3.1. Market & Competition

Market and customer potential

To be able to make a sales forecast for the range of services in the business plan, you need to check how large the market and customer potential is. These are relative parameters that need to be determined for each company.

• The terms market and customer potential are defined differently. For the business plan it is important to know what basic market opportunities a company has in its industry, sector or field. It is about the absorptive capacity of the market in terms of market capacity, taking into account the purchasing power of the customers.
• The market potential is a "quantity" to be defined

- in terms of the potential sales market of the products and services,
- in terms of the relevant market participants (customers) in the overall market.

• Customer potential defines the "size" of the target customers that are likely to be acquired from the market potential group. The customer potential is to be segmented from the market potential. It is to be examined which and how many customers have the characteristics of "target customers".   

Determining the market potential: If you want to start a "youth restaurant" in a neighbourhood, you should find out how many local residents and how many young people live within "x" kilometres of the restaurant. It would also be necessary to check how many young people still live outside or in certain catchment areas to the restaurant. The total number of potential young people can be defined as the market potential.

Determining the customer potential: Out of the total number of young people there are in the market, only a subset will feel attracted to the "youth restaurant". The restaurant will only actually address and reach a part of them with its offer. In the context of determining the customer potential, it is necessary to forecast how many young people are likely to visit the restaurant.

The verification of these assumptions can only take place in reality. In this respect, the quality of the sales forecast lies in the objectified assessment. The market potential as well as the customer potential have fluctuation ranges.  

Questions to determine the market and customer potential :

• What is the nature of the market in which the products and services are to be sold?
• What can be sold?

(Properties, advantages and disadvantages, durability, possible uses, presentation, fashion influences, price of the goods).

• Who shops?

(Buyer group according to gender, age, social origin, purchasing power, consumption and buying habits)

• How does the customer buy?

(past and future demand, initial, renewal and backlog demand, large or small quantities).

• When does the customer shop?

(Opening hours, season, sales quiet times, boom)

• Where does the customer buy?

(Sales area, transport routes and means, industry influences, European and international market)

• How does the customer buy?

(Direct sale, sale to dealers, sale to private or business customers, sale to public clients, sale via tender, sale via internet).

• How do legal regulations affect the market?

(Import, export and customs regulations, government reforms, occupational health and safety regulations, environmental protection regulations, permits, government subsidies and support programmes).

• What competitors are there in the market? What do they offer? What are they good at? Where do they have their weaknesses?

(Competitors in general and locally, size, quality, financial strength of the competition, type of services, unique selling propositions).

The market potential can be determined with the help of a market matrix for the respective products and services.

The sale of services usually takes place in market sectors, which can be branches (e.g. wood, furniture, consulting, gastronomy) or market segments (trade, crafts, industry). Rules of the game are formed in each market sector. These have something to do with the product and the service itself; for example, with the machines, with a craft, with retail or wholesale, with an intermediary or agency activity, with the service "personal care" or "health".

Sector data is a particularly important indicator for a company. It can be used to check whether the company's own results are above or below the industry average. Strengths and weaknesses can be worked out. Sector information is provided: Chambers of Industry and Commerce, Chambers of Crafts, District Chambers of Crafts, savings banks, credit unions and commercial banks, professional associations, employers' and entrepreneurs' associations, cooperatives, retail trade associations.

The typical characteristics in industries or economic sectors have a lot to do with the economic, social and cultural behaviour of people. Products and buyers shape each other. Certain products are bought by certain target groups. Certain target groups demand a certain service. There are big differences in who the products and services are sold to. National characteristics in Germany, Spain, the USA or in China also have a significant influence on the way goods are bought and sold.  

In the business plan, it is important to work out the special features of the market in order to be able to develop a targeted offer strategy for the respective market segments. Not all characteristics play the same role. The market criteria must be described with regard to the target customers who are to buy services.