The last part of the situation analysis focuses on the demographic and behavioural factors of your market. Here is where you determine the market size and customer preferences – both business to business and business to customer. This information also highlights any gaps in knowledge about markets and customers, which helps you determine what additional market intelligence is needed to make more effective decisions.

Key information will include: Customer profile, geographic aspects of products, market characteristics, decision-maker’s identity, customer motivation factors, level of customer awareness and segment trends.

Customer profile: Describe the existing and potential customers that you or your distributors serve. Profile them by type of products used, level of service required, price sensitivity and promotional support. Also look at customer purchases by frequency, volume and seasonability of purchase. Additional information might include issues related to maintaining customer inventory levels, just-in-time delivery, retail-stocking policies and volume discounts.

Geographic aspects: Define customer purchases by region and any territory limitations you encounter.

Market characteristics: Access demographic, psychographic (lifestyle) and other relevant characteristics of your customers. Look at purchase patterns and any distinctive behavioural styles, as well as attitudes toward your company’s products, services, quality and image.

Decision-maker’s identity: Define who makes buying decisions and when and where they are made. Identify the various individuals or departments that may influence the decisions.

Customer motivations: Identify the key motivations that drive your customers to buy your product. Why do they select you over a competitor? (Customers may buy your product because of quality, performance, price, company image, technical/customer service, convenience, location, delivery, access to upper-level management, friendship or peer pressure).

Customer awareness: Define the level of consumer awareness of your products. To what extent do they (1) Recognize a need for your product? (2) Identify your product, brand and company as a good supplier? (3) Associate your product/brand/company with desirable feature?

Segment trends: Define the size and character of various segments. A segment should be considered if it is accessible, measurable, potentially profitable and has long-term growth potential. You can consider segments as a defensive strategy to prevent inroads of a potential competitor through an unattended market segment.

It is advisable to spend time getting this content right as it will help you understand where exactly you anticipate future business coming from.
Target market

Understanding your target market is vital to the success of your business. Small businesses often fail not because the idea or the business is wrong for the time but because gaining a critical understanding of their target market is often given low priority.

Your target market could play one or all of the following roles during the buying and consumption cycle:

The initiator – This is the person who gets the ball rolling with a product or service. For example, ‘we need a family holiday’, or, ‘the kids are out of toothpaste, they need a new toothpaste’.

The influencer – This role can be played by multiple-people from family members, friends, service providers or colleagues. Using the holiday example, a key influencer could be your partner, children or travel agent. For toothpaste it will probably be the children who prefer a particular flavour or brand over another.
The decision-maker – This is the person who ultimately makes the decision for themselves or the whole family.

The purchaser – This is the person who makes the actual purchase. This person may or may not have been involved in any one of the stages preceding the purchase, or they may be the only person involved in the process. For example, if the mother of a household initiates, influences and makes the holiday destination decision, the father may complete the transaction, or the mother may continue on and make the purchase as well. With regards to the kids’ toothpaste, it will be a parent who purchases the product for the kids.

The consumer – This is the person or group of people who uses the product or services once they are purchased. In the family holiday example, it will be everyone who goes on the holiday. If it was toothpaste, it is just the kids.

Understanding the role each one plays helps you determine how to position your product or service to them and what they need to know. Family holiday destinations will include imagery, cues and sell benefits that appeal to everyone in the family. Toothpaste may focus on the benefits of its product that appeal to the mum and the flavour or special cartoon characters that appeal to the kids. It’s important to remember though that everyone who consumes will be a future influencer should the process for the same product or service be repeated a second time. If the kids didn’t like the toothpaste, they will let the parents know and it is unlikely they will ask for it again.

So, why is it important to know who your actual target market is?

Essentially, your target market is what keeps you in business. Therefore, it is imperative that you are attracting the right consumer to your business. Being too general with who you sell to will see you wasting resources, money and time and could mean that you are underestimating, or worse overestimating your audience and its size.

Identifying the right consumer for your goods or service is not always easy and it can change or diversify throughout your company’s lifecycle. As a result, you need to have in place a way of tracking consumer behaviour, so you can identify the changes in trends before they have a negative impact on your business.


PESTLE
Once you have completed this component of the background analysis, it’s time to tackle the PESTLE. The PESTLE is a mnemonic which in its expanded form denotes Political, Economic, Social, Technological, Legal and Environmental. It gives a bird’s eye view of the whole environment from many different angles that one wants to check and keep a track of while contemplating on a certain idea/plan.

There are certain questions that one needs to ask while conducting this analysis, which give them an idea of what things to keep in mind. They are: What is the political situation of the country and how can it affect the industry? What are the prevalent economic factors? How much importance does culture has in the market and what are its determinants? What technological innovations are likely to pop up and affect the market structure? Are there any current legislations that regulate the industry or can there be any change in the legislations for the industry? What are the environmental concerns for the industry?
All the aspects of this technique are crucial for any industry a business might be in. More than just understanding the market, this framework represents one of the vertebras of the backbone of strategic management that not only defines what a company should do but also accounts for an organisation’s goals and the strategies stringed to them.

(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at [email protected])