Resources for Young Entrepreneurs
Market research case study
Paul Jones researched his market by considering the ‘3 C’s’.
His results were as follows:
He used the questionnaire (as in Part III) to record the answers from the 150 people that he spoke to. These were people that he had managed to talk to outside Holborn tube station on 5 different days of the week (Monday to Friday) at varying times of the day. He noted also that the majority of people he encountered were office workers who were out between the hours of 12.15pm and 2.30pm.
Provisionally, he decided, because of his initial experiences, his business would initially be a sandwich delivery service. His questionnaire was designed to prove whether this course of action would be profitable.
In response 118 of the people questioned worked regularly in the area, of which 55 were in and around Holborn and 45 in the West End (towards Oxford Circus) and the remaining 18 worked within the boundaries of the City of London.
In response to questions concerning normal purchasing patterns 102 people usually ate sandwiches for lunch, 5 ate a hot meal and 1 had soup on its own. 120 said they normally buy a fizzy drink and 105 buy a cake or sweet.
Of these, 97 currently bought their lunch from a sandwich shop, 20 used a delivery service and 33 used a variety of different outlets. When questioned these 33 mentioned the local pubs, Pizza restaurants, Boots and other large chains and local cafes as being the most often frequented.
135 respondents expected to pay between £2.01 and £3.50, only 3 expected to pay £1.00 to £2.00 and 12 paid over £3.51.
Favourite fillings were as follows:
Tuna and Sweetcorn
Coronation ChickenBrie and Salad
Egg Mayonnaise
Cream Cheese and Chives
Ham and Mustard
Salmon
Other suggestions included take-away salads, baguettes, unusual fillings such as roast vegetables, a choice of bread (such as pitta etc.), hot take-away service (baked potatoes etc.)
98 respondents said that their place of work allowed deliveries although several respondents worked at the same office. However, 88 of them said they would be interested to use a new delivery service of whom 41 said they would use it over three times a week, 14 would use it twice per week and the remainder only once per week.
Having completed the questionnaire with respondents, Paul asked them it there was anything else they wished to add (including a name and office address for further information). His results were as follows:
It would be nice to have breakfast and lunchtime deliveries.
Could he deliver special vegetarian and other menus?
Would he consider lunchtime catering, and if so, how much would he charge?
He now turned to his completion:
Most of his potential customers had said they currently use a sandwich shop. After spending a day walking around the area within a two-mile radius, he found the following shops were trading:
Pret a Manger x 2 (Most popular choice)
Independent sandwich bars x 32
Boots x 3
Marks and Spencers x 2 (second choice)
Independent supermarkets stocking sandwiches x 6
There were also 2 sandwich delivery services that were operating in the City of London.
On average, each shop was charging between £1.45 and £2.85 per sandwich depending on fillings.
Pret a Manger and M&S were aiming for ‘quality’ end of the market and therefore charged slightly more than the average (over £3.95 for a sandwich and a drink). They also changed their ranges regularly and stocked unusual fillings and ran promotions and had endorsements by food and wine experts. These attracted mainly women at lunchtime. The independent sandwich bars had a good trade between 7.00am and 10.00am and 11.45am and 2.30pm. All were located within easy walking distance of the tube stations, bus stops and other amenities. 90% made sandwiches on the premises. Other outlets such as M&S and Boots sold pre-packaged items. All stocked a good range of drinks and sweets.
Other places that his potential customers bought their lunch such as pubs and Pizza restaurants etc. were charging over £3.50 for a main course and these attracted mainly men. Office meeting and lunchtime catering was usually provided by the local sandwich bars.
Paul’s background research had revealed the sandwich bar and lunchtime catering business was a growing market. It had grown 25% in the last 5 years and predictions were this was set to continue. However, research also indicated there were now several major players in the market such as Pret a Manger and Marks and Spencers who had achieved a 40% market share in the last year. The independent sandwich bar was finding it difficult to survive in this market and needed to diversify.
From his earlier experiences he had costed to rent premises of the size he needed would cost about £3,000 per quarter and his overheads would be £250 per month (including telephone and business tax).
Stock would cost approximately £150 per month. This included bread, fillings packaging, drinks and sweets. However, overheads at home would cost £75 per month after an initial investment of £2,000 to meet environmental health requirements.
He had decided to deliver by bicycle. This would require and initial investment of £150 for the bike and £50 for the trailer.
Task:
Compile a marketing strategy for Paul Jones
What should he sell? How should he promote himself? Where he should he be based? How much should he charge?
Rules for Questionnaires
- Identify your target audience
- Test your questionnaire
- Avoid jargon, and keep it simple
- Be precise and keep it short
- Use direct questions, avoiding indirect questions which ask for opinions
- Do not use double barrelled questions
- Avoid leading questions, emotive words and anything which may suggest loss of status
- Keep it logical with easy and interesting questions first, and always introducing both yourself and the subject before you start
- Be aware that your manner and tone of voice may alter the answers you get and your respondent will try and impress you
- Don’t ask questions which either overtax the memory (1-2 weeks!!) or those that your respondent is unlikely to be able to answer
- Keep confidential and financial questions at the end
- Always use a control
How to present your market
Description and outlook
- Description of industry
- Current size and projected growth
- Major business applications
- Major customers and users
Segmentation
- What target market segments are to be penetrated?
- Location (regional, national, international?)
- What are their current sizes and projected growth rates?
Characteristics (of each target segment)
- Critical product characteristics (performance, reliability, durability, availability, price, service, other)
- Customer buying patterns:
- Position of key decision-makers
- Typical order sizes
- Other factors (e.g. approved suppliers lists, single-sourcing, competitive tender policies, etc)
- Special characteristics, seasonal, cyclical, other
This section is designed to familiarise the reader with the nature and potential of the general market areas in which the company is operating. It should be brief, in the case of generally new products, market research (possibly detailed in an appendix) may be required to give meaning to size and nature of the expected initial and future market.
One of the biggest traps which entrepreneurs can fall into is the failure to define precisely enough the market segments they can reasonably hope to penetrate. The more common errors include:
- The use of the statistics of the market size which in reality relate to a wider market than the target.
- The assumptions that all market segments contain a standard mix of large, medium and small companies. For example, if acceptable margins can only be earned through sales to smaller-than-average customers and 80% of current industry sales are purchased by five major corporations, the company’s target customer base will represent less than 20% of the market.
- The failure to identify any significant unusual market characteristics. In the above examples, failure to recognise any obstacles to the penetration of these large corporations could cripple the company’s marketing strategy, if its target were the total market.
Such errors can easily result in over-optimistic sales targets that can rapidly lead to financial difficulties. This is particularly applicable where such targets are used to justify the creation of a fixed overhead structure that is not sufficiently flexible to cope with the failure to achieve budgeted sales.
