PART 1: THE DEVELOPMENT OF THE BUSINESS PLAN V.
V. The Market, Market Justification based on the Industry Dynamics and the Macro
 Planning the Enterprise
 Opportunity Seeking, Screening and Seizing
 Getting to know the Market
 Let the Market Know You Better
 The Right Product for the Right Market
CHAPTER 1: WHAT IS A BUSINESS PLAN FOR?
 Entrepreneurs who plan to enter any business endeavor must have a business plan
on hand to guide them throughout the process.
 There are business plans written prior to setting up an enterprise, which are similar
to a prefeasibility study and a feasibility study. Many new enterprises need to
convince prospective business investors about the soundness and potential of their
business. They need to convey the capabilities and competencies of their owners and
managers. They must also be able to 'sell' the proponent and the business
proposition to this audience. These are situations when a good business plan is
needed.
1. There are business plans that are written during the first few years of the
enterprise in order to guide the entrepreneur on which strategies would be
most beneficial for the enterprise to take.
2. There are business plans that are focused on bringing the enterprise to a
higher level of growth, a period where the enterprise has already reached its
peak and would want to enter into another endeavor by recreating and re-
establishing itself.
 A business plan serves many masters:
1. It serves the entrepreneur who must set a navigational course.
2. It serves investors and cautious financiers.
3. It serves the managers and staff of the organization so that they will know
the strategies and programs of the enterprise.
 The business plan must have a specific audience in mind and what important
questions do this audience want answered. In order to aid the entrepreneur in
getting his or her business plan organized, the following format may be a good start:
I. Introduction
A. The Business Concept and the Business Model
B. The Business Goals: Vision, Mission, Objectives, and Performance Targets
C. The Business Offering and Justification
II. Executive Summary
III. The Business Proponents: Organizers with their Capabilities and Contributions
IV. The Target Customers and the Main Value Proposition to the Customer
Environmental Factors Affecting the Opportunities and Threats in the Market, the
Size, Potential and Realistic Share of the Market
VI. The Product and Service Offerings
VII. The Enterprise Strategy and Enterprise Delivery Systems: Business Competitiveness
VIII. The Financial Forecasts and Expected Returns, Risks, and Contingencies
IX. Environmental and Regulatory Compliance
X. The Capital Structure and Financial Offering: Returns and Benefits to Investors,
Financiers, and Business Partners
CONTENTS OF THE BUSINESS PLAN
The Business Concept and the Business Model
 A business concept contains the essence of the enterprise in a concise but powerful
manner. It stresses the value of the product offering to the target customers who
would most likely buy it.
 The product concept must then be translated into a business model. A business
model is a formula on how the enterprise exactly plans to make money out of the
business. There are four areas of moneymaking which the business model must
address:
1. How will the business raise revenues? What critical factors will cause the
revenues to materialize?
2. What will be the costs of the enterprise products and other costs of doing
business? How will these costs be managed to ensure comfortable profits?
What critical factors will drive the costs? How can these factors be
controlled?
3. What will be the major investments of the enterprise? Why will these
investments give the enterprise a competitive edge?
4. How will the enterprise finance the investments? How will the enterprise
fund its growth?
The Business Goals: Vision, Mission, Objectives, and Performance Targets
 The business goals show the future and long-term prospects of the enterprise. It is
composed of the vision, mission, objectives, key result areas, and performance
indicators of the enterprise.
 The Business Goals are communicated by articulating the basic purpose of setting up
the enterprise in a mission statement.
 Example: The vision of Double Happiness is "to establish a commanding presence and
market leadership as a food chain servicing major bus terminals in Central Luzon
within the next five years." Its mission statement is "to provide quality food and
 passenger convenience services that would generate sufficient profits for the
stockholders and improve the lives of its employees."
 Objectives – Measurable end results
 Objectives must be more specific than the vision and mission statements. They
should be measurable, achievable, and time-bound.
 Example: For Double Happiness, their stated objectives are:
1. Is to establish a strong market presence in Central Luzon;
2. To earn good financial returns for its owners;
3. To delight customers with high quality food and services; and
4. To make Double Happiness a happy and rewarding place to work in.
 The objectives should then be translated into key result areas or KRAs.
 KRAs are the qualitative manifestations that the objectives are being achieved.
 Performance indicators - quantified performance measurements
 These performance indicators or PIs serve as the aspirational scorecard of the
enterprise managers and the motivational results of the investors. However, the PIs
must actually be credible to the business audience in mind.
THE EXECUTIVE SUMMARY
 The executive summary contains everything that is relevant and important to the
business audience. It is a synthesis of the entire plan.
 It must contain the major argumentations of the business proponent on why the
business will work and succeed.
 It should provide the business plan audience all the arguments on why they should
participate in the business venture.
 The executive summary should then introduce and highlight the good qualities of:
1. the business proponents and their partners;
2. the enterprise organization and its capabilities;
3. the technology providers and their expertise and experience; and
4. the suppliers and all the major service providers.
 It should likewise describe the products/services of the enterprise, their features and
attributes, and why they are the right ones to deliver to the customers.
 The Executive Summary should then proceed to discuss and justify the Enterprise
Strategy and Enterprise Delivery System.
 The Enterprise Strategy builds and develops the game plan for attaining
competitiveness.
 The Enterprise Delivery System is the entire process of converting input (resources)
into output and these outputs into outcomes.
 It should then render all the major institutional, market, operations, and
organizational strategies previously cited into financial strategies and forecasts.
 Investment requirements should be presented along with the summaries of the
projected income statements, balance sheets, cash flows, and funds flow, and their
analyses and conclusions. Yields and returns, along with risks and contingency
measures, should round up this section.
 The Executive Summary should also contain a section on the environmental and
regulatory compliance of the proposed business, as well as the more proactive
programs to become a more responsible corporate citizen.
 Finally, the Executive Summary should present the capital structure of the proposed
business and show how this structure will respond to the investment programs and
financial forecasts of the enterprise.
 However, the Executive Summary can only be written last in order to capture the
findings and insights of the other parts, but for presentation purposes, it is placed in
the first part of the business plan.
THE BUSINESS PROPONENTS
 The third section of the business plan contains information about the business
proponents or stakeholders. There are four types of stakeholders:
1. Resource mobilizers and financial backers
2. Technology providers and applicators
3. Governance and top management
4. Operating and support team
 If the business plan readers are the resource providers, then they will want to know
who else are on board to share the burden of raising money to see the whole thing
through.
 If the business plan readers are the technology providers, they will want to know if
there will be sufficient funds to pay for the technology.
 If the business plan readers are the governance and top management team, then
they will want to know what strategies and performance indicators are being
proposed.
 If the business plan readers are the implementing, operating, and support teams,
they will want to know what programs, activities, tasks, and resources would be in
place.
THE TARGET CUSTOMERS AND THE MAIN VALUE PROPOSITION
 Fourth section of the business plan
 The business proponent must be very precise about the target audience or target
customers.
 Target Customers must be of sufficient size, sufficient paying capacity, and have
sufficient interest to purchase the products being offered by the enterprise.
  The Main Value Proposition is the unique selling proposition of the enterprise.
 Knowing where the target customers are exactly concentrated, the business plan
should then pinpoint what the customers buy, how they buy, when they buy, where
they buy, and what convinces them to buy.
 This information should then be used to justify the exact locations and marketing
channels to be employed by the enterprise.
MARKET DEMAND AND SUPPLY, INDUSTRY DYNAMICS, AND MACRO ENVIRONMENTAL
FACTORS
 IThe business plan should estimate the total market supply and demand for the
product offerings of the enterprise. The business plan should then determine the
major critical factors that influence this market demand and supply.
 Once these critical factors or variables are determined, the business plan should then
forecast the future demand and supply. If these physical factors are expected to
remain the same, then most likely, the future forecast will follow the past trends. If
not, the future estimate of demand and supply should be revised according to the
new variables influencing the demand and supply.
 The market analysis and forecasting exercise should lead to a quantification of the
current and prospective size of the market. Both the current and potential
consumptions should then be dissected.
 The business plan should discuss the relevant industry dynamics:
1. Who are the competing enterprises in the industry and what are their
comparative advantages and disadvantages? What business models and
strategies are they employing?
2. Who are the suppliers in the industry and what are their capabilities and
bargaining power?
3. What are the channels of distribution being used by the industry? How
effective are these channels?
 Both the industry players and the market are affected by the macro environment,
which includes the social, political, economic, ecological, and technological (SPEET)
forces. The business plan should discuss the major trends and changing patterns in
the macro-environment, which would have significant impacts on the relevant
industry and the behavior of consumers.
 Social environment includes the demographics and cultural dimensions that
govern the relevant entrepreneurial behavior. The structure, social status,
and dynamics of the population at large, as well as the people's beliefs,
tastes, mores, customs, and traditions dictate the major parameters of
market behavior.
 Political environment defines the governance system of the country or the
local area of business. It includes all the laws, rules, and regulations on
allowable and disallowable business practices.
 Economic environment is mainly driven by supply and demand forces. It is
the same factor that drives the interest and foreign exchange rates to
fluctuate with the movement of the market forces.
 Ecological environment includes all natural resources and the ecosystem
that defines the habitat of man, animals, plants, and minerals.
 Technological environment makes or breaks competing participants in any
industry. New scientific and technological discoveries often lead to the
launch and commercialization of new products with superior attributes or to
rendering the old ones obsolete.
PRODUCT/SERVICE OFFERING: DESCRIPTION, EVOLUTION, AND JUSTIFICATION
 Should contain a description, evolution, and justification of the product/service
offerings.
 The products/services must be described by highlighting the features and attributes
that would most appeal to the target customers. The business plan should also prove
that the products/services would be accepted and carried by the distribution
channels.
ENTERPRISE STRATEGY AND ENTERPRISE DELIVERY SYSTEM
 The business plan should expound on the Enterprise Strategy (ES) by mapping the
competitive landscape and by situating the enterprise and its competitors as to their
strategies and chosen positionings
 The business plan should then show how the Enterprise Delivery System (EDS) would
enable the business to implement the Enterprise Strategy.
 Enterprise Delivery System:
1. Starts from Input – resources mobilized
2. Proceeds to Throughput – the transformation process where input are
converted to output
3. Produces the Output - the products/services
4. The Output are then marketed to the customers (in the case of goods) or
experienced by the customers (in the case of services).
5. Desired Outcomes - customer satisfaction level, profits generated, and the
performance of people from the transaction are the Outcomes of the EDS.

 The EDS involves the harnessing of human, money, and physical resources from well-
selected sources.
 These resources become the input (money, men, machines, materials, methods, and
management) which the Operations unit within the EDS (i.e., the manufacturing or
service delivery personnel) will convert or transform into output.
 The output will then be delivered to the customers through the Marketing unit of the
EDS. The products/services of the enterprise are positioned to meet the
requirements of the selected market segment by choosing the right packaging,
pricing, promotions, people for selling and distribution, and places or locations where
the targeted customers can best be found.
 The Operations and Marketing units are supported by the Finance, Administration,
and Human Resource Management units, which oversee the flow of money, the
procurement and maintenance of machinery and materials, and ensure the proper
deployment and development of people.
 The EDS serves as the enabler of the Enterprise Strategy. The business plan must
demonstrate how the EDS and the ES tandem lead to the attainment of the desired
enterprise outcomes.
 These business outcomes should reasonably include:
 High customer satisfaction levels;
 High sales volume, market share, and market reach;
 High financial returns; and
 High people performance, productivity, and morale levels.
FINANCIAL FORECASTS: EXPECTED RETURNS, RISKS, AND CONTINGENCIES
 The eighth section of the business plan is the financial forecast including the financial
returns, the financial risks, and the financial contingencies.
 The business plan must translate everything that we have discussed so far into
financial forecasts and outcomes.
 From the financial forecasts, the business plan should then calculate the expected
returns from the business. The important return calculations are the following: (1)
expected return on sales; (2) expected return on assets or investments; and (3)
expected return on stockholders' equity.
 The business plan should also calculate the long-term returns, using the time value of
money. This means estimating the internal rate of return and the expected net
present value.
 The business plan should then evaluate both the business risks and the financial risks
involved.
ENVIRONMENTAL AND REGULATORY COMPLIANCE
 The business plan must articulate the laws, rules, and regulations governing the
business, and the industry that the enterprise is in. It should ascertain that all the
necessary permits, licenses, and authority to use proprietary intellectual capital had
either been secured or would definitely be secured.
 The business plan should also assure the reader that all the necessary local
government ordinances and barangay ethics would be followed by the enterprise.
CAPITAL STRUCTURE AND FINANCIAL OFFERING: RETURNS AND BENEFITS TO INVESTORS,
FINANCIERS, AND PARTNERS
 The tenth section of the business plan contains the capital structure and financial
offerings of the enterprise including some discussions on who are the investors, the
financiers, and the partners of the enterprise.
 The business plan must appeal to its target audience. It must highlight for them the
main features of the business plan that they are looking for.
CHAPTER 2: OPPORTUNITY SEEKING, SCREENING, AND SEIZING
OPPORTUNITY SEEKING
 Entrepreneurs are innovative opportunity seekers. They have endless curiosity to
discover new or different ideas and see whether these ideas will work in the
marketplace.
 This is what separates entrepreneurs from the ordinary businessman whose main
objective is simply to earn profits from producing, buying, and selling goods.
  Entrepreneurs create value by introducing new products or services or finding better
ways of making them. These may include innovation in terms of product design or
addition of new product features to existing ones. They may also tinker on improving
their operational capability by employing new technologies that will bring them
greater efficiency, better economies, and even enable them to reach unparalleled
superiority. They may also consider expanding their reach by creating new markets
or maximizing existing market reach.
Entrepreneurial Mind Frame, Heart Flame and Gut Game
 Essential to an entrepreneur's opportunity seeking are the entrepreneurial mind
frame, heart flame, and gut game.
Entrepreneurial Mind Frame
 The entrepreneurial mind frame allows the entrepreneur to see things in a very
positive and optimistic light in the midst of crisis or difficult situations. Instead of
being discouraged, the entrepreneur is able to use these problematic situations as
inspiration in creating something innovative. In fact, in Chinese writing, the word
crisis is composed of two characters. The first character means danger while the
second character means opportunity.
Entrepreneurial Heart Flame
 If there is one commonality between an inventor and an entrepreneur, it is their
surging passion or the entrepreneurial heart flame. Driven by passion, they are
drawn to find fulfilment in the act and process of discovery.
 Passion is that great desire to attain a vision or fulfill a mission. It is about wanting
something so much that a person would be willing to totally devote one's self to the
quest. Despite several setbacks or disappointments, the entrepreneur is not easily
disheartened, but is rather driven to persevere even more.
 The heart flame is also about emotional intelligence or EQ, which is often manifested
in the entrepreneur's efforts to nurture relationships with customers, employees,
and suppliers. The entrepreneur also looks after the interests of his or her people by
motivating and encouraging them to be the best they can become. This creates a
caring culture within the organization that brings about synergy among the people
working toward a common vision.
Entrepreneurial Gut Game
 The final ingredient is the entrepreneurial gut game. This refers to the ability of the
entrepreneur to sense without using the five senses. This is also known as intuition.
 Somehow, the entrepreneur just knows whether something will work or not without
necessitating logical, systematic, and sequential thinking. The gut game also connotes
courage or, in the local dialect, "lakas ng 100b" (strong intestinal fortitude). It is
simply confidence in one's self and the firm belief that everything is within reach so
long as you aspire for it.
The Many Sources of Opportunities
 There are many ways to uncover or discover opportunities. Some have to do with
looking at the big picture and noticing emerging trends and patterns. Others have to
do with finding out what specific customer segments are being targeted in the
marketplace. Still, others come from new technologies and new knowledge. These
different sources of opportunity are discussed in this lesson.
Macro Environmental Sources of Opportunities
 The macro environment refers to the "big or macro forces" that affect the area, the
industry, and the market, which the enterprise belongs to. They influence how
business should be conducted, how consumers will behave, how supply and demand
will move, how different competitors would position themselves, and how the cost of
doing business will proceed.
 The macro environment forces can be divided into five categories composed of the
Social, Political, Economic, Ecological, and Technological dimensions or SPEET. The
macro environment forces create their own opportunities for the enterprise to
exploit, and their own threats for the enterprise to counteract.
1. Socio-Cultural Environment - includes the demographics and cultural dimensions that
govern the relevant entrepreneurial endeavor. Taking this aspect into Consideration
helps the entrepreneur assess the trends and dynamics of the bigger consumer
population, their beliefs, tastes, customs, and traditions. It looks at social structure
and shifts in social status and behavior.
2. Political Environment - defines the governance system of the country or the local
area of business. It includes all the laws, rules, and regulations that govern business
practices as well as the permits, approvals, and licenses necessary to operate the
business. Specifically, it regulates the use of natural resources; the disposal of
wastes; the taxation of income; the importation of goods and services; the
accounting and reporting of business financial statements; public and private
education; health programs; use of public funds; and other such concerns. It includes
the establishment of vital infrastructures, logistical access, and interventions that
affect the cost of doing business. These factors are important influencers in
evaluating the attractiveness of any political domain where the entrepreneur intends
to locate and do business in.
 3. Economic Environment - Supply and demand forces mainly drive the macroeconomic
environment. They are the same factors that alive the interest and foreign exchange
rates that fluctuate with the movement of the market forces. In any country, the
income levels and the purchasing power of its people as well as the competitiveness
(or uncompetitiveness) of its industries and enterprises are sources of opportunities.
However, in any opportunity, there is always a threat that lurks behind it. In this case,
the entrepreneur must be able to think critically through each and every single
economic event that impacts his or her enterprise. For example, a very fast-growing
demand for housing may lead to the overbuilding of houses. This threat is what
house financing institutions are afraid of.
4. Ecological Environment - includes all natural resources and the ecosystem, habitat of
men, animals, plants, and minerals. There is a growing awareness in the world today
that will make this factor more and more important for countries, industries, and
businesses. The threats of ecological degradation have generated countless
opportunities such as smoke and spill detectors, filters and screens, pollution
counters, and energy-saving devices. Opportunities abound for greener, cleaner, and
healthier products, whose objectives are to save the planet and prolong lives.
5. Technological Environment - New scientific and technological discoveries, which
often lead to the launch and commercialization of new products with superior
attributes or to rendering the old ones obsolete, are the entrepreneur's nightmares.
In such cases, the entrepreneur is left with no choice but to Invest in new
technologies in order to keep up with competition. Technology does not only come in
the form of advanced machinery or equipment, but it can also be in the form of new
systems, new processes, or new products.
Industry Sources of Opportunities
 After the macro environment, the next biggest sources of opportunities are the
industry and the market.. The proper classification of what industry the enterprise is
competing in is important if the entrepreneur's intention is to define who are the
relevant customers, who are the direct and indirect competitors, and what are the
critical characteristics of the market as to the quality of products or services to be
delivered.
 Participants in an industry include:
1. Rivals or competitors in a particular type of business (e.g., Jollibee vs.
McDonald's, Coca-Cola vs. Pepsi, Samsung Galaxy vs. Apple's iPhone, etc.).
True rivals or competitors are those competing for the same or similar
markets.
2. Suppliers of input (e.g., fuel, electricity, raw materials) to rivals as well as
suppliers of machinery and equipment, suppliers of manpower and expertise,
and supplies of merchandise.
3. Consumer market segments being served by rivals or competitors.
4. Substitute products or services, which customers shift or turn to.
5. All other support and enabling industries.
 A thorough analysis of industry structure and dynamics yields opportunities for the
clever entrepreneur.
 Defining Industries:
1. According to product types or according to the functions of the product or service
- Classic examples of these industries include the computer industry (Microsoft vs.
Apple), beer industry (San Miguel Beer vs. Beer na Beer), fast food industry
(McDonald's vs. Jollibee), and cola industry (Coca-Cola vs. Pepsi Cola).
2. Product Or Value-Added Chain –
- Another way of defining an industry is by tracing the industry from its most basic
raw material down to its various consumer applications, otherwise known as
product or value-added chain. The difference between the product and value-
added chain is the focus of the analysis. Product chain focuses on the volume
produced or converted at each link of the chain. On the other hand, the value-
added chain focuses on the economic rather than the volume aspect of the
chain.
- To illustrate the tracing of a product chain, a good example would be the coconut
industry. The coconut tree, regarded as the 'tree of life,' is useful for different
purposes. Its trunk, shell, meat, husk, and leaves find their way to all types of
products such as oils, soap, handicraft, oleo chemicals, furniture, wallboards,
coir, etc. Looking at this value chain alone presents many potential opportunities
for the entrepreneur.
 However, defining an industry with a narrower scope presents a threat because of its
limiting effect.
 The value-added chain follows the product chain but concentrates on the 'value'
added from one stage of the product to the other—a value that is given by the
market price differential between stages of production. The differential would
include the additional costs of processing the product from one stage to the next and
the profit margins added on each stage by the processor (or distributor).
 A good example of the value-added chain would be a cup of designer coffee. At farm
gate prices, one would get a few pesos out of a bag of freshly picked coffee beans.
The coffee beans will then get processed and packaged by the coffee manufacturer.
 Cost and profit margins are added before selling the product to distributors. Once it
gets in the hands of the distributors, the latter will have to market and sell the
finished product to coffee shops for a few more pesos added to cover for the
logistical and transportation costs incurred. The coffee shops will then proceed to
 create their own versions of designer coffees. The fancier the coffee gets, the more
expensive a cup of designer coffee becomes.
 The entrepreneur may discover weak links in the chain that need strengthening or
gaps in the whole chain that need filling. Sometimes, the opportunity lies not in
finding gaps and weaknesses but in assailing the strongest links where there may be
a concentration of bargaining power.
 The entrepreneur should always be alert in detecting windows of opportunities
emanating from shifts in the industry power equation or changes in the industry rules
of the game.
Other Sources of Opportunities
Market Sources of Opportunities
 The entrepreneur must also be able to measure the actual demand and supply as
well as the potential demand and supply of the industry that the enterprise belongs
to.
 Market trend analysis is also conducted by determining the critical variables, which
would most likely affect the future directions of the industry.
 Lastly, market traits, characteristics, and behavior are identified in order to match
these customer traits with the product offerings of the enterprise.
 Market sources of opportunities can be discovered from increased or decreased
demand as well as higher or lower supply. An example of this is the battle of the
value/ combo meals, otherwise known as "more-for-less" strategy in the fast food
Micromarket
 Micromarket refers to the specific target market segment of a particular enterprise.
These are the target customers that represent the immediate customers of an
enterprise, meaning those who currently buying the goods or services offered by the
enterprise and its direct competitors.
 The need for segmentation would be crucial in micromarket analysis because the
definition of value for money differs from group to group. If they do not differ, then
the entrepreneur is better off by aggrupating rather than segmenting.
Consumer Preferences, Piques, and Perceptions
 Consumer preferences refer to the tastes of particular groups of people. Some
examples are the clothes people wear, the food they eat, the music they listen to,
and the movies they watch.
 The consumers' age, culture, and status affect their preferences. In contrast,
consumer dislikes refer to the things that irritate customers. Either way, the
entrepreneur can explore opportunities brought about by consumer preferences or
dislikes.
 There are times when the product is not changed by the enterprise but what changes
is consumers perceive the product.
 Because of the many choices that customers have to struggle with every day, a
product or service must be able to win the battle for the customer's mind. First,
awareness of the new product or service must be generated. This is followed by
arousing the customers' interest to buy, going to the evaluation of the product, and
finally, the decision to purchase the product. After a customer purchased the
product, there is a need to build brand loyalty and retain the customer for a long
time to get a bigger share of his or her wallet, not just his or her mind.
 Unexpected successes (or failures) can lead to good opportunities.
 Another potential source of opportunity is the entrepreneur's own set of skills or
expertise or hobby. New knowledge as well as new technology can be the source of
highly innovative opportunities.
1. Customer preferences change over time.
2. People's tastes in clothes, music, shoes, entertainment, dance, sports,
hobbies, and even careers have evolved over the years.
3. What piques customers is a great source of opportunities.
4. Before the customer is won over, there is first a battle for the mind. Next,
there is a battle for the heart. Finally, there is a battle for the wallet.
5. The longer the customer wants to use the product, the greater the chances
of creating lasting loyalty.
6. Opportunities abound in shaping consumer perceptions or occupying spaces
in their minds or places in their hearts that have not yet been filled.
7. New inventions, new systems and work processes, new insights about the
human psyche, new applications for old knowledge, new revelations about
how the physical world works, new interpretations, new combinations based
on the convergence of previous technologies, new outlooks about how life
should be led, and a host of other new things are tremendous sources of
opportunities.
 8. Determining personal preferences and competencies lay the foundation for a
new business venture.
9. Unexpected occurrences in both the external and internal environment of
the enterprise indicate that significant changes are happening and
opportunities are sprouting.
OPPORTUNITY SCREENING
 Because of the many opportunities possible for the entrepreneur, it is important to
come up with a short list of a few very promising opportunities, which could be
scrutinized in detail.
The Personal Screen
 In screening opportunities, the entrepreneur first has to consider his or her
preferences and capabilities by asking three basic questions:
1. Do I have the drive to pursue this business opportunity to the end?
2. Will I spend all my time, effort, and money to make the business opportunity
work?
3. Will I sacrifice my existing lifestyle, endure emotional hardship, and forego
my usual comforts to succeed in this business opportunity?
 If "YES" is your answer to all of the above, then you can begin your earnest pursuit of
that opportunity. At the simplest level, the entrepreneur may want to make a risk-
return grid.
The 12 Rs of Opportunity Screening - more complex screening grid uses twelve criteria for
screening opportunities.
1. Relevance to vision, mission, and objectives of the entrepreneur . The opportunity
must be aligned with what you have as your personal vision, mission and objectives.
2. Resonance to values. Other than vision, mission, and objectives, the opportunity
must match the values and desired virtues that you have or wish to impart.
3. Reinforcement of Entrepreneurial Interests . How does the opportunity resonate with
the entrepreneur’s personal interests, talents and skills?
4. Revenues. In any entrepreneurial endeavor, it is important to determine the sales
potential of the products or services you want to offer. Is there å big enough market
out there to grab and nurture for growth?
5. Responsiveness to customer needs and wants . If the opportunity that you want to
pursue addresses the unfulfilled or underserved needs and wants of customers, then
you have a better chance of succeeding.
6. Reach. The opportunity that have good chances of possible product or service
offerings, thus tapping many market segments of the industry.
7. Range. The opportunity can potentially lead to a wide range of possible product
service offerings, thus, tapping many market segments of the industry.
8. Revolutionary Impact. If you think that the opportunity will most likely be the "next
big thing" or even a game-changer that will revolutionize the industry, then for the
chosen opportunity.
9. Returns. It is a fact that the products with low costs of production and operations but
are sold at higher prices will definitely yield the highest returns on investments.
Returns can also be intangible high profile recognition or image projection.
10. Relative Ease of Implementation . Will the opportunity be relatively easy to
implement for the entrepreneur or will there be a lot of obstacles and competency
gaps to overcome?
11. Resources Required. Opportunities requiring fewer resources from the entrepreneur
may be more favored than those requiring more resources.
12. Risks. In an entrepreneurial endeavor, there will always be risks. However, some
opportunities carry more risks than others, such as those with high technological,
market, financial, and people risks.
 These 12 criteria can be better managed if quantified and formed into a matrix to help
the entrepreneur concretize the evidence that the chosen opportunity (or opportunities)
is well worth pursuing. (Rating x Weight = Score)
The Pre-Feasibility Study
 The ultimate goal of opportunity is to narrow down the many opportunities into one
or two most attractive ones. The next step is to conduct a pre-feasibility study to
ascertain the viability of the opportunity. The idea is to focus on a few key items that
could make or break the business concept. This time, the entrepreneur must go
down to the details and take time to consider the following factors that are
contained in a pre-feasibility—study:
1. Market potential and prospects
2. Availability and appropriateness of technology
3. Project investment and detailed cost estimates
4. Financial forecast and determination of financial feasibility
Market Potential and Prospects
 Market potential is based on the estimated number of possible customers who might
avail of the product or service.
  For entrepreneurs who are entering a business that caters to the basic customer
needs, such as food, clothes, beverages, furniture, appliances, housing, schooling and
the like, there would usually be demand and supply statistics available from
government institutions, industry associations, and research firms.
 Basic needs tend to be commodities or "commoditized." Customers have the luxury
of choosing among many basic needs suppliers. That is why these suppliers try very
hard to differentiate themselves from one another by dividing the huge market into
many customer segments.
 The customers would make the final choice on what to buy according to several
factors such as: (1) their purchasing power or disposable income; (2) their proximity
or accessibility to the goods or services; (3) their individual desires and preferences;
(4) their age or generational grouping; (5) their social, cultural, or ethnic background;
(6) their peer group preferences; (7) their gender; (8) the season of the year; (9) their
personal identification with trend setters; (10) their educational attainment; (11)
their technical proficiency and product expertise; (12) their motivational impetus;
(13) their lifestyle preferences; (14) their susceptibility to certain advertising and
promotional appeals, and many others.
 Market estimation is the most difficult task of the entrepreneur because of the many
ways customers can be divided and segmented. However, the most common way
resorted to by most entrepreneurs are through the use of demographics such as
income (class A, B, C, D, and E), age (infants, toddlers, six to 12 years, teenagers,
young adults, adults, middle agers, and senior citizens), gender (male, female), level
of education, and locational proximity.
Segmenting the Market
 Using a set of demographics (e.g., gender, age, place of residence, income class, etc.)
will be the most basic approach in determining the target segment.
 The entrepreneur must be able to do actual field research like surveys, focus group
discussions, in-depth interviews, observation techniques, etc.
Assessing Competition
 Market potential is also affected by the number of establishments supplying and
serving your target customers. This process would determine how saturated the
market is in the given area of coverage. The more suppliers and competitors there
are within a confined area, the greater the level of saturation.
 It would be best for the entrepreneur to keep out of a market where competition is
fierce. On the other hand, some entrepreneurs prefer to enter the biggest, richest,
and most competitive markets in order to achieve high visibility and growth
potential.
 In order to assess one's strengths and weaknesses, there must be a comparison
made with the closest competitors.
Estimating Market Share and Sales
 The entrepreneur can go for a small market share unless the entrepreneur has a very
superior product or service that can immediately command a large market share.
 In a pre-feasibility study, the most important task is to quantify the market potential
in a systematic way. The first thing that the entrepreneur must do is to define the
market coverage or reach he or she wants to serve. The area would define the total
Population being targeted. Second, the entrepreneur must determine the broad
market Segments within this area or total targeted population. In a first level attempt
at quantifying the market, the entrepreneur could select such broad categories like
gender, age, and income class.
 In the assessment of market potential, the entrepreneur should evaluate the relative
strength of the various suppliers or competitors in the marketplace by asking the
following questions:
1. Who has dominance?
2. Who has greater bargaining power?
3. Which segments of the total market are saturated and over served and which
ones are relatively underserved?
4. Are there market segments which are more attractive than others for the
entrepreneur, either because of past expertise in the segment or weaker
competition in the segment?
 The final task is to determine what slice or share of the targeted market segment he
or she wants to carve out. Without a very definite product formulation or service
proposition, this requires some "educated guessing" or intuitive insightfulness.
Alternatively, the entrepreneur could work out the other portions of the pre-
feasibility study first (such as the investment requirements and costs of production)
and then ask himself or herself what market would be necessary to earn a decent
return on the product or service. Given this market share threshold, the
entrepreneur could assess whether this would be achievable based on the study of
the market potential.
 The entrepreneur should then estimate potential sales. The sales forecast can be
computed using the following formula: (Estimated Sales Volume x Estimated Price).
Technology Assessment and Operations Viability
 The the entrepreneur must go through the intricacies of detailing the operations that
would be required by the business, which also includes technology assessment. By going
through this process, the entrepreneur would be able to determine whether the product
 or service offering will meet customer demand or not. There are at least four target
customer expectations affecting the scale and complexity of an enterprise's operations:
1. Quantities demanded. This would determine the needed capacity of operations.
2. Quality specifications demanded. This would dictate the following: (a) quality of input
or raw materials; (b) quality assurance process in transforming input to output; (c)
quality output that meet the operations, standards set; and (d) quality outcomes for
the customers who will be looking for specific results.
3. Delivery expectations. Knowing how much, how frequent, and when to deliver to
customers.
4. Price expectations. The selling price of the product or service would be evaluated by
the customers according to the value they would receive (in terms of quality,
delivery, and quantity) and this value added should be matched against competitors.
Investment Requirements and Production/Servicing Costs
 The entrepreneur needs to determine how much money is needed to start the business
opportunity with consideration to the technologies and operating levels required. In this
respect, there are three investments that need to be funded:
1. Pre-Operating Costs. These are the costs related to the preparation for the
launch of the business. These include the pre-feasibility study, in-depth feasibility
study, market research, product development, organizational development, and
initial promotional costs.
2. Production/Service Facilities Investment. This refers to the long-term
investment for the actual business establishment, including investment in land,
buildings, machinery, equipment, computers, software, furniture, vehicles, etc.
Also include if the business would be renting or leasing space, the leasehold
improvement (or renovation).
3. Working Capital Investment. This includes the investment needed to
operationalize the business, composed of cash, accounts receivable, and
inventories (raw materials, work-in-process, and finished goods). The
entrepreneur must see to it that he or she has enough cash to cover the
inventories to be purchased (or manufactured), the accounts receivable to
accommodate customers, and the operating expenses to be incurred. These
operating expenses would include the following:
a. Employee salaries, wages, and benefits
b. Rent and lease expenses
c. Utilities
d. Transportation
e. Fees and licenses Commissions
f. Office supplies, etc.
In effect, this part of the pre-feasibility study asks two questions:
1. Do I have enough resources to cover the necessary investments?
2. Would my sales estimates be significantly higher than my monthly production/
service costs in order to produce profits?
The Feasibility Study
 A feasibility study is prepared to convince bankers and investors to put money into the
business opportunity. In writing the feasibility study, the entrepreneur should take into
consideration the following:
1. a more in-depth study of market potential to ensure that the business proposal
will reach the forecasted sales figures;
2. proof that the product or service being offered has the right design, attributes,
specifications, and preferred features;
3. proof that the entrepreneur and his or her team have the necessary experience
skills, and capabilities to maximize the venture's chances of success;
4. legal visibility;
5. more detailed costing on the different assets and more justification for the
production and operating expenses; and
6. more thorough analysis of the technology and its sustainability.
OPPORTUNITY SEIZING
 After Opportunity Seeking and Screening, the entrepreneur is ready for Opportunity
Seizing, the final stage. At this stage, the entrepreneur must be able to determine the
critical success factors that enable other players in the same industry to succeed while, at
the same time, be vigilant about those factors that cause other businesses to fail.
 The question for the entrepreneur in Opportunity Seizing is "Will I be able to manage, to
my advantage, the critical success factors and avoid the critical failure factors?" The
critical factors may change depending on what market segment the enterprise is
addressing. Thus, it is important for the entrepreneur to establish the positioning of the
business enterprise in the marketplace. What market segment would be best for the
enterprise to enter into?
Crafting a Positioning Statement
 The entrepreneur is advised to look at other competitors (or substitutes) in the
marketplace. Details such as their major buyers, attributes or features that make the
competitors' products attractive should give the entrepreneur an idea. Customer
profiling will come into the picture—their characteristics and traits, behavior and usage
pattern, preferences and dislikes.
 Going through the process of questioning, the entrepreneur will be able to come up with
each of the competing products' Main Value Proposition (MVP) and from there, work on
 his own positioning. The following key points can help out the entrepreneur on how to go
about this 'questioning.'
1. What are the main customer segments?
2. What are the different products attributes and features of each of the competitors?
3. What are the existing marketing practices of the various competitors?
4. What are the market preferences of consumers when it comes to the products
being offered?
Conceptualizing the Product or Service Offering
 A concept is an idealized abstraction of the product or service to be offered to the
preferred market of the entrepreneur.
 The concept must be compelling and unique to the customers targeted, meaning that the
product should contain the attributes or features desired by the targeted market that
make up the product's main value proposition.
 In order to come up with the product or service concept, the following options or
directions may be considered by the entrepreneur:
1. The first is to create a concept similar to the winning products in the marketplace and
ride with the obvious market trends. (Tip: Use the information gathered from Table
2.6. Analysis of Competitors' Products.)
2. The second is to find a market niche that has not been filled by the competitors.
(Market niche means small segments of the market where discriminating customers
are searching for special product/service features and attributes.)
3. The third is to conceptualize a product in a positioning category where the
participants are rather weak. (Tip: Again, use the information gathered from the
Table 2.6. Analysis of Competitors' Products.)
4. The fourth is to conceptualize a product that would change the way customers think,
behave, and buy, thus making existing products "obsolete" and "old fashioned."
Designing, Prototyping, and Testing the Product
 Designing means that the entrepreneur must render the concept and translate it into
its very physical and very real dimensions (measurement). This entails building a
prototype of the product that will be ready for actual testing by the entrepreneur
and then, later on, subject to testing by potential customers through focus group
discussions (FGD), surveys, product demonstration sessions, and the like.
 Assess how much resources are available in order to seize the opportunity and what
kind of organizational set-up will work best for this kind of opportunity.
Implementing, Organizing, and Financing
 Good planning and good programming are essential to have good implementation.
The entrepreneur must begin with the end in mind, or his or her desired end results,
for the chosen opportunity. End results refer to the final outcomes of the business,
such as highly satisfied customers, huge sales realized, large profits generated, etc.
 A good planner and programmer must make several important choices to achieve the
desired end results.
1. First is to choose the correct technology, the one that would produce the
output that would meet the quality specifications of the customers.
2. Second is to choose the right people who can perform the technical and the
managerial functions necessary to realize the desired end results.
3. Third is to design the operating workflow that would assure the effective,
economical, and efficient production of the output.
4. Fourth is to specify the systems and procedures that would govern the
enterprise, motivate and discipline the work force, and satisfy the customers.
5. Fifth is to design the organizational architecture that would allow the people
to function at their best.
 Given the above considerations, the entrepreneur must be diligent in taking the
necessary steps toward determining the required resources. These resources include
people resources, physical resources, and peso or money resources.
 People and physical resources are dictated by the sales volume targeted, the
technology' to be utilized, and the capabilities needed by the workforce.
 The sales volume would then determine the quantities of materials, supplies, power,
space, people, operating expenses, and other requirements.
 Technology would define the capital expenditures and work processes necessary to
get things done.
 The capabilities of the people would calibrate the salaries and wages, benefits and
allowances, travel and transportation, and other people-related expenses. The peso
or money resources would, in turn, depend on the people and the physical resources,
plus other financial requirements related to establishing and nurturing a business.
CHAPTER 3: GETTING TO KNOW THE MARKET
MARKET RESEARCH
 Entrepreneur, know thy market well! This simple reminder must keep the
entrepreneur alert all the time. The more you know about your market, the better
you will be able to determine customer needs and wants.
Basic Questions in Market Research
 There are seven basic questions that you must ask in preparation for any major
market research.

Market Research Methodologies
 The more the entrepreneur knows about his or her relevant market, the more customers
can be properly segmented and reached, products can be positioned, brands can be
promoted, prices can be set, and locations can be pinpointed.
 Entrepreneurs and investors do not want to put resources in unknown markets. Good
market research allows entrepreneurs and investors to make wiser decisions.
 In order to aid the entrepreneur in gathering relevant market information, there are
several market research methodologies using scientific approaches that can be
employed.
Sales Data Mining
 The data can logically be arranged chronologically otherwise known as data array. The
data can be further grouped into different intervals.
 After arraying and classifying data, the researcher can now do a frequency distribution
and construct a frequency table. This table organizes data into groups of values according
to the most logical characteristics.
 The frequency distributions and relative frequency distributions can be more useful if
translated into graphs. Graphs show visual patterns that are not easily seen in a table.
 In market research, there are three commonly used graphs: histogram (commonly known
as bar graph), frequency polygon, and pie chart.
 A histogram or bar graph consists of a series of rectangles or "bars." Each bar is
Proportional in width to the range of values within a class and proportional in height to
the number of items falling in a class.
 The frequency polygon is constructed by marking the frequencies on the vertical axis
with a dot corresponding to the values on the horizontal axis. These dots are then
connected with a straight line to form a polygon.
 A pie chart is a circular graph divided into sections that represent the relative
frequencies or magnitudes of the grouped values.
 Cross-Tabulation data - This will explain why some data fall at one end of the
distribution while others are at the opposite end. To be able to do this, the
researcher must expand the tables into two or more dimensions.
Focus Group Discussion
 Focus group discussion (FGD) is one of the most common qualitative research tools.
It is effective in extracting consumer and non-consumer experiences regarding
products, places, or programs. This method can also be used for generating initial
insights.
 FGD can be used to address substantive issues such as:
1. Understanding consumers' perceptions, preferences, and behavior
concerning a product category;
2. Obtaining impressions on new product concepts;
3. Generating new ideas about older products;
4. Developing creative concepts and copy material for advertisements;
 5. Securing price impressions; and
6. Obtaining preliminary consumer reaction to specific marketing programs.
 The FGD is an interview by a facilitator of a small group of people that normally lasts
for an hour and a half up to three hours. The participants are selected because of
their knowledge about the topic. The objectives must be clear and precise. It takes a
great deal of planning from the researcher's end to ensure that objectives set are
met. There are four key decisions to be made: (1) respondent selection; (2) sample
size; (3) data gathering; and (4) data analysis.
 Respondent selection includes: (1) the definition of the respondents; (2) the
classification of the respondents; and (3) the screening of respondents.
 The number of respondents per group should range from six to eight, depending on
the skill of the facilitator and the topic being discussed. If the number falls below six,
the likelihood of generating a momentum and group dynamics necessary for a good
discussion will not happen. However, if the group exceeds eight, it may be too
crowded, resulting in the passive participation of some respondents and a discussion
that is not as cohesive.
Data gathering methods in FGD involve:
1. the selection and preparation of the venue and equipment;
2. the formulation of the discussion agenda; and
3. a facilitator who is very skilled in moderating and possesses the ability to
draw out significant insights from the participants.
Data analysis includes:
1. the integration of the information gathered;
2. some observations on respondent behavior; and
3. listing of recommendations and report writing.
Let us go to the nine steps in conducting a focus group discussion.
1. Develop the research objectives. What is the research all about?
2. Determine the participants' profile. Who are the most knowledgeable or
most relevant participants?
3. Determine the appropriate token or "compensation" for the participants.
4. Develop a participant screener questionnaire.
5. Recruit the participants.
6. Select a good facilitator. The key qualities of a good facilitator are:
kindness with firmness ; involvement and encouragement; complete
understanding; flexibility; sensitivity
7. Develop a facilitator's discussion guide.
8. Arrange for the venue and logistics.
9. Analyze the results of the focus group discussion.
 In analyzing FGD, the researcher should compare and contrast all points raised by the
different respondents and note from what point of view they are coming from. The
researcher must summarize the points where the participants strongly agreed upon or
disagreed on about an issue. The researcher must also write down quotations that seem
particularly relevant to his or her identified objectives and must group similar comments
together in order to identify participants' preferences.
 The objective of the FGD must be addressed and conclusive insights must be to help the
entrepreneur improve his or her business. Again, insighting is needed after the results of
the FGI) have been documented to generate superior ideas or modify existing ones.
Observation Technique
 One of the best ways of gathering data about customers in their natural setting without
having to interact or talk to them. One has to simply observe people as they go about
their usual activity such as buying and using products and services and assess how they
behave. Having a clear objective in mind will help the researcher focus on the important
things to observe or watch out for.
 Recording the event as it happens may be the best means to capture the information.
However, the researcher must be discreet so as not to attract the attention of the one
being observed. In the absence of a video recording, jotting down observations will do.
 Observations must be documented and tallied for proper analysis later on. It is
important for the researcher to ensure that the following conditions are met:
1. The needed information must be observable or inferable from the behavior
that can be observed.
2. The subject matter contains some sensitivity that needs detached
observation.
3. The behaviors of interest must be repetitive, frequent, or predictable in some
manner.
4. The behaviors of interest must be of a relatively short duration.
Advantages of Observation Research
1. It allows the researcher to see what customers actually do rather than rely on what
they say they do.
2. It allows the researcher to observe customers in their natural setting.
3. It does not subject the researcher to the unwillingness of customers or their inability
to reply to certain questions.
4. Some information is better gathered quickly and accurately through observation.
Disadvantages of Observation Research
1. The researcher can only see the outside behavior of the customer, but cannot
determine the inner motivation of the customer.
2. The researcher cannot get the reasons behind the behavior.
 3. The researcher can only focus on the "here and now." It cannot cover the past nor  Can be conducted via telephone, personal (face-to-face interview), and mail
cover the future. interview (either printed or electronic mail). Probably the most popular type of
4. Finally, the observation technique may border on the unethical because the survey research is the Usage, Attitude, and Image (UAI) survey, which is intended to
respondents have not agreed to be observed. derive market awareness, market size and share, product usage and preference,
customer interest, and customer image.
 There are two different types of observation techniques. The first is human observation  In planning a survey, there are three important concerns that one has to look into:
and the other is mechanical observation. In human observation, humans observe the 1. Sampling technique
events as they happen; while in mechanical observation, mechanical devices are used to 2. Getting the sample size
record events for later analysis. Below are the guidelines in conducting observation 3. Designing the questionnaire
research:  Of these three concerns mentioned, designing the questionnaire proves to be the
1. Determine the pre-observation objectives. most sensitive phase.
2. Prepare your pre-observation tips:
a. Prepare and clarify your observation points and issues. Questionnaire Design
b. Prepare your observation materials. There are some basic rules that have to be followed in question formulation. These are:
c. Identify the persons to be observed. 1. The questions, in their totality, should be able to elicit all the necessary information
d. Position yourself strategically without being noticed. required in the research.
3. Focus on what you want to observe: 2. Each question should be clear and definite.
a. Is it customer demographics? 3. Each question should cover one topic at a time.
b. Customer buying behavior? 4. Each question should be presented in a neutral manner.
c. Customer usage behavior? 5. Each question should be translated into the dialect that the target respondents are
d. Other customer information? familiar with.
4. Observation proper:
a. Observe keenly and listen intently Sampling Techniques
b. Be mindful of the surroundings.  Classified into probability and non-probability sampling.
c. Be alert for obvious movements.  Probability sampling is where the respondents are randomly selected from a
d. Be sensitive to subtle movements. population such as in the lottery method.
e. Look at the customer when the customer is not looking.  Non-probability sampling refers to the technique that is resorted to "when it is
f. Do not be obvious. difficult to estimate the population of the study because they are mobile or transitory
g. Observe and take note of other things that you feel are important. in a given location." Hence, this renders the characteristic or profile of a group that is
5. Post-observation tips: difficult to generalize. Some of the different types of non-probability sampling are
a. Review your notes. convenience sampling, purposive sampling, quota sampling, and snowball sampling.
b. Make sure that the flow is correct.
c. Tabulate what needs to be tabulated. Sample Size
d. Interpret and analyze your data. There are three basic sample size determinants, these are as follows:
e. Make a formal report. 1. Data variability of a proportion dispersion of the data or how widely spread the data is
from a central point.
Survey Research 2. Confidence level in the estimation process — the higher the confidence level desired, the
 Most preferred instrument for in-depth quantitative research. The respondents are bigger the sample size needed; the current industry standard has 95% confidence level.
asked a variety of questions which are often about their personal information, their
motivations, and their behavior.
3. Error in the result of the estimation process — the less error margin desired, the bigger is
the required sample size; it is expressed as plus or minus (+/-) a certain percentage.
CUSTOMER PROFILING
Do-It-Yourself Survey: Steps in Conducting a Survey Research Methods of Customer Profiling
1. Develop the research objectives. Determine what you want to know and learn.
Define the goals of your research.
2. Determine your sample. Identify who and what kind of people you will interview and
where you are going to find them. Determine the number of target respondents you
need and how you are going to choose them. When sampling a specified group of
people, it would be advisable to start with a comprehensive list of such groups.
3. Choose the interviewing methodology. From the different interview methods, such
as face-to-face, by phone, or by mail, choose the appropriate methodology to use for
your research.
4. Create your questionnaire. In drafting your questionnaire, identify the key
information you will have to ask from your respondents.
5. Pre-test the questionnaire. Determine a similar profile of target respondents and test
the questionnaire.
6. Conduct interviews and enter data. Plan and execute the implementation of your
survey well Be professional in conducting the interviews. Ensure that data are
entered legibly.
7. Analyze the data. Review your notes. Organize the questionnaires for more orderly
processing. Tabulate, use graphs, and do the statistics. Write the report including the
insights gained from the results.
Reflections
1. Why is the research being done? What does the researcher want to find out?
2. What is the subject and scope of the research?
3. Which target segment is the research focusing on?
4. Who are the specific members of the target segment that will participate in the
research?
5. When is the perfect time to conduct the research?
6. Where is the best place to conduct the research?
7. How should the research be conducted? Do you agree with the options presented in
the example? Why or why not?
 In effect, when the entrepreneur starts doing the market research, he or she is also
beginning to understand his or her customers, and therefore, profiling them.
Customer knowledge starts with good customer profiling.
 The three methods of classifying or profiling customers are demographics,
psychographics, and technographics.
1. Demographics -we categorize customers into the following:
a. Age
b. Income classes
c. Social classes/Refcrence groups
d. Ethnic backgrounds
e. Religious beliefs
f. Occupations
g. Domiciles
 Income levels determine the purchasing power of customers. Usually, the customers
are classified according to the following income classes:
a. Class A, the high income class
b. Class B, the upper middle income class
c. Class C, the middle income class
d. Class D, the lower middle income class
e. Class E, the low income class
 Ethnic backgrounds and religious beliefs affect the cultural beliefs of people such as
the food they eat, how they save and how they spend, and their levels of
conservatism or progressiveness.
 Social classes and reference groups often dictate what is acceptable or unacceptable
behaviour. (Family, friends, neighbors, fellow workers, and societal affiliations)
  Occupations such as those of factory foremen, doctors, taxi drivers, nurses and
teachers also determine what kinds of goods and services these people would buy.
 Domiciles or habitats, or areas of residence and environmental surroundings,
oftentimes, define and limit the choices available to customers.
2. Psychographics
 Defines the customer's motivations, perceptions, preferences, and lifestyle.
 Motivation goes to the roots of customer's needs and wants. This can be classified
into physiological and psychological. Physiological needs and wants refer to the
customer's personal likes and dislikes and include the satisfaction of thirst, hunger,
and shelter.
 Perception is the way a person chooses to receive or interpret information from the
external world. While motivation provides the drive for action, perception defines
exactly what that person will do.
 Usually, information comes through our five senses. A person will process this
information using the faculties of the brain. Hence, different persons may actually
see different things in very different ways.
 Because of our genetics, our nature, our environment, our experience, our exposure,
and our expectations, we begin to prefer certain people, certain things, certain
colors, and certain textures over others. We begin to have a unique set of likes and
also a unique set of dislikes. We begin to appreciate things because of our emotional
and mental memories. Preferences shape customer decisions.
 There are lifestyle classifications that talk about what people value most in their lives.
Some talk about their behavioral characteristics as consumers.
3. Technographics
 Classifies people according to their level of expertise in using a product or a service.
For example:
1. Sports beginners might just want basic equipment.
2. Sports regulars may be looking for more sophisticated equipment.
3. Finally, sports professionals would want the best of the best for competitive
purposes.
 Products and services can range from general purpose items to highly specialized,
customized, and "technologized" goods.
Application of Customer Profiling
The entrepreneur can use or apply customer profiling in two ways.
 The first way is to develop a product or service to test out in the marketplace.
a. The customers most attracted to the product or service can then be profiled.
b. After profiling, the next step is to find out how huge this market is for
exploitation purposes.
 The second way is to profile the different types of customers in a given industry or
area as to their needs and wants.
a. From these types, the entrepreneur could then choose the customer group
with the best potentials.
b. Products or services can be developed by the entrepreneur to match this
chosen customer group.
Market Segmentation
 Customers with similar needs and wants and similar willingness and ability to pay can
be grouped into one customer segment.
 Within this customer segment, we can have finer cuts. We can have different
customer sub-segments. Within these sub-segments we can even have finer and
finer cuts. Therefore, we can produce products and services that are highly
specialized for any type of consumer segment.
Market Aggregation
 Some entrepreneurs prefer the broader market. They want MARKET AGGREGATION
rather than MARKET SEGMENTATION. They prefer to deal in commodities like rice,
bread, and water that appeal to market aggregates rather than market segments.
Market Mapping
 Similar to sales data mining, market mapping refers to grouping customers and
products according to certain market variables. An entrepreneur can use one or a
combination of demographics, psychographics, and technographics to create a
market map.
 Zeroing in on occupational preferences at a certain income level, a technographic
and psychographic grid combination can be drawn.
 Taking Accountancy as the preferred occupation, students can be classified according
to their mathematical aptitude (technographic) and according to their motivation for
taking the Accountancy course (psychographic).
 Products or services can be mapped according to their relative positioning in the
market based on certain consumer parameters.
 Provide the market analyst a better understanding of the market as a whole and to
paint a clearer picture of where the different competitors are relative to the different
market segments. It also allows entrepreneurs to discover market segments that are
relatively unserved or underserved. They could then develop products and services
that fulfill the gaps in the marketplace.
CHAPTER 4: LET THE MARKET KNOW YOU BETTER
 Marketing is about creating and accumulating customers. Marketing plans are
designed to capture market share and defeat competitors. The marketing function
and the marketing mix serve the overall business strategy. It is summarized in seven
Ps by which the enterprise will engage competitors and gain customers. These Ps are
Positioning, Product, Packaging, Place, People, Promotion, and Price.
POSITION
 Has three overlapping objectives:
1. Positioning has an enterprise perspective. The enterprise scans the market
environment and decides to position itself with products that specifically
address the needs of a chosen target market.
2. Positioning has a competitive perspective. The enterprise has to
differentiate and distinguish itself from its competitors.
3. Positioning takes the customers' perspective. Positioning is the way the
customers perceive the enterprise and its products or services in their
minds. The stronger the overlap is in these three perspectives, the more
defined the positioning of an enterprise is in the marketplace.
 Enterprises can establish their positioning either by starting with their own product
creations or with their customers' outcome expectations. The competitors will
always be part of the positioning equation, whether the enterprise starts with the
product or the customer perspective.
 The competitive landscape of the enterprise, relative to its market, can be clearly
mapped out by laying out both the latitudinal and longitudinal market dimensions.
 Latitude lays out what is important to the different customer segments from their
differing points of view. Certain customers may claim that what is important to
them are the quality features of durability and functionality. Other customers may
be looking for style, design, and aesthetic appeal. There would be customers who
do not have the purchasing power to afford any of the above quality definitions.
They would buy lower priced products with lesser quality.
 Longitude in the marketing map represents the product features and attributes of
competitors in the marketplace. Most competitors would be offering product
features, which the major customer segments want to buy. A few will focus on
niche customers who are not in the mainstream. The latitudinal and longitudinal
dimensions will draw the parameters of the map, locating both the customers and
the competing enterprises in their respective positioning.
 In determining its positioning, the enterprise should be mindful of the main value
proposition (MVP) to its customers relative to its competitors.
 In determining the MVP, the enterprise must assess its products from the
Customers' viewpoint. It must evaluate the other six Ps of marketing to find out if
they compIement and reinforce one another. Price might be out of line with the
promotion message, or the people chosen might be the wrong message carriers.
Each of the Ps Of marketing must communicate something to the customer.
 To establish the positioning of its various products in the marketplace, the
enterprise endeavors to build the brand of each product. Branding serves three
purposes. First is to differentiate the product from other products. Second is to
avoid a commodity image for the product. Third is to fill a space in the consumer's
mind that would prevent other products from occupying the same space.
 Once a space gets filled in the consumer's mind, it is very hard to change. We all
remember the first man on the moon, the first person to circumnavigate the world,
and the first murderer, but we do not remember the second. Number two will only
be remembered if it makes a big thing out of being number two like Avis. People
know that as the 'number two' car rental company, Avis, "tries harder."
 Branding and brand equity development should go hand-in-hand with positioning.
Volvo stresses its safety brand positioning by crashing their test cars into brick walls
to dramatize the minimal effect on the owner-driver.
 Powerful brands have become the generic name for their product categories like
Kleenex, Band-Aid, Xerox, and Scotch Tape. It is hard to separate these brands from
their permanent positioning in the marketplace. These brands have also been able
to extend their good image to their other product lines. Johnson and Johnson,
Procter and Gamble, Pfizer, Ayala, and SM have been able to leverage their
enterprise brand image to all of their product lines. These enterprises have
assumed the reputation and image of top caliber establishments whose magic
wand can transform new products into instant successes.
PRODUCT
 Tangible good or the intangible service that the enterprise offers to its customers in
order to satisfy their needs and to produce their expected results. Products are often
identified with their brand names to distinguish them from other products in the
market. Some products have built up so much loyalty to the point that their brand
names have become their best-selling proposition
 There are four general types of products that are marketed by enterprises:
1. Breakthrough products
2. Differentiated products
3. Copycat products
4. Niche products
  Breakthrough products offer completely new performance benefits. They may
double the performance at half the cost. They may be much more convenient and
easy to use. They may cater to a unique set of customer needs that have not yet
been tapped. They may create a new demand. Marketing breakthrough products
need a higher level of customer education and orientation. (Ex: vaccines)
 Differentiated products try to claim a new space in the mind of the customer
different from the spaces occupied by existing products. The performance benefits
may be close to existing products but there would be additional benefits on special
aspects of the product. (Ex: Glasses with UV rays protection)
 Copycat products will not make much impression on the consumer's mind. The
marketer should make up for this lack of mental space by offering more physical
space in the shelves, lower prices, easier access, promotional freebies, and the like.
Aggressive advertising may add to market demand but at a greater cost than the
leading brands.
 Niche products do not intend to compete directly with the giants. They are products
with lower reach, lower visibility, lower prices, and lower top of mind. They are
content to play minor roles in specific and smaller market segments.
PACKAGING
 There used to be a time when products came wrapped in ordinary packaging that
prominently displayed the brand name, the main attributes of the product, the
company's logo, and its place of business. Packaging came in small, medium, and
large sizes, without much variation in the material, shape, and purpose of the
packaging. That is a time long gone.
 Now, packaging can even be more important than the product itself, if done
imaginatively. One example is the entrepreneur who took ordinary rocks from
riverbeds and packaged them as "pet rocks."
 Today, packaging serves several important purposes, which elevate it to one of the
seven Ps of marketing.
1. Packaging identifies the product, describes its features and benefits, and
complies with government rules on specifying its contents, weight, chemical
composition, and potency. Packaging provides easy brand identification for
the consumers.
2. Packaging differentiates the product from its competitors and even from its
other brand offerings. For example, liquor brands differentiate their premium
scotch and brandy offerings by packaging them in ceramic bottles.
3. Packaging lengthens the lifespan, physically protects, and extends the
usefulness of the product. Vacuum-packed or aseptically packaged products
prolong the shelf lives of many food and beverage items. High-tech
packaging protects fragile and sensitive products like crystal sculptures,
laptops, precision tools, and the like.
4. Packaging has become an environmental issue by itself. Many packages are
discarded after the contents have been taken out. This generates waste and
poses environmental hazards. Recyclability and biodegradability are now a
major concern of packagers and consumers alike.
5. The aforementioned purposes of packaging have increased the cost of
packaging and, therefore, the price of the product. To counteract this, the
packaging must possess its own value proposition for the customers as well
as for the enterprise. For the customers, they may put some premium on
environment-friendly packaging. Customers may even be able to convert the
packaging into money if the packaging were exchangeable for cash. Some
packaging are so beautiful, they can create their own value as collectibles.
 Packaging does not refer only to the wrapper or container of the product. It can
mean the bundle of products or services that are put together to attract and delight
customers. It can also mean the terms and conditions attached to the sale or after-
sale servicing of the product.
PLACE
 Although finding a good location proves to be challenging, even more challenging is
maximizing the potentials of that location
Initial Location Screening
In finding a good location, one needs to consider the following:
1. The number of customers residing or working in the area, and the number of
customers who frequently pass through the area.
2. The density or number of customers per unit area.
3. The access routes to alternative locations and their traffic count in those routes.
4. The buying habits of customers or where they buy, at what time and how frequent.
5. Locational features such as parking spaces, foot access, creature comforts, and the
like.
The entrepreneur must be able to determine the price that comes with the location. The
entrepreneur has to consider the following:
1. The cost of buying or renting, renovating, and operating the location.
2. Customer volume, drop-in rates (what percentage of customer traffic would stop by
the store) and sales conversion ratios (what percentage of drop-ins would actually
purchase something from the store).
3. Revenues based on the volume and mix of goods and services expected to be sold at
certain prices.
4. Profits.
The final choice of location must be based on the following:
1. Image and location conditions
2. Exact fit to target customers.
3. Clustering of competitor establishments.
4. Future area development.
5. Fiscal and regulatory requirements.
Relevant Location Drivers
1. Physical Proximity to Target Market. The best locations should be easily accessible from
home or the workplace. However, physical proximity is not always important
2. Customer Traffic Flow. Important data to research include daily volume of people and/or
vehicles passing through, as well as information on the "peak hours" and the "slow
hours."
3. Industry Clustering. A lot of competitors clustered in one location usually draw in a
bigger market to the area. Some entrepreneurs prefer to establish a monopoly far away
from competitors.
4. Convergence of Multiple Industries. Locations where multiple industries converge, such
as central business districts, shopping malls, and public markets are able to attract more
customers because of one-stop shopping convenience. But again, competition is usually
strong in such areas.
5. Population Concentrations. Urbanization creates population concentrations. Simply put,
the more populous the location is, the greater is the opportunity for business and profit.
6. Activity Hubs. Such as large schools, high-rise buildings, public parks, transport terminals,
and entertainment centers provide good location potentials for food establishments and
client-specific services
7. Growth Potential. Businesses are always looking for new areas to expand and grow. The
early locators will catch the early customers.
8. Business Climate. Enterprises prefer locations that are conducive in doing business. This
includes areas with: high economic growth, stable political situation, effective social
services, good infrastructures, cheap utilities, efficient transportation and logistics,
availability of skilled labor force, low crime rates, good fiscal incentives, trusted public
officials
9. Cost of Doing Business and Producing Goods and Services. For industrial establishments,
the more relevant criteria are those locations with lower cost of doing business and
lower cost of producing goods and services. Industrial establishments prefer locations
outside the main population centers but with government-supplied amenities.
Comparative Location Analysis
 The most common way by which an entrepreneur 'surveys' a potential location is
through comparing it with other locations with more or less the same features and
tenant mix or clusters of competitors. These locations must have that 'extra
something' that makes competitors fight for a store space within the same area.
Keen observation is required for an entrepreneur if he or she wants to draw several
insights from these favored locations.
Geography and Atmosphere Determinants
 Another way of looking at a location or place to sell the product or service can be
based on two major place determinants: geography and atmosphere. Within each
determinant, there are extreme opposite qualities that create a dilemma for the
entrepreneur. To better understand what these dilemmas are, let us take a look at
each one of these determinants.
 For the geography determinant, there are six decision tensions:
1. Concentration versus Destination
2. Access versus Abundance
3. Clustered versus Dispersed
4. Developed versus Underdeveloped
5. Physical versus Virtual
6. Upscale versus Downscale
 Entrepreneurs prefer places where there is a large concentration of target customers
(e.g., commercial centers, malls). Nowadays, modern transportation means and the
longing to be relieved from city living-related stress have paved the way for
destination places.
 Access is the ability to reach a place easily and inexpensively. Twenty-four-hour
convenient stores and nearby community or strip malls may offer easy access to
customers but their product and service offerings may be limited unlike large
commercial malls that offer a wider range of products and services.
 Clustered competitors allow customers to choose from a great variety of product
offerings. The clustering of many sellers attracts many buyers. On the other hand,
dispersed competitors experience better business results in certain industries
because they practically 'own' the market located within the area of business.
 There is also some tension in choosing to locate in highly-developed areas of
business versus locating in relatively underdeveloped areas. Developed areas would
have ready-made markets and all the utilities and transportation systems in place but
tend to be more expensive than underdeveloped areas. The latter may be cheaper to
locate in, but the market would take time to grow and all the usual amenities might
not yet be in place.
 The Internet has enabled the proliferation of virtual market places where customers
and sellers converge at the comfort of their own homes or wherever they are
through computers, laptops, or mobile devices. This defies the traditional way where
 the customer has no choice but to go to the shop where the product or service is
available no matter how long it takes them to get there. Now, everything is just a
click away and it does not make any difference whether you are just buying one item
or in bulk. In fact, some people find virtual shopping more convenient because it
spares them the hassle of getting stuck in traffic for long hours. However, there is
limited interaction between the seller and the buyer and the latter will not have the
opportunity to taste, feel, or smell what he or she is buying.
 Finally, there is tension between choosing upscale places versus downscale places.
The more well-off customers can afford to spend more in upscale places. Downscale
places have the advantage of attracting the masses who might have lower purchasing
power but greater numbers.
 For the atmosphere determinant, there are five decision tensions:
1. Formal versus Informal
2. Exclusive versus Public
3. Conservative versus Adventurous
4. Aesthetics versus Functionality
5. Minimalist versus Maximalist
 Atmosphere refers to the state or condition of the environment, which affects the
mind and mood of customers, either in a positive or negative way. Atmosphere
brings out the intangible qualities which customers are looking for (e.g.,
peacefulness, excitement, beauty, bliss, sorrow) through the tangible or physical
manifestation of the place (e.g., light, color, texture, shape, scent, sound,
temperature, taste, etc.)
 A formal atmosphere projects a stylized, classy, highly-organized, and well-structured
image for the place. It gives customers the feeling of elegant tradition and civilized
order. On the other hand, an informal atmosphere projects a casual, easy-going,
unstructured, and unpretentious image for the place.
 Exclusivity is the preferred atmosphere by some customers who want privacy and
elitist isolation. The opposite feeling is desired by customers who want a public
atmosphere, one where people from all walks of life can congregate.
 Some customers do not want to take risk and want a conservative atmosphere, one
where they can feel safe and secure. These customers want to experience the
familiar, the tried and tested, and the "normal." At the other end, customers crave
for adventurism. They want to try out-of-the-ordinary escapades.
 There are customers who go for the aesthetics of a place while others go for the
functionality of the place.
 There are customers who do not want clutter in the atmosphere. They like the
minimalist approach and believe in the adage that "less is more." The opposite is true
for customers who are maximalists. They like everything to be in one place
altogether.
 The geography and atmosphere decision tensions provide alternative choices to the
marketing strategist. The final decision would depend on the positioning of the
enterprise and its products in the marketplace.
PEOPLE
 People are the ultimate marketing strategy. People sell and push the product. People
search hard to find the right market. People distribute, promote, price, and sell the
products in the most attractive market places. People aim to please the customers
through continuing service and product enhancements long after the customers have
bought the product. People are the regular contact points between the enterprise
and its market.
 The people in a marketing organization play a crucial role in the success of the
enterprise. At one end of the spectrum, they are conducting the market and
consumer research that would lead to the development of product(s) and the
formulation of the marketing strategy. At the middle of the spectrum, they are
devising the marketing plans and programs that would be translated to the specific
elements of the marketing mix. At the other end of the spectrum, they are
contacting, reaching, and convincing customers to buy the product(s).
 The market strategizing must be matched by the footwork that goes into distributing
and selling products. One without the other will fail. If all the marketing research and
planning work did not produce the right products for the intended customers, then it
would be extremely difficult to distribute and sell the products. The wrong products
need a superhuman sales force with charismatic powers. The right products only
need good distribution channels and an effective sales force.
 The marketing efforts of people are organized at four levels: (1) to create customer
awareness; (2) to arouse customer interest; (3) to educate customers as they
evaluate their buying choices; and (4) to close the sale and deliver the products.
 To arouse the interest of customers, the enterprise can use several people or
organizational modalities. The first modality is to outsource the people from
advertising agencies, events management outfits, call centers, and telemarketers.
The second modality is to build in house capabilities by hiring market researchers,
brand managers, salespeople, public relations officers, website writers,
orchestrators, etc. The third modality is to collaborate or enter into partnerships with
principals, distributors, dealers, and industry associations
 Educating customers in their evaluation process requires the enterprise to know the
customer's decision-making process.
1. What and who are involved in the buying process?
 2. Where are the customers in the buying process? Are they still canvassing and
"shopping around"? Are they currently focusing on a few candidates? Are they
seriously evaluating the company's product?
3. What are the next steps of the customers and how can the company facilitate
their next steps? What else do the customers need to know and what issues
must be addressed by the marketer?
 Finally, the sale must be closed and the products should be delivered to the
customer. Closing the sale demands that the product be available, adequate,
acceptable, and affordable.
 Availability means that the enterprise has the goods or services on hand.
 Accessible means that the customers can easily get the product from their usual
buying places or the products can be conveniently delivered to them.
 Adequate means the product meets the quality and delivery specifications of the
customer.
 Acceptable means that the customer is convinced by the selling points of the
product, finds very little or no objectionable features in the product, and accepts the
conditionality, warranties, and amenities given by the seller.
 Affordable means the price and payment terms are right.
 The organizational modality to educate the customers, to help them in their decision
making process, and to close the sale would depend on four variables.
1. Is there a need for high contact (face to face) or will low contact (Internet) be
sufficient?
2. Is there a need for high accessibility? If so, the company requires distributors,
dealers, branches, and franchisees to expand their reach. Alternatively, they
need a very fast, reliable, and economical delivery system
3. How heavy or light is the transaction cost? High transaction cost products need
new competent people to sell them.
4. Does the customer need a lot of sale servicing and after-sales servicing?
PROMOTION
 Promotion is the explicit communication strategy adopted by an enterprise to elicit
the patronage, loyalty, and support not only from its customers but also from its
other significant stakeholders.
 It encompasses all the direct communication efforts of the enterprise, such as
advertising, public relation campaigns, promotional tours, product offerings, point-of
sale displays, websites, flyers, emails, letters, telemarketing, and others. Indirectly,
the enterprise communicates through the quality of its products and attractiveness
of its packaging. It also communicates indirectly through the services rendered by its
people. It likewise communicates indirectly through its location, its office premises
and branches, and its pricing strategy.
 Effective promotion depends on three critical factors: the credibility of the
communicator; the message and the medium of the message; and the receptiveness
of the audience to all that is being communicated.
 Before crafting promotion and communication strategy, the communicator must
profile the target audience very well. In business, this requires some research on who
exactly is the market audience, what they are looking for in a particular product
offering, and what it will take to convince them to purchase the product offering.
 For a business promoter, it is important to get a very positive emotional reaction
from the target audience. All messages must make an impact on the target audience
— sensory, emotional, and intellectual impact at that. Therefore, all messages must
start from where the customers are, not from where the enterprise is. The only
exception is when the enterprise has gained so much credibility and loyalty from the
audience that anything it says is taken as gospel truth.
 In developing a promotion campaign, the enterprise should start with the target
audience in mind.
 At the beginning of its operations, the enterprise may have a very limited market to
cover. The narrower the market coverage is, the more focused the promotion
campaign should be. Neighborhood flyers, word-of-mouth promotion, and house-to-
house campaigns might suffice for highly-localized businesses.
 For niche markets like vintage car enthusiasts or rare orchid growers, trade
magazines and active participation in special trade shows would be more effective in
directly reaching this exclusive audience.
 For the marketing of corporate services like advertising, business-process
outsourcing and management seminars, it is best to find contact persons, write
letters customized to the needs of the targeted corporate market, and make
impressive face-to-face presentations.
 As the targeted audience becomes bigger' the marketer can shift from a rifle to a
shotgun approach. Electronic mails, websites, letter blasts, radio broadcasts, and
print ads in certain publications might serve the purpose.
 For mass markets, television commercials, ubiquitous billboards, and high circulation
broadsheets, magazines or tabloids would already be cost effective and create quite
an impact. The idea is to match the size of the market with the medium used and the
resources of the enterprise. The enterprise should monitor the impact of its
promotion campaigns.
PRICE
 Pricing depends on the business objectives set by the enterprise.
 While price is a major factor for the customer in buying a product, it is not the only  There are other pricing objectives which the enterprise may have. It may offer
factor such as in the case of buying premium products. introductory or promotional pricing to launch a new product. It may charge different
 Non-price factors outweigh the price factor whenever a customer is buying a prices in different geographical areas to take care of additional logistics costs in
premium item because he or she is more particular about the 'premium-ness' in farther locations or to accommodate the lower purchasing power in poorer
terms of quality, the status or image that the product brings, shorter waiting time or geographic areas. Discount pricing may be given to loyal and regular customers to
immediate delivery, and other such decision criteria. maintain their patronage.
 Finding the right price for a product is, therefore, not a simple matter of adding a 
mark-up on the cost of a product or service, as some companies do.
 The enterprise should set the prices of its products or services based on its business
objectives such as the following:
1. Profit maximization
2. Revenue maximization
3. Market share maximization
4. Attainment of the desired prestige or quality leadership
5. Penetration, survival, or liquidation
6. Scarcity pricing or market skimming
7. Cost recovery
8. Subsidy pricing
9. Marginal pricing
 The first three pricing strategies pertain to the related dynamics of the different price
ranges applied across different product volumes or quantities while considering the
product costs incurred as these products are bought or sold.
 One market research approach in estimating the demand, given the different price
levels, is to conduct a price tolerance survey of randomly selected respondents.
 Prices could be set at a premium to project a quality image and to distance the
product from its inferior competitors. The idea is to attract customers who are willing
to pay extra for the quality difference.
 At the other end, prices can be set very low to survive in a competitive market or to
get rid of mounting inventories and convert them into cash. The other objective of a
low pricing strategy is to penetrate the market fully and overtake the competition.
 Products that are very scarce or rare would appeal to wealthier customers who wish
to belong to an exclusive club of owners.
 Cost recovery pricing charges a price that allows the organization to merely recover
its full costs. The purpose is to reinvest the sales proceeds to produce additional
products and reach out to more people.
 Marginal pricing sets the price higher than the variable costs of a product but lower
than the full costs in order to increase overall profitability. This practice is done to
utilize excess production capacity that would otherwise be unused.