Business Unit 1.1 - Spotting a business opportunity
What is a business?
A business is an enterprise which manufactures goods or provides a service. This is done through the creative use of resources such as raw materials, machines and also labor. Necessary goods are purchased by the business from suppliers and then sold to their targeted customers.
Manufactured goods are tangible products while services are in-tangible products. Examples of manufactured goods could be clothes, books or food. Examples of services include education from an institute or a haircut.
Understanding customer needs:
A successful business requires satisfied customers. Entrepreneurs try to understand their target customers through market research. Market research allows an entrepreneur to distinguish how to satisfy their customers as all customers are different. These differences include; required/desired benefits, amount willing to pay, preferred media, quantities willing to purchase and when and where they will do so. Knowing this information about a customer allows an entrepreneur to understand how they might effectively attract customers.
Market research thus enables a budding entrepreneur to not only understand potential customers, but also the basic information regarding the specific market such as; size of the market, growth potential, existing competitors and the market segmentation. Data collected through market research is categorized into two: primary and secondary data. This is further divided into qualitative and quantitative data.
Primary data is accumulated first-hand for a specific reason. It's main sources include; observations, surveys(postal, on-line, telephone), focus groups and or experiments. Primary data collection is incredibly expensive and time-consuming. Secondary data is exiting data which had been accumulated for a different reason. It's sources include; Google, government departments, trade associations, trade related press releases, competitor marketing materials and market reports which can be bought at a price. Primary research in often only conducted to fill in the gaps left by secondary research.
Qualitative data asks open questions which are related to perceptions and feelings. It answers questions to do with 'why', 'would' and 'how'. Methods of collecting this form of data are focus groups and interviews. Quantitative data asks closed questions which relate only to facts and figures. It responds to questions in relation with 'how many?', 'how often?', 'when?' and 'where?'. Quantitative data is simply collected through surveys.
Market research will lead to an entrepreneur to segment a market close to accurately and then identify gaps in it through market mapping. Markets are segmented through the following; age, social class, location, culture or religion and gender. Market segmentation is necessary because it helps the business to be able to match customer needs more appropriately which would prove popular with customers creating better opportunities for growth and build sales for the business. Awareness of the segments in a market enable an entrepreneur to map the market and find their location within it.
Market maps are drawn to illustrate gaps in a market based on two variables such as price and quality. However, identifying a gap does not define a demand. This could become a disadvantage as it would not guarantee a positive result.
Entrepreneurs must identify their potential competition as well as potential customers to ensure that profit is made. Competitors could be a threat to the success imagined for the business as they will be trying to interest similar customers, so it would help to identify competitor strengths and weaknesses and lure target customers in a befitting manner. Competitors should be judged by; price, quality, experience, brand-image and business offerings.
Added value is the the difference between what a business pays it's suppliers and what they charge to sell the products or services to their consumers. It's the way a business increases in profit by making the product or service seem more desirable. Value is added through; convenience, speed, branding, quality, design and a unique selling point(USP). Customers are always prepared to pay more for a product or service with these factors.
A franchise is when a well established business sells the right to trade using it's name. Franchising allows the franchisee(person buying the right) security from the franchisor(person selling the right) of; training, equipment, trusted brand name, and back up services. The franchisee is more likely to see positive results. Unfortunately, the initial investments are expensive and the franchisee has limited control. This method of starting a business involves only profit to a certain amount and no managerial satisfaction.