Changes in the market environment
The market environment is everything around a firm that affects its sales. It keeps changing:
- Customers: tastes, income, age groups and habits change (more people shop on phones).
- Technology: new machines, apps and materials appear.
- Rivals: new firms enter or copy your product.
- Rules and society: laws, health ideas and care for the environment.
A firm that does not notice change loses customers. Planning starts by watching these changes.
Environmental analysis
Environmental analysis means studying the firm's surroundings and itself, so it can choose wisely. A simple tool is a 2 by 2 table (called SWOT):
| Helpful | Harmful | |
|---|---|---|
| Inside the firm | Strengths | Weaknesses |
| Outside the firm | Opportunities | Threats |
Plan to use strengths for opportunities, fix weaknesses and prepare for threats.
Setting the development policy and theme
The development policy is the firm's decision about what kind of products it will develop and why. The theme is the one clear idea of the new product: for whom and which need.
Example: policy, make healthy food for busy people; theme, a low-sugar snack for office workers. A clear theme keeps the whole team aiming at the same target, and helps decide later what to include and what to leave out.
Market research
Market research collects facts about buyers and the market, to test an idea before spending money.
- Ask: surveys and interviews (what do you want, how much would you pay?).
- Watch: see how people use similar products.
- Read: sales data, reports and websites.
- Try: give samples to a small group.
Use a sample that looks like the real buyers. A rule of thumb for this lesson: if 7 out of 10 say yes, go ahead; 4 to 6, rethink; fewer than 4, stop.
Writing a product proposal
A product proposal is a short document that asks managers to approve the idea. Keep it to one clear page:
- Need: the customer problem, with research facts.
- Idea: what the product is and how it is different.
- Price: the planned selling price.
- Cost: the cost to make and sell, and the expected profit.
- Plan: who does what and by when.
Try it
Pick a product you wish existed at school. Ask 10 friends if they would buy it. Count the yes answers and write a five-line proposal.
Key formulas and definitions
- Product planning = analyse + choose theme + research + propose
- SWOT = Strengths, Weaknesses (inside); Opportunities, Threats (outside)
- Theme = for whom + which need
- Yes rate = number of yes ÷ people asked × 100
- Proposal = need + idea + price + cost + plan
Worked examples
1. A sports shop finds that a large online seller has started selling cheaper shoes. Is this a strength, weakness, opportunity or threat?
A threat: it is outside the firm and harmful.
2. Out of 40 students asked, 28 would buy a new notebook design. What is the yes rate and what is the decision by the 7-in-10 rule?
Yes rate = 28 ÷ 40 × 100 = 70%. That equals 7 in 10, so go ahead.
3. Write a theme for a new water bottle.
A light, leak-proof bottle for school children who cycle to school. It names for whom (school children) and which need (carrying water safely).
Common mistakes
- Thinking strengths and weaknesses are outside the firm. They are inside; opportunities and threats are outside.
- Starting to build before doing research.
- Choosing a theme that tries to please everybody. A clear theme names one group and one need.
- Asking only friends in market research, which gives a biased answer.