PART 2:

Recognizing Potential Markets

How can we identify the
needs of the market?
 Identify the Market Needs

 In starting a business, one good question to

have in mind is if there is a consumer need
for your product. Unless it does, you may
need up developing a plan, a product or a
solution that really doesn’t have a problem to
solve, which also means there is no market to
buy your product.
 Importantly, business exist to give solution to
customer’s problems and meet their needs
better than the competitors in the
marketplace, in a reasonable price.
 A problem or need is a condition when
consumers have the requirement for a solution
that either does not exist, or the available
solution have some limitations or gaps that
needs to be filled. Successful businesses identify
these opportunities to offer products or services
and attempts to fill them with solution.
Examples:
 YouTube becoming the second largest engine,
next to its own parent company Google. There
is a need for consumers who prefer video
contents be played rather than reading.
 Podcasting gives opportunity to people who
spends hours in driving and can now listen to
different audio programs.
 Uber passengers save times in waiting in the
taxi line.
 The key point to think is, as an aspiring
entrepreneur, you want to identify what
the market (consumers) say is a
problem, and not what you believe is
the problem.
 Another noteworthy point to think
about is to not define your business
around the product or service. Instead,
define the business around the problem
or customer’s need.
To help identify the problem, ask
question like:
 What are the consumer’s main concerns?
 What conditions or circumstances that
are preventing consumers from getting
what they want?
 Why are consumers seeking as solution
to their problem?
 “A market is never saturated
with a good product, but it is
very saturated with a bad one.”
- Henry Ford
 Needs as the Motivation for Buying
Products
 Consumers buy products because of needs that
requires satisfaction. Need is what propels
buyers to buy a product. Very need must be
satisfied by a specific product.
 Knowing the needs of the market is highly
important in order for them to become loyal and
even stewards of companies that they love and
support due to the products that a valued
company creates.
The Maslow’s Hierarchy of Needs

Self-
Actualization

Esteem

Love/Belonging

Safety

Physiological
1. Physiological
Needs
This is the first stage in the hierarchy of needs.
Basic needs are the requirements for human
existence. If these requirements are not met, the
human body cannot function properly. Physiological
needs are the most vital and therefore should be
met first.

Examples: air, water and food as requirement for survival in

all animals, as well as human. Clothing and shelter provide
necessary protection. While maintaining adequate birth rate
shapes the intensity of the human sexual instinct, sexual
competition may also shape said instinct.
2. Safety Needs

This is the second stage in the hierarchy of

needs. Once physiological needs are satisfied,
safety needs takes precedence and dictates
behavior.

Examples: personal security, financial security,

heath and well-being, safety net against accidents
and illnesses and their adverse impacts
3. Social Needs

This is the third stage in the hierarchy of

needs. This is also known as the stage of love
and belongingness.

4. Esteem Needs

This is the fourth stage in the hierarchy of needs.

Once basic needs have been satisfied, esteem needs
becomes essential to an individual. Once an
individual have adequately met their need for love
and belongingness, they can begin to cultivate
positive feelings of self-worth and self-esteem.
These needs includes:
 Self-esteem
 Respect
 Achievement
 Confidence
 Recognition
 Accomplishment
5. Self Actualizing
Needs

This is the fifth and the last stage in the

hierarchy of needs. This level pertains to
what a person’s optimum potential is and
realizing that potential.
 Seeking, Screening, and Seizing
Opportunities for Business

 A successful business is all about looking and grabbing

opportunities when they appear. Some business owners
do not find it that easy to take hold of opportunities,
much less see them. Other times, we see opportunities
but we do not take advantage of them simply because
we feel they are nothing more than problems as well as
hardships of starting something with almost nothing. A
pure breed entrepreneur, on the other hand, sees
problems as opportunities to start and grow a business.
 PLANNING THE BUSINESS

Planning – it means getting into the details

of what the organizational goals and how to
attain them. In manufacturing business
setting, it involves planning for (1) the
product, (2) the process, (3) facility
location, (4) facility layout, and (5) the
jobs.
 Planning the Business

1. Product Planning - it involves: a) how

long the product meets customer’s needs; b)
how long it takes for the product to make and
to be marketed, and c) the total cost to the
customer.

2. Process Planning - it deals with

determining the specific technologies,
procedures and systems required to produce
products or create services.
3. Facility Location Planning - it deals with the
identification of the place where the manufacturing process
will be located and services will be offered. The criteria
that should serve as guide in facility location planning are:
 proximity or appropriate distance to target customers
 business climate and the market environment
 total costing
 transportation facilities and infrastructure
 quality of labor
 supplies
 location of company’s other facilities
 peace and order condition
 government laws, rules and regulations
 environmental regulations
 host community
 competitive advantage
4. Facility Layout Planning - it involves the
placement of departments, workstations,
machines and inventory storage within the
factory. The objective of facility layout
planning is to ensure smooth workflow. The
factors to consider in this planning are:

a)Objectives and purposes of the system in

increasing productivity
b)Demand for product and service
c)Number and volume of operations
d)Space availability
5. Job Planning or Job Design – is the function
of specifying work assignments of each employee
and/or group in an organization. The objective is
to develop job structures that meet the
requirements of organizations. Job design satisfy
employees’ personal and individual requirements.
The areas to consider are:

a) task to be done a) reason for hiring

b) qualification of b)performance
worker measurement
c) physical location c) motivation
d) working time d) training
 PRODUCT PRICING
Regardless of the type of the product or service, the
price of the product or service charge will have a direct
impact on the success of the business. Nonetheless,
pricing strategies can be difficult; the basic rule of
pricing are straightforward:
 all prices must cover costs and profits
 the most effective way to lower prices is to lower costs
 review prices recurrently to make sure that they
reflect the dynamics of cost, market demand, response
to competitors, and profit objectives
 prices must be established to assure sales
 Before setting a price for a product or service,
it is very important to know the costs of running
the entire business. If the price for the product or
service doesn’t cover costs, the cash flow will
suffer, and the business will eventually fail.
To determine how much cost to run a business,
include property and equipment leases, loan
repayments, inventories, utilities, financing costs,
as well as salaries, wages and commissions.
 Most importantly, add profit in the
calculation of costs. A great strategy is to
treat profit as a fixed cost, like a loan
payment or payroll, since no one is in
business to break even.
Prices are generally established in
one of four ways:

1. Cost –Plus Pricing

Most manufacturers use cost-plus pricing.

The key to being effective with this method is
making sure that the “plus” figure does not
only cover all overhead costs but makes the
percentage of profit you require as well. If
your overhead figure is inaccurate, you risk
profits that are too low.
Here is a sample calculation of cost-
plus pricing:

Cost of materials P50.00

+ Cost of Labor P30.00
+ Overhead P40.00
= Total Cost P120.00
+ Desired profit (20% on sales) P30.00
=Required sale price P150.00
2. Demand Pricing

This is determined by the combination of

volume and profit. Products are priced depending
on the sources. Retailers, discount chains,
wholesalers, as well as direct mail marketers are
examples of goods whose price are determined by
market demand.
A wholesaler buys greater quantity than a retailer,
which results in purchasing products at a lower unit
price. the wholesaler profits form a greater volume of
sales of a product priced lower than that of the
retailer.
 This is difficult to master. One must
correctly compute beforehand what
price will generate the optimum
relation of profit to volume.
4. Markup Pricing

This is commonly used by manufacturers,

wholesalers and retailers. Markup is computed by
adding a set amount or certain percentage to cost
of a product. For example, if the cost of the
product is P100 and you want to have a markup of
P40, sell the product for P140. to find the
percentage of markup cost, divide the peso amount
of markup by the peso amount of product cost:
P40/P100=40%
 This is widely used within markets
with commodity products, which are difficult
to differentiate from one another. If there’s
a major market player, commonly referred
to as ‘market leader’, the company will
often set the price that other smaller
companies within that same market will be
compelled to follow.
 To use this, effectively, it is very important
to know the prices each competitor has
established, then figure out your price and decide
based on direct comparison, whether you can
defend the prices you’ve set.
Should you wish to charge more than your
competitors, you should be able to make a case for
a higher price, such as providing a superior
customer service. Before finalizing the prices,
make sure you know the level of price awareness
within the market.
 Pricing Basics
In pricing products, the entrepreneur or
business owner should be aware with pricing
structures. It was mentioned that every
product or service must be priced to cover
production, wholesale cost, overhead, etc;
plus reasonable profit. Factors like high
overhead, (i.e. mall or shopping center
locations), shoplifting, theft, pilferage, and
increases in product cost and freight expenses,
sales and discounts affect the final pricing.
 Other Things to Consider in Pricing a
Product or Service

1. Overhead Expenses

It refers to all non-labor

expenditures required to operate
a business. It can be fixed or
variable.
 a) Fixed Expenses – these costs are fixed
and scheduled which must be met month to month. It
includes rents, mortgage payments, depreciation on
fixed assets such as delivery vehicles equipment,
salaries and associate payroll costs, liability and other
insurance utilities, and legal accounting costs. These
expenses do not change whatever the company’s
status is in terms of revenue.
 b) Variable Expenses – these are the
expenses that fluctuate from month to month which
are affected by sales and other factors like
promotion, seasonal change and variation of prices of
supplies and services. This includes expenses for
telephone and communication, office supplies,
printing, mailing, packaging and advertising. When
estimating this expenses, it is helpful to use average
figure based on an estimate of the yearly total.
 Other Things to Consider in Pricing a
Product or Service

2. Cost of Goods Sold

It is also known as “cost of sales”, refers to

your cost to purchase products for resale or to
your cost to manufacture products. Freight and
delivery charges are usually included in this
figure. Normally, the cost of goods sold bears a
close relationship to sales.
 Consumer’s Evaluation of the
Purchase Process

As a business owner, you will always

want to look for ways on how to make
more sales and deliver value to your
customer. One of the best way to know
what to offer them, is to know what their
thought process is before they buy a
product or avail services.
 Buying decisions are influenced by
availability of disposable income of the
buyers. A typical Filipino buyer will want to
make sure they make the best buying
decision. People as customer will always look
for ways to maximize their resources. They
would want to buy what they need where it
is nearly available.
These are the factors that affect consumer’s
decision to purchase product:

1. Price – it is probably the one that

gets the highest consideration, especially
in the Philippines. Consumers want to
make sure that they get the value for
their money, therefore most buyers think
about affordability.
2. Product Quality – a common connotation
says that high priced products are high
quality products. Consumers will always look
for products that has the worthiest quality
they can get from the price that they will
pay for.
3. Convenience – this is the reason why
there are a lot of convenience stores in our
country today. There is a big demand of
convenience especially that people are busy
at times and will want to buy products that
are available near their home location.
4. Impact of Promotion – Billboards are almost
everywhere our line of sight. TV advertisements
air a lot longer. Radio ad has been strengthened
since the last decade. Internet ads thru social
media platforms like Facebook, Twitter, IG, e-
Commerce websites, videos on YouTube and blogs
have been reaching out more customers more
than ever before. All these promotional efforts
done by companies are affecting the customer’s
decision to purchase these company’s products.
Choosing A Good Location

Location can make or break a

business.

Explain!
 Choosing A Good Location

Every entrepreneur wants to place a business

where customers can come easily and buy or
avail their products or services. You need
winning products or best services in town, but
putting the business in an appropriate location
might be the single most important thing you
do at start up.
 1. Customer Demographics
Defining your target market is important. As
startup entrepreneur, you will have to know
what type of lifestyle they have and how much
are they willing to spend for your product or
service.
Example: if you are starting a small canteen,
you might want to place your business where
students and office workers are in need of
breakfast, lunch and dinner meals.
 2. Accessibility
This is about your business being reachable
to your customers. If you will open a
carwash shop, for example, you will have to
place it in a location where there is a good
amount of vehicle traffic that will expose
your business to the market. The point is
that you will want to place it where you
can be easily reach by your customers.
 3. Competition
Either you are selling a product or services,
you have to consider your competitors.
Sometimes, having direct competitors in
your area is good because it means that the
industry is strong, i.e. in Banawe, QC where
almost every shop is a car parts and
accessory shop or in SM or Trinoma food
court where every shop has different types
of food.
 4. Population Density
As much as possible, you would like to
place your location where there is a
ready community of clients that are
available. For example, if you are
putting up a carwash, you want your
location where there is subdivision who
will need your service.
 5. Allowance for Future Growth

This is part of planning long term

for the business. Every business wants
to grow and expand. Is there
available space for real estate for the
business to expand its operation?
 6. Home-Based Business

Some business can be operated at home. In an

advent of internet, nowadays as a mom who
needs to take care of the kids can operate a buy
and sell business at home using a computer by
putting ads on different e-commerce websites.
When business is home-based, there should be a
clear physical and time boundaries between the
business and the home. The area for business
should be identified and the time for work
should be known to workers and clients.
 7. Financial Requirements

This is also known as the

“funding of the business” that will
depend upon the nature of the
enterprise and the product. For
example, buying and selling of
clothes and accessories may require a
small capital.
The trader buys the product from the
supplier or manufacturer on cash or credit,
and sells them also on cash or credit terms.
When the retailer needs a physical structure
and need to keep inventory of the products,
the capital requirements becomes bigger.
On the other hand, service business may
start as personal service of the individual
who may only need a home-based workplace
and therefore requires little capital
requirement.
 The Financial Plan will consider these Capital Requirements:

1. Fixed Capital – this is for assets that will last for a

long period of time such as: land, building, rental
deposits, improvements, machinery, equipment,
furniture, and tools.

2. Working Capital – this is the cash requirement in the

first few months from the formation of the business. This
is also for the day-to-day operation until the cash comes
in from regular business
3. Organization Cost or Expenses – this is the cost of
putting up the legal business entity. It is the amount
paid to lawyers and accountants in the writing of
contracts or agreements and fees paid to government
offices to register the business.

4. Contingencies or Unforeseen Costs – this maybe

an estimated amount for reserve for contingencies or
unforeseen events.
 Funds or Cash Source
Cash come from any of the following:

1. Personal money from the entrepreneur

2. loans from relatives and friends
3. loans from banks and other lending institutions
4. investors
5. government assistance programs
6. non-government organizations (NGOs)
 Rules for Financing
An entrepreneur should be guided by sound financing rules such as:

1. Know the cash requirements

2. know the best terms
3. know how and when to pay
4. Owner’s investment should be more than the borrowings
5. If borrowing are needed for fixed assets or working
capital; a) finance fixed assets from long-term borrowing and b)
finance working capital from short-term borrowings
Identifying Business Opportunities

Entrepreneurs usually start from

scratch, an idea that they want to
implement as a business. The term
start-up means creating a new business
from scratch. Start-ups could be a
business that provides customers with
new products or existing products with
some improvements.
 Source: from
Figure 4.5 – A Model of the Opportunity Alexander
Ardichvilli and
Recognition Process Richard N.
Cardozo, “A
Model of the
Prior
Entrepreneuri
knowledge of al Opportunity
markets and
Education customer
Recognition
Process.;
problems Journal of
Enterprising
Outcome: Culture 8, no.
successful 2 (June 2000)
Experience Entrepreneurial
alertness
opportunity
recognition

Personal Work
Networks
Experience Experience
 Activity:

1. Ask the students to brainstorm

some business opportunities
available in their community. List
down at least five (5) potential
businesses.
2. Discuss in class why you consider
them as opportunities.
 Sources of Business Ideas

1. Surveys – through this type of data generation

method, entrepreneurs will have awareness about what
customers are looking for and therefore an opportunity
of a business to innovate based on the responder’s
answers.

2. Training – this is probably the most home-based

business. For example, there are seminar that conducts
how to cook, bake, handcraft and even repair things.
3. Experience – this is probably the best and effective
source of business idea. This can be from work or even
school.
4. Hobbies – this can be a good business idea because it
is something that an entrepreneur is fond of doing and
can enjoy while doing the business.
5. Talents – this is something that can be innate in a person,
or that has been honed for years. Someone’s talent can be a
good idea for business, because like a hobby, it is something
that can be enjoyed and the entrepreneur will not have the
feeling of working while doing it.
6. Market Gaps – it is also known as ‘niche’, spotting a
gap in the market can also form a great business idea. It
can mean an important area in the market that is not
occupied and therefore can be filled with product to
satisfy the market.

7. Events – a business can also be created through

attending events in which new ideas are exchanged. It is
also a venue where people with similar interests gather
and where the birth of new business can happen.
8. Media – it reading magazines, newspapers and
such published materials that contains business
related issues can help one bring about an idea.
Even internet nowadays is a great media source of
business ideas. Anyone can check the internet how
to cook or bake and can sell products wither
without a physical store of online.
9. Shows and exhibitions – these are organized by
companies. By seeing what other people and companies
present in the shows and exhibitions, an individual can come
up with idea and provide even an improved version of what is
shown in shows.

10. Merging Business – this is where existing businesses

come together to merge their businesses and/or brands,
develop new products that represent both companies
towards achieving organizational goals and getting more
customers.
 Market Analysis

This is a quantitative and qualitative evaluation

of the market. The goal is to look into the size of the
market both in volume and in value, the various
customer segments and buying patterns, the
competition, and the economic environment in terms of
barriers to entry and regulation.
How to do a Market Analysis

1. Demographic Segmentation
2. Target Market
3. Market Need
4. Competition
1. Demographic Segmentation – this is dividing the total
people in the market based on the customer
demographics. It portions the market on the parameters
like age of customer, gender, income, family life cycle,
educational qualification, socio-economic status, religion
etc. This helps in creating groups exhibiting a similar
need and want, and can be targeted in a much more
better way by companies.
2. Target Market – this is a group of customers that a
business has decided to aim its marketing efforts
towards. As an entrepreneur, one should have well-
defined target market to be able to create a strong
marketing strategy. Product, price, promotion and
place are the four elements of a marketing mix that has
to be taken into consideration in defining the target
market.
A target market consist of customers that share similar
characteristics such as age, location, income and
lifestyle.
 A target market consist of customers that
share similar characteristics such as age,
location, income and lifestyle.
A target market can be divided into
primary and secondary. Primary target market
are those market segments to which marketing
efforts are primarily directed and secondary
market are less import.
Recognizing the Target Market
1. Analyze the product or service – write a list of product or
service features and benefits to the customer. This will allow
the prospective customer to understand how the product could
help them.
2. Choose specific target demographics – determine only who
has a need for your product or service, but also who is most
likely to buy it. Study the following factors: age, location,
gender, income level, educational level, marital or family
status, occupation, t=ethnic background.
3. Consider the psychographics of your target –
psychographics are the more personal characteristics of a
person: personality, attitudes, values, interests/hobbies,
lifestyles and behaviors.
3. Market Need – customers are the ones buying from a
business. Getting to know what they like, how much
they spend, what they enjoy and what they need will
give an entrepreneur a better understanding of what
these customers will want from the business. These
things will enable the company to create a product or
services into something that will sell to the market being
targeted.
4. Research your Competition – competitors are like each
companies enemies who always want bigger portion of the
market share. By knowing the competitor, an entrepreneur
will be able to compare themselves to see what things are
effective and works for the other companies in the industry.
This can be done by researching on several internet
platforms like Google and Yahoo as well as social media
sites like Facebook, Twitter and YouTube. Few other ways
to do research include asking customers, attending
conferences and even hiring or pirating key employees of a
competitor company.
 Product Planning and Development
Process

1. Idea Stage – ideas for product or services in this

stage are filtered in order for the company to
maximize its resources for the ideas that are most
viable. Company sets criteria in terms of values and
benefits to the market. It is very important at this
stage to test if there is a value in the new idea that
will benefit both the market and the company.
 To determine accuracy of the need for the
new idea, it is helpful to define the potential
needs of the market in terms of: timing,
satisfaction, features, market structure and
size, and economic conditions.
 To determine the value of the new idea to
the firm, financial scheduling – such as cash
outflow, cash inflow, contribution to profit,
and return on investment – needs to be
evaluated in terms of other product and service
ideas as well as investment alternatives.
2. Concept Stage – after a new product or service
idea has passed evaluation in the first stage, it
should be further developed through interaction with
customers. In the concept stage, the refined idea is
tested to determine customer acceptance.

3. Product Development Stage – in this stage,

consumer reaction to the physical product or service
is determined. A tool frequently used in this stage is
the consumer panel, in which a group of potential
consumers is given product samples. Participants
document their use o the product and give feedback
about virtues and deficiencies.
4. Test Marketing Stage – it is the last step in the
evaluation process; this provides actual sales results,
which indicate the level of acceptance of consumers.
Market testing is done to increase the certainty of
successful commercialization.