Who is Your Customer?
In order to tailor your marketing and advertising strategies to
appeal to the tastes and interests of your market, you must first
identify your customer. In order to do this, you it is necessary to
conduct thorough research of the consumer marketplace. Keep in mind,
the more information you have about your target market, the better
able you will be to develop a successful marketing plan.
A market profile typically uses primary and secondary
sources to answer key questions about a potential market. A profile
is a picture or an outline. Information that makes up the social
profiles of the people in your target market is called demographic
information, and includes:
- age, usually given in a range (20-35 years)
- sex
- marriage/partner status
- location of household
- family size and description
- income, especially disposable income (money available to
spend)
- education level, usually to last level completed
- occupation
- interests, purchasing profile (what are consumers known to
want?)
- cultural, ethnic, racial background
A clothing manufacturer may consider a number of possible target
markets--toddlers, athletes, grandparents (for grandchildren),
teenagers, and tourists. A general profile of each of these possible
markets will reveal which ones are more realistic, pose less risk,
and which are more likely to show a profit. A test market survey of
the most likely market groups, or those who buy for them, such as
parents for babies and toddlers, can help you separate real target
markets from unlikely possibilities.
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The Right Product
What are your customer's needs? What do they expect to get when
they buy your product or use your service? The right product is the
one that best fits their requirements.
People who eat in restaurants want more than a good meal. They
might expect quick service, a reasonable price, a vegetarian menu, a
children's menu, entertainment, a drive through window, or to be
identified with a trendy crowd. It becomes a difficult and probably
an unprofitable venture trying to satisfy everyone's needs.
If you have identified your customer and listed their
expectations, you can design your product or service around their
requirements.
The more you fulfil your customer's expectations, the better the
quality of your product. Think of your product or service as more
than just what the customers pays for. When you are planning your
business consider how the whole transaction meets the customer's
needs.
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Positioning your Business
Positioning refers to the image customers have of your business.
The goal is to create a business image that enables you to position
your business in such a way that, in essence, it acts as a natural
magnet for your intended customers. A number of factors that
customers often look for include:
- price (i.e. cheapest price, fair price, price for quality,
etc.)
- assortment
- parking
- service
- sales personnel
- quality
- fashion
- convenience
- location
- atmosphere
Your overall position should emphasize those areas that your
customers value most, and those which make you different from your
competition.
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Pricing Techniques
The importance of pricing can not be underestimated as incorrect
pricing can often result in the failure of a business. New
businesses often make the mistake of either charging too little or
too much for their product or service. So to help you avoid making
one of these mistakes, the following section will outline some of
the guiding principles of price determination.
Price is a key part of marketing. Setting prices is called
pricing.
Setting Prices
Prices for products and services can be set by pricing to the
market, pricing to your costs, and rule of thumb pricing. New
business people with little experience may set an initial price
based on the market, and then as experience grows, re-set prices
according to costs. These two aspects of price--what is acceptable
to the market, and what costs are--must both be considered. In
addition, effective pricing depends on the business goals of your
company: do you want to maximize profits or are you aiming for high
growth in sales? The choices that a business ultimately makes about
its markets and sales make a big difference in pricing.
For example, a business may make an early choice about where to
position themselves in the market--the "good value," low end of the
market, or the "quality conscious," upscale market. In pricing, as
in everything else in business, the customer is the reference point.
Pricing to the Market
Compare prices with your competitors for similar products and
services. Set the price range that customers will expect. You can
use that market price range--what is acceptable to the market--as a
guide to set your prices. Businesses or people to whom you sell may
also price to the market by telling you what they will pay for your
product or service. As you keep records of actual costs, the cost
approach to pricing will help you make sure all your costs are
covered, which may not be true in a market approach to pricing.
NOTE: Be careful about underpricing in order to compete or
make sales. Use competitor's prices to establish the price range for
similar products or services but don't underprice; if your true
costs are higher, your final prices will have to be higher.
Cost Approach to Pricing
Price must cover all costs of goods/services sold, including
production costs of supplies, materials, fixed overhead, and
time/labor, plus a profit. Costs should include costs of production,
labor and non-labor, including overhead or fixed costs as well as
supplies and materials.
Use this simple formula in setting a price (per unit):
Total Costs of Production Per Unit + Desired Dollar Profit Per
Unit
Businesses can set different profit rates, for example 15% profit
on supplies and materials, 20% profit on labor/time, and 25% profit
on overhead. These more complicated approaches to pricing usually
emerge in response to the special needs of a particular business.
If your research reveals that similar products or services are
available on the market at a cost much lower than what you could
offer, you may have to either adjust your profit margin, the return
you expect, or decide to provide enough specialized service or
selection that the market will pay the extra. Alternatively, you may
be forced to conclude that you cannot afford to make this item or
provide this service and look for something else to do.
NOTE: Remember to cost materials at the level it costs to
replace them - NOT at original prices; include salaries as a
business expense; include interest in your business cost
calculations -- interest that could have been accrued had the money
used in the company been invested elsewhere (i.e. a bank); make
allowances for future refunds, servicing, bad debts, amortization of
capital costs of equipment or machinery.
"Rules of Thumb" in Setting Prices
Some types of businesses charge prices according to certain
"rules of thumb": For example:
- price is always twice labor plus materials, or twice materials
plus
- labor depending on which is higher; price is always materials
and labor plus 20% for fixed costs, plus 25% for profits.
Calculating actual costs is the only proven way to make sure your
prices cover your costs. Labor/time charges are to be covered partly
in the costs of production and partly as a salary in the
fixed/operating or overhead costs. In summary, key points to
consider in setting prices are:
- marketing strategy and your immediate goals
- competitors' prices, and the market
- market demand for the product and consumer buying trends
- need to cover costs and provide an adequate profit.
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Setting the Right Price
Profit Pricing for the Costing of a
Service
Profit Pricing for a Manufacturer
Small Bizz Workshop
Marketing Basics
Marketing Primer
Researching Your Market
Sales Forecasting
Business Promotion Idea List
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