This is the third in a series of articles based on Business Planning For Cooperatives, a manual published by Cooperative Development Services that provides step by step Instructions for writing business plans. This manual is based on the principles of systems analysis, which recommend an analysis of each of a retail co-op’s key systems. The first two articles in this series appeared in the January-February 1992 and May-June 1992 editions of Cooperative Grocer. The first article provided an overview of the business planning proces and systems analysis. The second article laid the necessary groundwork for this process by conducting a brief review of the entire co-op and developing mission and strategy statements. This article will show you how to begin the actual process of analyzing a system.
The point of the business plan-planning analysis discussed here is to improve the co-op by improving each of its eight key systems: Marketing, Management, Organization, Finance, Operations, Planning, Purchasing, and Personnel.
According to this approach, writing a business plan entails analyzing each key system in an organization, and making plans to improve it. A “business plan” is simply a set of plans for improving all the key systems in your co-op.
The first system we will look at is marketing. Most people believe that this is one of the most important systems in the co-op. But what exactly does the word “marketing” mean? The Small Business Report defines marketing as follows:
“Rather than determining what the company wants to sell, marketing explores what the customer wants to buy. Marketing explains products and services in terms of customer values and needs, rather than stating what the product or service does.”
Using this definition, we will provide instructions on conducting several analytical techniques for you to assess the current state of your co-op s marketing system. These “tools” include:
- Local market review
- Map of customer locations
- Target market demographics
- Price comparison
- Competitor analysis
Using these tools, you can conduct an analysis ofyour co-op’s marketing system. Based on this analysis, you can then prepare a marketing plan to improve your marketing system. Instructions for preparing this plan will be included in the next article in this series.
1. Local market review
This is an overview of the significant trends and developments in your area that might affect your co-op. It will help you become aware of any upcoming changes in your local market that may present the co-op with either an opportunity or a threat. For example, there may be a new shopping center opening up near you in the coming year. Or perhaps your town’s major employer is planning to lay off a significant number of workers. You should be aware of these changes in order to plan your response.
Below is a list of the best sources of information in which to find information about your local market. Call or visit each of them:
- Small business development corporations (discuss the economic outlook and trends for business in your area).
- Local or regional planning commission (obtain copies of any government reports on the economic health of your community).
- Chamber of Commerce (ask about any planned housing or economic developments in your area.
- Public library (government publications on economic outlook, annual reports oflocal companies, etc.
- Any state agency such as a Department of Economic Development. They should have economic statistics for your area.
Summarize your findings and discuss them at board and staff meetings. Keep copies of your report — it will come in handy later.
2. Map of customer locations
This technique will give you a good idea of the geographic area from which you draw customers. It will also identify any areas from which you don’t draw customers. It can also be really fun, and get a lot of people involved.
First, put up an enlarged map of your neighborhood near the cash registers. Ask all customers to put a red dot on the map to show where they live, and a blue dot to show where they work (provide red and blue markers for people to use). Do this for about two weeks to try to get as many of your regular customers as possible.
At the the end of that period, analyze the “data” you have collected. What shape and size is the geographic area from which the coop draws customers? Are there any areas nearby from which you don’t draw customers?
You can also do this less publicly by tracking the geographic distribution of the personal checks taken at the cash register. This method takes more work on your part, but it will enable you to track people who might shy away from placing themselves on the map. However, it won’t track customers who pay cash.
One co-op we know discovered through this technique that they were not drawing customers from a large residential area nearby. Distributing leaflets in this area brought immediate new sales.
3. Target market demographics
When you have an idea of what your local economic climate is like, the next technique helps you zero in on your actual customers. By examining the demographics ofyour target market, you can direct your marketing efforts towards them more easily.
What are “demographics”? Simply put, they are statistics about groups of people. In this case, the group of people you want to learn more about is your “target market” — the customers and potential customers at whom you choose to direct your marketing efforts.
Knowledge about your target market is essential to your success in addressing it. According to How To Write A Successful Marketing Plan, by Roman Hiebing and Scott Cooper, “effective marketing is impossible without a thorough understanding of your current customer base.” In other words, understanding your target market demographically will help you serve your customers better.
Your annual customer survey should provide information about your customers in terms oftheir age, gender, and income and education levels. These are your frequent or “preferred’ customers. This exercise will help you learn about the demographics of the people who live in your “trade area” — the neighborhoods around your store. The point of this exercise is to compare these two groups — preferred customers and trade area population — to see how well they match.
The first step in this exercise is to summarize the demographic characteristics of your co-op’s frequent customers, using the results ofyour most recent customer survey. Develop a profile of a “composite” or “average” customer, describing them in terms of age range, gender, income and education levels, and geographic location. In addition, your annual customer survey should obtain information about which local media your customers use, to help you target your advertising towards them.
Second, you need to figure out what the demographics of your trade area are — the people who live in the census tracts that surround your store. A number of resources are available in your community to help you find this information:
- Public library
- Local or regional planning commision
- Chamber of Commerce
- Census Bureau (also available at the public library)
- Your suppliers (they may have done research of their own, and may be willing to share it)
After you have all your information collected, analyze the similarities and differences between the two groups. What percentage of people in your trade area have the same or similar demographics as your frequent customers? Do the demographics of your preferred customers match those of the people in your trade area? Is your store’s location convenient for your frequent customers? Are you targeting your advertising to the parts of town where your potential customers live, or with the right media mix to reach them?
4. Price comparison
This exercise helps you analyze how your co-op’s prices compare to those ofyour competitors. Remember that pricing affects your image as well as your profitability. A price comparison exercise will give you a good handle on your strengths and weaknesses in this area.
A major price comparison should be conducted at least every six months. Many retail co-ops compare their price sensitive items every month. Some items, such as produce, may need to be compared every week.
This exercise takes some legwork. Make a list of selected products (devise a “market basket” of items that the average shopper in your co-op might buy). Include space on your list for product, brand, and product size, then fill in the price you charge for these items. Then visit two or three of your local competitors and fill in their prices for these same products. Use some caution — some retailers are sensitive about people writing down their prices, and may ask you to leave.
After you have collected the data, analyze where you stand in comparison to your competitors. Many factors go into deciding how your co-op sets its prices, but one of them should be how you compare to other stores. We will discuss in some detail the process of determining your co-op’s pricing policy in the next article. The data you have collected here will be very important in that process.
5. Competitor analysis
This exercise provides an overview of your closest competitors’ strengthes and weakness, and how those characteristics affect your co-op. This is a valuable exercise that will help you keep tabs on what your competition is doing and how well they are doing it.
If, for example, there is a large supermarket in town that offers lower prices than your co-op due to their volume buying, this results in a competitive disadvantage. Make a chart that includes spaces for each competitor’s name, their apparent niche, their strengths and weaknesses, and your relative advantages and disadvantages. Get three or four people in your co-op together and walk through your competitors’ stores as a team. Then discuss each competitor’s strengths and weaknesses, and how those result in relative advantages and disadvantages for you.
Note: If you wish to find out the sales volume of your compititors, try asking your county or state government for their sales tax records. In some states, tax records are a matter of public record, and you can figure sales volume from them.
You will use this competitor analysis in developing plans to emphasize your strengths and to minimize your weaknesses, as part of your overall marketing plan. We will show you how to do that in the next article in this series.