Step 2: Size up the market and your competition
You’ve already decided what products you’re going to sell and how much you can sell them for. The next step is to conduct market research and get insights into your industry, target audience, and competition. In other words, you have to see what’s out there. This will help you identify opportunities and risks and will let you see if your business idea is actually viable.
1. Market data
In this step, you’ll determine if there is a place in the market for the type of store you want to set up. Questions like “How big is the market?”, “How fast is it growing or shrinking?” and “What percentage of the market could you gain?” are just some of the matters you should address.
To answer these questions, you can turn to the following information sources:
a. Trade journals or magazines
Every industry has its own publications. Head to your local library or Google “[product/industry] trade publications” to get started.
b. Research firms / organizations
Check out studies conducted by research organizations such as Nielsen, Gartner, or the International Society for Business and Industrial Statistics.
Visit your government’s Census office or website to get access to the latest data and reports. Also check out your city’s website or office and find out if they have any numbers pertaining to the population and local businesses.
d. Research hubs
You can gain access to industry data and statistics through websites like the NRF Foundations’ Retail Insight Center, Think with Google, and more.
Note: Be sure to pull data from multiple sources to determine the validity and accuracy of the numbers.
High level market data (i.e. info from research hubs, organizations, and trade publications) should tell you what the state of your market is in general, while the Census office and local government should give you an idea of the state of the market in your specific area. Together, you can use the data to determine if it makes sense for you to enter the market.
2. Target audience
If you completed your product research, you should have at least a general idea of who your customers will be. The next step is turning those general notions about your audience into something more concrete and specific.
Effectively starting a business requires that you get to know your customers at deeper level.
- Who are they, really?
- What are they like?
- Do they have a strong need/desire for the products you’re planning to sell?
- How much are they willing to pay?
- What product features or store services are important to them?
Knowing the answers to such questions will allow you to affirm your business idea and will help you fine tune the concept, if necessary. It’ll also help you figure out the best way to market and sell your products.
For example, if your audience research tells you that the people most likely to buy your products are affluent, middle-aged women with kids, you can use that information to make decisions on your store’s location, design, and merchandise.
How can you figure out what makes your customers tick? Start with these two important tasks:
a. Collect demographic information
This includes your customers’ age, race, sex, income level, education level, and more. A lot of this data is publicly available through your country’s Census office or your local government.
b. Collect psychographic information
Your customers’ psychographic information pertains to their personality, beliefs, values, lifestyle, and more. You can obtain these through surveys, interviews, and focus groups.
c. Determine how much they need or want your product
Talk to your potential/target customers to find out what they think and how they feel about your products or the type of store you wish to establish. Ask them questions pertaining to the last time they bought your products, where they bought them, and how much they paid.
After gathering the data above you should:
- a. Be able to further validate your business idea
- b. Have enough information to help you scout for locations and figure out a marketing plan
If your market is large enough (and it should be, if you’re starting a business), there should already be a fair amount of players that are doing something similar. Your job at this stage is to search for those businesses and find out what they’re about. This will enable you to identify their strengths and shortcomings so you can create a plan on how you’re going to differentiate your store.
Finding your competitors
Based on the research steps you took above, you should be able to name some of the businsess that you’ll be up against. In addition to that though, be sure to check out the following resources:
If you’re in the US, this nifty tool by the Small Business Administration can help you generate a solid list of competitors. Just enter the type of store you want to start and the city/state where you’ll operate, then SizeUp will map out competing businesses. The tool also lets you compare your business to others based on revenue, year started, salaries, and more.
Simply query in the type of store and your location/zip code to generate a list of competitors in your area.
c. Review sites and business directories
Yelp, Foursquare, and online yellow pages can help you generate competitor lists.
d. Chamber of Commerce
Head to your Chamber of Commerce and grab a list of local businesses in the same market.
e. Target customers
Ask your target customers where they shop.
Scouting the competition
Once you have a list of your competitors, pay them a visit to get some intel on how they operate.
Chirpy’s Harriet said that she did research on her competitors by visiting them personally and taking notes.
“I developed my own form and I went down to other shops and took notice of how they displayed things, what their ticket prices were, what kind of bags they used, what the lighting was like, etc,” she shared. “It was just a matter of filling in my form to see what other people did, what worked and what didn’t work.”
Follow Harriet’s lead and do the same thing when scouting your competitors. Be sure to keep an eye out for:
a. The merchandise
Take note of the products they’re selling (i.e. brands, quality, price, range of choices etc.)
b. The staff
How many associates do they have? How knowledgeable is the staff? Also pay attention to the level of service that they provide (i.e. do they provide guidance or do they operate using a “self-service” model?)
c. Look and feel of the store
Pay attention to the design, layout, and overall feel of the stores. Are they easy to navigate? Can customers find the items they need quickly? How advanced are they in terms of equipment?
d. Marketing and advertising efforts
Find out how they market their stores. Where do they advertise? How do they draw people in? What offers or gimmicks do they have? Are there any channels or opportunities that they AREN’T utilizing?
Determining your differentiating factors
Based on the info above, you should be able to figure out the strengths and weaknesses of your competitors.
What are the things they do well and what can you offer that’s different or better? Where do they fall short, and how can you ensure that your business doesn’t make the same mistakes?
Most important, what is it that only your business can provide? For example, if you and your competitors sell similar products, perhaps you can make yourself distinct through personalized customer service. Or, you can make your store stand out through innovative efforts such as getting a modern POS system, accepting mobile payments or offering online-to-offline services.
Conducting a SWOT analysis
You can also use the info above to conduct a SWOT (strengths, weaknesses, opportunities, threats) analysis on your business. A simple but powerful exercise, performing a SWOT analysis can raise your awareness when it comes to the internal and external factors affecting your company. What are the things you have going for you? What factors can negatively affect your business? These are just some of the questions that a SWOT analysis can answer.
Start by listing your company’s strengths. These could include assets like a strong team, industry connections, etc.
Your weaknesses on the other hand, are your company’s vulnerabilities. Having a limited budget or being new to the market are examples of weaknesses.
Then we have opportunities. These pertain to favorable circumstances or factors that you can capitalize on. A gap in the market (i.e. an offer or service that no other business is providing) is a good example of an opportunity. Also note that your competitors’ weaknesses can serve as opportunities for your business.
Finally, identify threats to your business. Threats are external factors that can negatively impact your company. Examples could include your competitors, political unrest, shifting shopping habits, and more.
Once you have your strengths, weaknesses, opportunities, and threats on paper, analyze them and determine a course of action for each one. Figure out how you can capitalize on your strengths and opportunities, and find ways to avoid or counter your weaknesses and threats.
Time required: 1 - 2 weeks
Materials: Your favorite note-taking device (smartphone, pen & paper, etc.), mode of transport, phone, calculator, computer.
- Gather market data from trade publications, government websites, research firms, and other sources so you can answer the following questions:
- How big is your market?
- How fast is it growing or shrinking?
- What percentage of that market could you gain?
- Get to know who your target customers really are by obtaining their demographic information from your local government or Census office.
- To know them at a deeper level, obtain psychographic information by conducting surveys, interviews, and focus groups.
- Generate a list of your competitors by tapping into these tools/resources:
- SizeUp by SBA.gov
- review sites
- your local chamber of commerce
- your potential customers
- Go through that list and pay your competitors a visit to see how they operate. Take note of:
- their merchandise
- the staff
- the look and feel of their stores
- their marketing and advertising efforts