

Is your product or service more appropriate for a particular age, income, gender, or ethnic group?

4. Size 

Do you require potential client businesses of a particular size or structure?

5. Product or service need or use

What purpose is your product or service satisfying?  How regularly do you expect your customers to use your product or service?  Will a small percentage of the population be the major users of your product or service?

6. Competition

How much competition exists?  Is there a possibility of penetrating the market?  Is it cost-effective to attack a market in which another firm is dominant?

Changing Markets

Survival requires an understanding of how and why change is occurring.  If you can look at change as an opportunity rather than as a threat, then you can take advantage of it.

Key aspects of change that will affect your marketing strategy include:

  1. Consumer markets
  2. Business markets

Changing Consumer Market 

Many changes are occurring in the consumer market:  

  1. Market Composition
  2. Overall Population Changes
  3. Aging Baby Boom Market
  4. Aging Population in General
  5. Income
  6. Employment
  7. Attitudes

Market Composition

In the coming years, there will be fewer workers entering the work force and fewer consumers to purchase the fruits of their labour.  Slowdown is expected to last well into the next century.

Baby boomers drove the markets in the 60s, 70s and 80s.  They fuelled the housing boom and increased spending on durables such as new appliances and furniture.  Now many of these boomers are middle aged, sophisticated consumers.

Overall Population Change

The general trend in Canada, with one exception, has been towards lower rates of population growth.  Through the 60s, Canada’s population growth averaged 1.7%.  This average dropped to 1.2% in the 1970’s, and to 0.8% over the first half of the 1980’s.  From 1986 to 1991, Canada experienced a “boomlet” with annual population growth of 1.6%.  This was in part the result of the younger boomers delaying childbirth until they had established their careers.  However, the first half of the 90’s once again showed a population growth slowdown averaging 1.1% per annum.  (Source:  Population Dynamics in Canada, 1994)

Baby Boom

The baby boom, which began in Canada in 1947, unleashed a wave of demographic change that gathered force over an entire generation.  An average of 400,000 new Canadians were born each year from 1947 to 1965.  Today there are 9.2 million baby boomers in Canada.  This massive cohort represents nearly one third of Canada’s population making it the largest consumer group in the country.

The last baby boomers turned 25 in 1990.  Age 25 is important because that is when people begin to set up households.  There has been a steady stream of 25 year-olds since the early ‘70s which ignited the house-building and house-price boom of the ‘70s and ‘80s.

The annual growth rate of Canadian households will be much slower than in recent years.  By 2016, households are expected to grow at an average annual rate of only 1.3%, compared with 2.2% from 1986-91 and 1.7% from 1981-86.  The declining growth rate reflects the impact of the A baby bust generation that followed the baby boomers.  As the baby boomers left their parental homes in the 1960s and 1970s, households grew at a vigorous pace.  The rate of growth began to slow in the 1980s as the baby bust generation arrived.  (Source: Statistics Canada)

Baby boomers produced an average of 4 children per family.  This has steadily declined to 1.7 children per family. An estimated 15% of the baby boom women born in the 1940s and early 50s have chosen not to have children.  (Source: Statistics Canada). 

Aging Population

Canadian society is aging rapidly.  The oldest boomers turn 50 in 1996.  There are 3.5 million Canadians 65 years of age and over.  Seniors 65+ represented 12.2% of the population in 1996, up from 11.6% in 1991.  The number of people 65 and over has grown by 128% from 1961-1991. By 2031, one in five Canadians will be 65 and over.  Life experience rather than youthfulness will characterize Canadian age structure as it moves into the 21st century.  (Source: Statistics Canada)

Marketers have become aware of the aging trend and are repositioning products and services like antacids and bifocals to entice consumer spending into the next century (Source:  Globe and Mail).

Canada presently has one of the youngest populations in the Western World.  Canada will have one of the oldest populations within 40 years because both baby boom and baby bust were more pronounced here.

As population aging continues over the next 50 years, businesses of all types should be increasingly attentive to the effects on the demand for new and existing products and services.

Table 3:  Canada’s Seniors

Traditional Stereotype Actual Profile
  • Poor
  • Frugal
  • Frail
  • Resistant to change
  • Limited interests and pleasures
  • Represent 25% of Canadian population (1/3 by 2006)
  • Responsible for 40% of all consumer demand and 51% of all discretionary income
  • Control 80% of Canada’s personal net worth
  • Better educated and healthier than aged in past
  • Shrewd and careful buyers, but will pay for value
  • Demand quality (value for money)
  • Don’t consider themselves old; most say they feel and act as if in their mid-30′s

Income

Incomes are becoming more divergent. The rich are getting richer, the poor are getting poorer. The middle class is disappearing.

Baby boomers are cutting back on conspicuous consumption and thinking more about saving for the future. Responsibilities are mounting for sending children through college or university, supporting elderly parents and preparing for retirement.

Attitudes

Table 4: Major Trends in Consumer Attitudes

Trend Implications
Home is where the heart is…and the office.
  • Homes seen as solace from stresses of the 2000’s
  • More eating, entertaining and shopping at home
  • Growth in home renovations, repairs, gardening, home delivery
  • More home office workers and home based businesses
Time is a rare commodity.
  • Little disposable time
  • Need for catalogues, TV shopping, home delivery and in-home services
Grandma really is younger.
  • Feel and act younger
  • Healthier, extended life
  • Cosmetic surgery becoming commonplace, anti-wrinkle creams/ anti-aging creams 
Well, well, wellness
  • Fitness more important
  • Retiring younger and enjoying active life in sports, travel, good eating
Quality is Job One
  • Want lifetime value in product
  • Will pay for quality
  • Demand for real, intrinsic value
  • Much harder to undercut with low-price tactics
At Your Service
  • Will pay others to do tasks they can’t or won’t do themselves
  • Expect to be served and served well
Personal Pampering
  • For large baby boom population, spending habits shifting from needs to wants
  • Major durables have already been purchased, so money is freed up for discretionary spending, travelling.
Tradition
  • Return to family values, sacred traditions
  • Success being redefined in terms of personal satisfaction
Distinctively yours…
  • Increased emphasis on individuality and distinctiveness
  • Want to stand out in a crowd

Changing Business Market

There are two basic types of markets – emerging and mature. Most businesses have become mature markets.

Table 5 compares these two types of markets.

Table 6 outlines some business trends.

Table 5: Basic Market Types

Characteristic Mature Market Emerging Market
Customers
  • Few, if any, new customers entering market for first time
  • Well established buying patterns and preferred suppliers
  • More promotional dollars per new customer
  • New customers constantly joining marketplace
Competition
  • More competitors every day
  • Individual suppliers offer as any services as possible
  • High service and quality demands
  • Warranties, delivery, free add-ons and overall image of supplier very important
  • Limited number of competitors
Pricing
  • Heavy price competition
  • Higher prices can be charged more easily
Technical Support
  • Less important
  • Important

Table 6: Major Business Trends

Trend Implications

Constant and rapid change

  • Products must be flexible enough to be adapted to meet customers’ individual requirements.
  • Businesses are specializing in what they do best and contracting out other services

Increased growth in World Trade/ Globalization of Marketplace

  • Large companies are downsizing, restructuring and consolidating due to global competition.
  • Small business must be innovative to make the most of limited resources.
  • Canadian companies must compete in a global market
  • Fast, reliable transportation systems are critical for business success.
Environmental Regulation, Health and Safety
  • There is a need to comply with increasing environmental health and safety regulations.
Information Revolution
  • Information technology is rapidly developing and impacting global markets, job structuring and in particular, fast and easy access to information and systems of communication.
  • For many businesses, a sophisticated database of customers and prospects has become as important as the right location.
Customer Expectations for Quality
  • Consumers are demanding quality service and products and will shop around (even globally) to achieve it.  The persuasiveness of television and availability of foreign products influence consumers expectations.
Continued High Unemployment
  • Unemployment is expected to remain high throughout the decade and into the new millennium
Need for Education and Training
  • Lack of skilled labour places strains on the labour pool and on education systems.
  • Attracting and keeping the best and the brightest employees will be a tremendous challenge.
Outsourcing and Subcontracting
  • Many large organizations have given up on vertical integration, and they are farming out everything from parts production to janitorial services.
  • Health care organizations are delivering fewer services in the hospital and more services in freestanding clinics, storefront offices and even in patients’ homes.
  • Increased opportunities for small businesses to perform services for larger companies.

Click on Worksheet 2.3 to identify trends and other factors affecting your business.

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