Chapter

Recognize and Understand the Market

3

Lesson 1 VALUE PROPOSITION AND UNIQUE

SELLING PROPOSITION

Before focusing on the topics of value proposition and unique selling proposition,
you must first know the marketing process. In a nutshell, marketing is all about knowing
the customers. Therefore, the marketing process starts with identifying the customers'
needs where you are tasked to create a meaningful value proposition. Next, you study
what the customers want or desire for you to build a unique selling proposition. From
there, it is imperative to identify the most strategic market or group to tap.

A value proposition (VP) simply states why a customer should buy a certain
product or service. Customers are very specific when it comes to their needs and their
desired benefits, so the value proposition should cater to those particular needs. Thus,
the value proposition is the major driver in customer purchase or service availment. The
startup entrepreneur will surely have a hard time thinking of a value proposition for his
or her business. The entrepreneur should bear in mind that a value proposition has to
be direct in addressing the problems of the customers, should have quantifiable benefits,
and should differentiate itself from the competitors.

The following are some tips for the entrepreneur on how to create an effective
value proposition to the target customers:

1. Prepare a situation analysis that details the problem(s) of the customers.

2. Make your value proposition straight to the point, simple, and specific; in short,
there should be no complications. Your value proposition has to target your major
objective.

3. Highlight the value of your product or service so that customers will easily get
what benefits you can provide.

4. Adapt to the language of your market. Ensure that your target market
understands clearly what you are trying to say and avoid putting unnecessary
and inexplicable phrases.
 5. Add credibility-enhancing elements such as actual testimonials from
customers, partners, and other stakeholders, putting specific assurance elements
and social acceptability metrics found in social media or press materials. Several
quality management certifications, such as the ISO seal, add more credibility to
the product or service that you're trying to sell.

6. Differentiate your value proposition with your competitors. Examples of value

proposition differentiators are the originality of the product or service, its
functionalities, or if the product or service can be tailor-fitted to the customer's
preference, among others.

On the other hand, a Unique Selling Proposition (USP) refers to how you will
sell the product or service to your customers. It addresses the customers' wants and
desires. After you create your value proposition, you have to figure out how to advertise
or promote certain unique features of the product or service that you're trying to sell.
You can do this in the form of product or service characteristics, promotion strategies
and tactics, distribution centers and supply chains, pricing, physical attributes or
physical evidence, human resources or human capital, and market positioning
strategies. The ability to craft an effective USP is a gauge on how well an entrepreneur
knows his or her product or service.

The following are some tips for the entrepreneur on how to create an effective
unique selling proposition to the target customers:

1. Identify and rank the uniqueness of the product or service attribute. This
is the most difficult part because you only need to choose one or two at the most.
That attribute will be your key to success, as this will compel customers to
purchase from you and not from your competitors. The unique selling proposition,
while it presents the best features of your product or service, should also avoid
competition. Put yourself in the customers' shoes and ask yourself, "Why should I
choose you over the others? Or, "Why should I deal with you at all?" Identifying
the unique selling point is a tough job and requires marketing research. The best
way to identify it is to identify the marketing mix (7Ps) and distinguish which
among those displays the product's unique features. The 7Ps will be discussed
later in this module.

2. Be very specific. Put details that emphasize the differentiator against the
competitors. This differentiator should be very compelling and should make the
customers think that they are really getting more value from you than the others.
By being specific, make sure that the USP does not rely on heavy, extravagant
promotion. The customers do not want to feel that they are being fooled.

3. KISS (Keep it short and simple). One challenge that marketers always face
is that the customers' attention span is limited and very easy to switch. Therefore,
think of a very catchy unique selling proposition in the simplest and shortest way
 possible. You can compare it with a headline of a newspaper or a Web site.
That's the first item that the customer will see.

Both the value proposition and unique selling proposition should be clearly
communicated to the target customers in the catchiest way possible. Common
communication channels include signage, Web sites, social media, print ads, television
and radio commercials, and mobile advertisements.

Sample VP and USP

 Lesson 2 Target Market and Market Size

After you understand the value proposition and the unique selling proposition,
now it’s time to understand the target market, customer’s requirement and market size.

A. Target Market

Market Targeting is a sage in market identification process that aims to

determine the buyers with common needs and characteristics. Prospect customers are
market segment that entrepreneurial venture intends to serve.
In targeting a specific market, it will exclude people even if it will not fit your
criteria. Rather, target marketing allows you to focus your marketing money and brand
message on a specific market that is more likely to buy from you than other markets.
Product is more affordable, efficient, and effective way to reach potential clients and
generate business.
Most entrepreneurs believe in the misconception that they can serve all types of
customers or, if not, a wide range of customers. Little do they know that this thinking
may lead to failure. Entrepreneurs must focus only on customers whom they can serve
beneficially because they will be wasting resources if they will target all, or worse, target
none.

The entrepreneur can tap a primary target market and a secondary target market
as resources are limited during the startup stage. With this, the probability of success is
higher as the entrepreneur can focus to sell to the identified customer groups. Market
intelligence, which includes customer profiling, drives the entrepreneur on what correct
strategies and tactics to employ. This can only be obtained through a meticulous market
segmentation process. Market segmentation is the process of grouping similar or
homogeneous customers according to demographic, psychographic, geographic
(location), and behavior. It is a necessary activity in marketing because it gives the
entrepreneur a holistic and general view of the market group that he or she is serving.
Therefore, there will be efficiency and proper logic in implementing marketing strategies
and tactics to this chosen market group.

It is best to create a persona(s) of the target customer to represent the general

characteristics and behavior of the target market. A secondary target market is also
necessary to spread out the capital expenditure and the risks as well. They are the
customers who don't have enough purchasing power or have fewer demands. They
may not be your primary target market, but they can be converted once effective
marketing strategies are implemented.

Demographic
 Demographic segmentation, also called socioeconomic segmentation, is the
process of grouping customers according to relevant socioeconomic variables for the
business venture. These socioeconomic variables include income range and social
class, occupation, gender and age, religion, and ethnicity. These data help the
entrepreneur target customers accurately and classify their respective needs, wants,
and desires. Demographic data can usually be derived from public documents or the
Internet, thereby giving the entrepreneur an easier task of collecting data. To further
validate the information gathered from the public sources, it is still best to do a random
sampling just to check if the data are accurate. The risk in focusing solely on
demographic data is that these data change with society. Therefore, the entrepreneur
must be alert with these changes.

Income range and the social class of the customers are very important factors for the
entrepreneur to consider because these represent the purchasing power of the market.
From here, the entrepreneur will be able to determine the extent to which the customers
can buy or avail of the service; therefore, he or she will have an idea on how the
profitability will look. The socioeconomic class of the Philippines according to the 2011
report of SWS (Social Weather Stations) is:

class E - 30% - P62 000 per year

class D - 60% - P191 000 per year
class C - 9% - P603 000 per year
class A & B - 1% PI 857 000 per annum

Occupation should also be considered not just to determine the customers' income but
also their daily routine where goods and services can be properly positioned.

Gender and age group are data that must be mined because the life cycle of
customers and their gender influence their buying behavior. Here are some practical
examples.

Sex and Age Group Potential Product or Service Demand

Male teenagers (13-19) Products: Trendy clothes, rubber shoes, soft drinks,
chips, prepaid cellphone load, sport apparel

Services: Cool hangout places, gyms, barber shops

Single females (20-30) Products: Beauty products, bags, clothes, perfumes,
magazines, shoes

Services: Spa, beauty clinics, gyms, beauty salons,

coffee shops, movie houses
Married couples with kids (30-50) Products: Food and grocery items, diapers, milk
products, baby clothes

Services: Theaters, babysitters, theme parks, travel

 packages
Senior citizens (60 onwards) Products: Fruits and vegetables, hair dye, medicines

Services: Travel packages, health services

Religion and ethnicity also should be taken to account because these affect the
way they buy products or avail of services. Examples are food choices, events and
holidays, traditions and beliefs, spending habits, and conservativeness. The
entrepreneur should include demographic items that he or she thinks are relevant to the
chosen business so that he can accurately align worthwhile products or services to the
customers.

Psychographic

Psychographic segmentation is a process of grouping customers according to

their perceptions, way of life, motivations, and inclinations. Perception is a process
wherein an individual receives external stimuli using the five senses of hearing, touching,
smelling, seeing, and tasting. A product service can be perceived differently by different
people. The customers' way of life will give an entrepreneur an overview of what
products or services can best suit the problems of the customers that happening on a
daily basis. A person's motivation can be either physiological or psychological.
Physiological motivations involve the needs of the person (e.g., food, clothing, shelter);
they seek to avoid pain and give pleasure. Psychological motivations involve customer's
preferences (what the customer likes or dislikes).

Motivations are also affected by their aspirations and deprivations, Aspirations

are what the customer wants to achieve (e.g., inner peace, financial stability, work-life
balance). Deprivation involves the customer's recognition of certain voids to fill (e.g..
lack of financial security, lack of love, lack of knowledge). For example, let's look at
Jacob, who comes from a low-income background. He wants to become one of the best
accountants, and so he aspires to go to one of the premier universities in Manila to
study accountancy. With this, he is motivated to uplift his reputation and his personal
value, as well as his status on the society or his appreciation of other people.

Customer’s inclinations involve preferring one product over another as a result

of gaining a refreshing experience when using the product, possibly due to the product's
unique features or due to it giving more value than other products. Inclinations also
encompass the customer's personal preferences. The entrepreneur must be aware of
what makes the customers buy the products, so he or she will know how to segregate
the customers based on their way of life.

Geographic

Geographic segmentation is simply grouping customers according to their

location. This is critical in the analysis of the target market as this encompasses the
cultures, beliefs, preferences, politics, and lifestyle of a certain geography. Geographic
segmentation can be as small as a street, a village, or a barangay. It can also be based
on municipality, city, province, or region. It can be as big as a country or continent
depending on the entrepreneur's business objectives.

This segmentation matters more if the locations targeted have different sets of
qualities mentioned previously. For example, meat products such as pork can easily be
sold in Region 3 (Central Luzon) and Region 4 (Cavite, Laguna, Batangas, Rizal, and
Quezon, or CALABARZON), but it will be difficult to sell in the Autonomous Region in
Muslim Mindanao (ARMM) and Region 12 or SOCCSKSARGEN (South Cotabato,
Cotabato, Sultan Kudarat, Sarangani, and General Santos City) because these regions
differ in religion. (Remember that Muslims do not eat pork.) Another example is the
establishment of a taxi business, which is more feasible in Metro Cebu than in Tawi-
Tawi because of the lifestyle of the people. Therefore, the entrepreneur should be able
to analyze the intricacies of the locations being targeted and group places that have
similar profiles depending on what is relevant to the product or service to be offered.

Behavioral

Behavioral segmentation is the process of grouping the customers according to their

actions. These behaviors are instigated by occasions, desired benefits, loyalty, and
usage of products or availment of services.

Occasions drastically affect the customers' buying behavior. The Christmas

season entices the people to buy gifts. The Valentine season encourages people to buy
flowers and chocolates for their special someone. The summer season elicits customers
to go to the gym to be fit, to the beaches and resorts to beat the heat, to book a trip for a
summer getaway, or to buy summer outfits. Birthdays and graduations induce
customers to go to buffet restaurants or hotels and resorts to celebrate.

Using customers' desired benefits in behavioral segmentation is efficient

because the entrepreneur determines the exact needs of the customers and offer the
most suited product or service for them. Examples include offering wash, dry, and press
services for busy office workers in the city because they don't have time to do this chore,
or offering 3-in-1 coffee for budget conscious customers and those who prefer instant
coffee.

Loyalty is the result of maintaining satisfied customers. The goal of every

entrepreneur is to inform, persuade, and remind customers to buy the product or avail of
the service consistently. Therefore, behavioral segmentation through loyalty is a major
key result area of the entrepreneur as it is more expensive to sell to new customers
than to maintain customers. Loyalty programs and rewards separate loyal customers
from the new ones.
 Usage of products or availment of service is also a behavior segmentation
factor that describes to the entrepreneur how often a product is being used or the
service is being availed. Therefore, he or she can group customers as light users,
medium users, or heavy users. For example, there are women who are occasional
users of makeup, and there are girls who wear makeup every day. There are men who
are occasional users of hair products, and there are men who apply wax or gel on a
daily basis.

Although segmentation is a strategic and an efficient way of classifying and

grouping customers, there is also a term in marketing called market aggregation.
Market aggregation happens when an entrepreneur wants to target a broader market
as possible because the product or service that the business offers is suited for an
undifferentiated market such as fruits, vegetables, rice, water, and bread, as well as
services such as haircut, plumbing, or transportation.

B. Customer Requirements

Customer requirements are the specific characteristics that the customers need from a
product or a service.
There can be two types of customer requirements:
1. Service Requirement
Intangible thing or product that is not able to be touched but customer can feel
the fulfillment. There are elements in service requirement like on-time delivery, service
with a smile, easy-payment etc. It includes all aspects of how a customer expect to be
treated while purchasing a product and how easy the buying process goes.

2. Output Requirement
Tangible thing or things that can be seen. Characteristic specifications that a
consumer expects to be fulfilled in the product. Costumer that will avail services as a
product, then various service requirements can take the form of output requirements.
For example, if the consumer hires a multi cab, then on-time arrival becomes an output
requirement. Customer buys gadgets (phone speaker), the specification like the
loudness and clarity are the output requirements.

C. Market Size

Market size – is simply the size the arena where the entrepreneur’s business will play.
It is the approximation of the number of buyers and sellers in a particular market.

Steps in identifying the market size

1. Estimate the potential market – the approximate number of customers that will
buy the product or avail the services.

2. Eliminate the customers who are probably unlikely to buy the products or avail
the services.
 3. Estimate the market share – the plotting and calculation of the competitor’s
market share to determine the remaining potion for the new venture.

Market share computation illustration:

Mr. Alvin Antonio, a budding entrepreneur, wants to establish a rice retailing

business in his area in Barangay San Isidro. He wants to know if this business is worth
his capital and effort. He dug deep and found out that there are approximately 500
families in Barangay San Isidro with an average of five members per family. He did a
survey and found out that only 475 families eat rice: they consume an average of 1 kilo
of rice per day. There are four other rice retailers in the area that have been there for 10
years already and they have equal market shares of 20% each. The other 20% of the
market is buying in bulk (per sack) from groceries or convenience stores. The average
net profit per kilo of rice is P10. How big is the market size and what could be the
potential market share of Alvin's rice retail business?

Market size of rice business in San Isidro

= Number of families who eat rice X average consumption per annum

Market size = 475 families X 1 kilo per day X 365 days

= 173, 375 kilos of rice

Market size profit = 173 375 kilos X P10

= P1, 733,750 per annum

The objective of Mr. Antonio in the first year is to capture the 20% of the market by
implementing marketing strategies in pricing (reduced markup of P2) and promotion
(free delivery of rice for five kilos and up) through text message or phone call. None of
the competitors have thought of or done these strategies yet. In the example, the four
rice retailers are considered direct competitors because they offer exactly the same
product and are structured similarly with Mr. Antonio's proposed business. On the other
hand, the groceries and convenience stores are considered indirect competitors
because they don't offer exactly the same product type (i.e., rice sold in sacks instead of
by kilo) and are not similarly structured but still compete with Mr. Antonio's business
indirectly.

Potential market share = market size X estimated market share

= P1, 733, 750 X 20%

= P346, 750