Part III--The Market Analysis

The first thing you should do when forming a marketing plan is define the structure in which it will be presented. The structure of the plan should allow the presentation of strategic information in a logical and progressive manner. This structure should be prepared in a written outline detailing the progression of topics and how they will appear in the marketing plan.

The structure of a marketing plan will usually vary according to the business, its product or service, and the objectives of the marketing plan. Generally, however, each marketing plan will include the following information:

Executive summary

Product description

Market analysis

Competitive analysis

Product development

Operations

Goals & objectives

Marketing tactics

Financial projections

Summary

Keep in mind that the outline illustrated above is just an example. Go through and determine just what topics will be appropriate for your own marketing plan. You'll find that some of the items listed above will not be relevant to what you are proposing, or will require a different approach in order to define them in your marketing plan.

The Market Analysis

Within the market analysis section, you need to define the market that the product will be targeted toward. The market definition will start from a broad study of the industry and eventually conclude with a narrow definition of the market share which the product can reasonably attain.

The basis for this information will be drawn from your market research. Through the market analysis, you want to chart items like sales history, current demand and future trends for your product or service based on the customer base you have targeted. From this information you need to draw conclusions regarding the demand for the product or service: Is the demand for your product or service increasing, leveling off, or declining?

In addition to demand, you will also have to define the decision-makers who will buy your product or service. For instance, with disposable diapers, the wife is often the decision-maker as well as the buyer. You also need to address motivating factors behind a purchase. Why do these potential customers buy this particular type product or service? How do they buy it? When do they buy it? Where do they buy it? And what brands do they buy?

With these questions answered, you need to include information about the social and cultural aspects of the industry. This incorporates the demographic study of age, sex, income, educational background, homeowner or renter, and the economic conditions of the period covered by the plan.

The industry discussion should also cover the technological condition of your product class within the industry. Is your product high-tech, low-tech or no-tech? If high-tech, how often are new products introduced? This will have a direct bearing on the product life-cycle, which you also need to cover in this section of the marketing plan. In general, you want to provide a clear idea of just how technology affects the product or service and its marketability.

The distribution channels used in the industry should also be described in detail, along with any applicable laws and regulations.

From a broad discussion of the industry, the market analysis section should also serve to define the target market. This can be done in the same fashion as a Business Plan. In the Business Plan, we use a market equation to define the market share of the business. This market equation can also be used for the marketing plan as well.

Much of the market equation is based on defining specific market segments that fit the demographic profile of your prospective customers. Within the scope of the marketing plan, concentrate on describing these segments, providing a complete description of exactly who these people are. It may help to answer the following questions before proceeding with a segmentation of the industry:

1. What is the geographical location of the target market?

2. Is the geographical location subject to any special climatic changes or topography?

3. What is the predominant cultural, ethnic, religious and racial background of your target customers?

4. What is the social class of your target customers?

5. What is the sex of your target customer base?

6. What is the age range of your target customer base?

7. What is the education of your target customer base?

8. What is the income range of your target customer base?

9. What is the average household size of your target customer base?

10. What is the marital status of your target customer base?

11. What is the work status of individuals within the household?

12. What is/are their occupation(s)?

13. What member of the household is the decision-maker for purchasing your particular product or service?

14. What member of the household does the actual buying for your particular product or service?

15. How much disposable income is available to the average household?

16. What are the wants and needs of the target market?

17. What are the key traits of your product of service?

18. How frequently is your product or service used?

19. What is the size of the market?

20. What are the growth trends of the market?

21. What is the technological environment of your product or service?

22. Are new products introduced frequently in this industry?

23. Are there any laws or regulations that will affect the marketing of the product or service?

Confining the description of your target market to that segment of the industry that is most desirable for your proposed product or service will also allow you to maximize your resources more effectively. If you try to market your product or service through too many market segments, you will squander your resources without effectively reaching any of them.

In your target market analysis, you should include arguments indicating the advantages of focusing this market over other segments. You should also include the overall size of the target market in relation to the industry, as well as demographic characteristics, geographics, psychographics and lifestyle. Developing a thorough understanding of your customers is as important as knowing your own capabilities and those of your firm or department.

Illustrated below is a market analysis section developed for the biodegradable-diaper example.

Sample Market Analysis

Today, babies mean big business. Over the last few years, retailers of baby products have witnessed sharp increases in their profits. According to the latest figures from the Juvenile Products Manufacturers' Association (JPMA), sales of infant products have topped the $1.6 billion mark. And that excludes clothing and some $12 billion worth of toys. It also doesn't account for the $750 million baby-food market and the $3 billion diaper industry. Altogether, sales have grown close to $17 billion a year.

Sales seem to be linked more to changing needs than to a true boom in population, although baby boomers are reaching their peak childbearing years. But beyond these demographic factors, the changing attitudes and spending patterns of millions of baby-boomer parents are fueling the surge in the infant retail industry.

Closely linked to this surge is an increase in disposable-diaper sales. Currently, the disposable diaper market accounts for $2.7 billion annually according to the JPMA, up from 1979, when disposable diaper sales were only $700 million. That means that the disposable diaper market has grown by close to 400 percent since 1979. With projected growth for the upcoming year pegged at 15 percent, sales will reach an estimated $3.1 billion.

While the overall disposable diaper market is projected to continue its growth in the foreseeable future, the market is beginning to level off and enter a mature stage. The primary concern of producers in the industry is to find gaps in the market that will create future trends. Studies commissioned by Softie Baby Care, Inc., and conducted by Timmons Research have revealed that both existing parents and prospective parents have a deep concern over the impact regular disposable diapers have upon the environment. Over 60 percent of the respondents were extremely concerned about the environment and the effects of non-degradable diapers, 20 percent were mildly concerned, 15 percent were concerned, and 5 percent used cloth diapers or a service. Clearly this survey points to the importance parents are placing upon the environment. Below are the results of the Timmons Research survey.

Consumer Attitudes Regarding Non-Degradable Disposable Diapers

Extremely Concerned--60%

Mildly Concerned--20%

Concerned--15%

Cloth Diapers--5%

Using 1,000 parents as total population: 60 percent = 600 parents that are extremely concerned about the effects of non-degradable diapers upon the environment.

Based on statistics from the Census Bureau, over 1.6 billion pounds of non-degradable disposable diapers are ending up in garbage dumps across America annually. This alarming fact is a real concern for many parents -- so much so that some are turning to cloth diapers and diaper delivery services.

Working Mothers

One of the reasons disposable diapers are enjoying overwhelming popularity compared to diaper-delivery services and cloth diapers is the increase in the number of working mothers. According to the Bureau of Labor Statistics, 50.4 percent of all married mothers return to work before their children's second birthdays. The percentage of working women continues to rise, and by the end of the 20th century, women should make up 47 percent of the work force in the U.S.

This creates a multitude of problems for women with new babies. Caring for a baby is a time-consuming, monumental task. And for new mothers who also hold jobs outside the home, juggling work and family responsibilities can often prove overwhelming. With both the mother and father working, time is at a premium and parents can no longer afford to sit around waiting for the wash to finish. That is why disposable diapers have become the diaper of choice for parents.

Industry studies indicate that over 70 percent of disposable-diaper purchases are made by households in which the mother works. They also indicate that the mother is the decision-maker in over 80 percent of the households when it comes to selecting diapers, and are also the buyers in 95 percent of the households.

Income Factors

Diapers are considered a necessity and not a luxury item to parents. Income is not a consideration when it comes to buying diapers, but it is a factor in determining what kind of diapers to purchase. Based on the Timmons Survey, there was a definite income-to-price relationship that influences the purchase decision of the household. Among more affluent homes with incomes of more than $30,000 annually, over 90 percent purchase name-brand disposable diapers, 9 percent purchase cloth diapers, and the other 1 percent utilized a diaper service. On the other hand, among households with incomes of less than $20,000 annually, 40 percent of the respondents used generic or store-brand disposable diapers, while the remaining 60 percent used cloth diapers.

Purchasing Factors

Equally important to the purchase decision, according to the Timmons Survey, is the place where disposable diapers are purchased, as well as the frequency, average quantity, and how they are purchased. 41 percent of purchases for disposable diapers are made in supermarkets, 19 percent of the purchases are made in specialty stores, 18 percent are made in discount stores, 13 percent are made through chain stores, and 9 percent are made through miscellaneous avenues like membership warehouses.

Disposable diapers are purchased an average of once a week by 92 percent of the buying market. The other 8 percent purchase disposable diapers an average of two times per week. In addition, the Timmons Survey also indicates that coupons are used heavily in supermarket purchases of disposable diapers, with over 70 percent of those households purchasing through this distribution channel using coupons.

The Product

Introduced in the 1960s, disposable diapers have gone through a number of changes including changes in fasteners, liner material, sizes of the pad, and even colored patterns, but the main appeal of disposable diapers is still the convenience, and this is very important to working mothers. Made of non-degradable plastic, disposable diapers are used once, then thrown away. This removes the extra work of washing cloth diapers.

Plastic is by far the most expensive ingredient in the production of disposable diapers. The plastic is a highly durable material that is highly resistant to weather and chemicals. Because of the structure of disposable diapers, they cannot be broken down by sunlight or through natural deterioration, creating a huge amount of non-degradable waste.

Biodegradability, therefore, becomes a highly desirable added benefit to consumers. In fact, the major trend among manufacturers is the development of a cost-effective agent that can be included in the molecular structure of the plastic diaper to cause it to disintegrate upon extended exposure to environmental elements. This development would promote a significant change in the disposable-diaper industry and how it is viewed by consumers.

In part IV of our Marketing Plan series, we'll be covering the Competitive Analysis. Tips are updated daily at 5:00a.m. PST.