Who is Your Target Market?
What is a Target Market?
Every business sells its products or services to a particular set of customers. For example, some plumbers focus on residential customers within a certain town, and others focus on large commercial customers which operate in particular industries and are based in a particular city. Even though both businesses offer plumbing services, they target different groups of customers.
It is not enough to simply identify that ‘people’ are likely to want your product. Instead, you need to have a clear picture of who these people are. If there are many types of people who are, or could be, interested in what your business has to offer, it is still very important to decide who your target market will be, or should be.
Knowing who wants to buy your product or service and what motivates their buying decisions is vital to success. It enables you to market your business in a way that will appeal to these people. When you instead try to sell to every possible customer, you will be wasting time and resources. In fact, when you target everyone, there is a risk that your marketing efforts will appeal to no one at all.
The process of finding a target market is reasonably simple. You will not be trying to sell to every single person in the world, so your first job is to divide up the total market into various market segments. There are many ways to divide the total market. For example, some popular ways are shown below.
If you will be targeting businesses instead of individuals, you can segment the market based on factors such as the industry the business operates in, the number of employees it has, where it is based, and how large its turnover is.
When you segment a market, you do so based on a combination of factors. For example, first you may segment it based on the customer’s location, then based on income levels, social groups, and attitudes.
Just as there are a number of ways to slice an apple, there are many different ways to segment a market.
After segmenting a market, the next step is to select which market segment(s) your business wants to target.
It is best to be as specific as possible. For example, it could consist of: women, aged 35 to 65, who are employed in high-income roles (salary of at least $80,000), located nationwide in New Zealand, who have interests in organic and environmentally-responsible products, and are prepared to do most shopping online (even grocery shopping), in order to purchase such products.
The more specific you are, the easier it will be to understand what your customers want, how they buy, where they are, and what marketing messages will appeal to them.
Look at Existing Customers First
If you are in business, you will already have existing customers. Looking carefully at who these customers are can help you understand who your target market could be. Try to identify groups of existing customers. For each group of customers, ask yourself:
- What features do they have in common that might be causing them to buy from you?
- What features do they not have in common? What sort of people are not your customers?
- Where do they come from? Are there any people who come a long way to be your customers? Why?
Once you have made a list of all the features your customers have in common, ask yourself which of these features are the ones that are really motivating customers to come to your business. Be honest and realistic.
For example, it could be the case that a number of your customers have purchased from you simply because you had a pop-up store in a convenient location. Once the shop closes, they are unlikely to continue to be your customers.
Remember that just because your customers have a feature in common, it does not mean this feature is the one that is causing them to come to you. If, for instance, you only serve your delicious food to younger people, this might simply be because older people have not yet heard of your business, or because you have located your business near a tertiary campus. In this case, the fact that your customers are all younger people is accidental. It could be a mistake to then target only young people, because you would be missing out on all the older customers who would love your food, if only it was marketed to them.
Understanding who your current customers are can help you identify strengths and weaknesses of your business. For example, if your customers seem to be coming only because you are local, then you will have a problem if a competitor decides to open new premises nearby.
Who Should You Target?
If you are currently targeting a particular market, it does not necessarily mean that this market is the best one for your business. You might be missing out on sales by targeting the wrong customers. Modifying your target market could cause an increase in sales, so research is vital.
The right target market will allow you to reach your business goals in the most efficient manner. This is usually the target market which will generate the most profit. However, if you have other goals (social, environmental, or cultural), the target market which provides the most profit is not necessarily the best for you.
Sometimes you might be better off targeting a whole new group of customers (maybe in addition to current customers). This could happen if your existing customer base is shrinking – you will need to find a new set of customers before it becomes too small to support your business. For example, fewer children in New Zealand now cycle to school, but the bicycle industry has compensated for this by marketing their product to adults among whom cycling has become more popular.
Alternatively, you may have more than one target market. Sometimes new groups of customers just present themselves to a business for reasons that might initially seem strange. You might already have small groups of customers from a new and potentially lucrative target market. Take the example of the workwear industry: a number of manufacturers have discovered that some young people wear their products for fashion reasons – they therefore choose to also target this group of customers who have little, if anything, in common with their original target market.
When you are trying to decide whom to target, think about factors such as:
- Who purchases the most profitable products?
- Who purchases the most often?
- Who is likely to be more loyal / stable? Is there any group of customers who could sign up to some type of plan to purchase on a regular, ongoing basis?
- Who is easiest to access? What are the costs involved in reaching each group of customers?
For example, if there is a particular kind of person who buys your most expensive products which have the highest profit margins, consider whether you can focus your marketing on reaching others in that group, perhaps those who live elsewhere. Doing so will help increase sales turnover and profits because each sale made will be for a higher value. However, you will need to take into account the costs of reaching people within the particular target market. If they are expensive to promote to, your profit margins will shrink.
You can also look for ‘gaps’ in the market. These are groups of people who are currently not anyone’s customer and who have a need that no business is catering to. There is the potential to build a strong position in the market by getting in first and catering to this need before any other businesses do.
You do not have to have a new and innovative product to take this approach. For instance, if there are no businesses in the area which specialise in installing insulation into homes, a local builder may decide to target this market instead of competing against all other builders for general building work. Even if other builders start to offer the service, the initial builder may be the one who is associated most with insulation services.
A useful way of working out your target market is to visualise your ideal customer. Think about what they look like, how they behave, what they think, and what they do. Creating a ‘buyer persona’ can help you clarify who your customers are.
A buyer persona is a semi-fictional representation of your ideal customer – you are basically creating an imaginary person. Visualisations like this can help you notice things about your target market that you had not noticed before.
Explore Your Market Size
Once you have a detailed picture of your target market, you need to figure out how large it is. That is, you will need to conduct research to see how many people fit your customer profile(s). This is important because you need to be confident there are enough customers within your target market to support your business.
For instance, if you have decided your services will most likely be purchased by businesses within the surrounding 100 kilometres which have 10 to 50 staff, find out how many businesses of that size exist in your area and where they’re located.
You can use data which already exists to estimate the size of your target market. Often, the best source to use is Statistics New Zealand and, in particular, data from the Census which is conducted every five years.
Also conduct research to check whether your ‘ideal customer’ will, in fact, want to purchase your products or services, and whether they will do this as often as you think they will and at the prices you expect them to pay. This is best done through primary research – that is, gathering data directly from potential customers through, for example, surveys or focus groups.
If your intended target market is not large enough, you will need to adjust it. Then you should conduct more research to see how many people fit the profile of the new target market!
How Can I Increase Sales to Current Customers?
If you want to increase sales, you can either get your current customers to buy more, or find new people to sell to (or perhaps do both).
Start by looking at your current customers to see what potential there is for increasing sales. Ask yourself:
- What proportion of your customers make repeat purchases?
- How frequently do these people make repeat purchases?
- How much effort do you spend on retaining current customers compared to finding new ones?
It is generally much cheaper to retain existing customers than it is to find and win new customers. This means that you should consider how to increase sales to existing customers before looking for new customers.
When you are thinking about the value of a customer to your business, think of them as an ‘income stream’ rather than as a series of individual sales. So, for example, if a customer buys a coffee every week, think of them as someone who contributes $5 per week or even $260 per year to sales revenue. Instead of thinking about what you can do to make an individual sale, think about what you can do to keep this person coming back – to keep the income stream flowing.
Ideas to Increase Sales to Current Customers
There are many ways to increase sales to current customers. Here are some ideas:
- Develop your sales process beyond the sale. Always remember that an effective sales process goes well beyond the payment stage. Focus your attention on managing your overall relationship with the customer: they will keep coming back as long as you meet their needs at every step of the sales process – including their experience past the point of purchase.
- Use social media to maintain interest. Try to get your customers to follow you on social media. Once they are there, don’t use your social media page to push sales. Instead, keep it social – post interesting content, and engage and interact with your followers. This will maintain awareness of your business and help build an ongoing relationship.
- Upsell. Look for opportunities to offer more to your customers. This could involve selling a ‘package deal’ instead of a single item, offering add-ons, complementary products, better versions of products, or even signing them up to a plan.
- Offer sales incentives to staff. Motivate your sales staff by offering them incentives. However, be careful – their focus should be on maintaining customers. Pushing a customer to buy something they don’t really want, will drive customers away.
- Give customers incentives. Give customers an incentive for buying more than they usually would. Consider loyalty plans where the amount of the customer discount increases once they have purchased above a certain sales volume, offer a free gift with some purchases, or offer a prize draw.
- Hold a special event for loyal customers. Reward customers who purchase from you on a regular basis by holding a special event. You can do this even if you have an online business. For example, you could make a sale available to certain customers for a few days before it is made available to the general public.
- Get to know your customers better. Simply put in the work to really get to know your customers and understand their needs. When you talk to your customers, you may identify that there are products and services they need, which you currently do not offer, but could easily offer.
- Use targeted promotions. Instead of using the same promotional material for all customers, design your promotions so each customer only receives the promotions which are relevant to them. This could be based on their past buying behaviour, location, or even their personal characteristics. It is easier to do this if you use technology such as automation software, customer relationship management (CRM) systems, and email marketing services.
How Can Technology Help?
New technologies offer opportunities for your business to increase sales to current customers, as well as to potential new customers. Most of these opportunities involve using software and the internet.
Customer Relationship Management (CRM) software is used to manage customer information and then use this information to develop and maintain an ongoing relationship with the customer. In addition to increasing sales to each customer, it can help provide customers receive a better overall experience from your business. This is because it allows you to personalise and target your communications so it is relevant and appealing to customers.
Your business gathers information during your interactions with customers. This information can come from many points of contact, including:
- when customers click on your online advertising
- when customers interact with a social media post, perhaps by ‘liking’ it or commenting on it
- when you make a sale to a customer
- when customers make phone or email inquiries
- when customers respond to surveys
- when customers make customer service requests
- when customers make complaints
A CRM system collects this information and makes it easy for you to access and use the information. It allows you and any member of your staff (who you allow access to the software) to know the past sales history and interactions with each customer, and therefore provide them with a high level of service. Even when you employ someone new, they will be able to interact with a customer as if they have been assisting them for years.
You can also use the information in a CRM system to target your promotions to particular customers. For example, if the system shows that, a customer usually purchases a particular product brand, the system can recognise this and send out relevant marketing materials whenever new arrivals of the particular brand come into stock. Effective CRM means you can take control of your relationship with customers to maximise sales.
CRM systems are also very useful in securing new customers. For example, if someone clicks on your advertising or makes an inquiry – creating a lead – the system can be set up to make sure that the lead is followed up in a timely manner.
A few examples of CRM systems are:
One way to choose a CRM system is to first find out what software options integrate with your accounting software. If you use MYOB, Xero, or Reckon, you can do this using the following links:
Automation software can be used to make some processes happen automatically. This is extremely useful when it comes to maintaining the relationships you have with your customers. It is also very useful if you would like to target promotions and communications to particular customers. How it works is that you set it up to do a particular task if (and only if) a particular event or action occurs. For instance, the software may be instructed to send customer a ‘thank you email’ with a voucher attached if they make a purchase over a certain value. This will happen automatically when the sale is made.
One of the great benefits of some automation software is that it can integrate with other software, including software which does not usually integrate together. Consider the situation where you are choosing a CRM system and an inventory system – it makes sense that both of these systems will work together with your accounting software. After all, each time a new sale is made, inventory records should be updated and the sale details recorded in the CRM system. In the same way, it helps if other software such as forms on your website, your email services, and survey software can integrate. Automation software can make this happen.
Here are a few examples of how you can use automation software to automate processes and integrate software:
- When a potential customer fills out a form on your website, the software can instruct an email response to immediately be sent to the person, while also entering customer details into the sales pipeline of your CRM system.
- When a potential customer is entered into the CRM system, their details can automatically be set up in your accounting software (ready for you to invoice them once they make a purchase).
- A customer who makes an online purchase and ‘opts in’ to your email list can be automatically added to your Mailchimp database.
- If a customer clicks on a product photo in a promotional email, two days later they can automatically be sent an email which showcases that particular product.
- If a new customer makes a purchase, they can be sent a ‘welcome’ email along with a discount voucher which is valid for a short period of time (thus encouraging them to make another purchase very soon).
Automation software does the work involved in managing customer information and doing so in a timely manner. It allows you to ensure customers are only sent information and promotions that are relevant to them, thus improving the customer experience. In addition to improving efficiency, it frees you up so you can dedicate more time to the parts of the sales process that need an actual person. This allows you to effectively manage a larger number of customers at the same time.
Examples of automation systems are:
This is a kind of direct marketing where you send marketing materials to potential customers by email. It is a good way to stay in touch with customers and to let them know about offers they may be interested in. Although you can send individual emails, this is usually impractical and time consuming.
A better option is to use a bulk email service, such as MailChimp. These services have a range of templates which enable you to easily design emails which look professional. Emails are cheap to design and send—usually costing only time. MailChimp’s free option, for example, lets you send up to 12,000 emails per month to a database of up to 2,000 customers. Messages can be scheduled to be sent at any time.
It is a good idea to use an email service together with automation software. This will help you to maintain an up-to-date distribution list, and will also help to target emails to those customers who are most likely to respond to them. For example, automation software can instruct a specific email to only be sent to customers on your list who have taken a certain action – such as indicated on a web form that they are interested in a particular product, or clicked on a particular link in a previous email. This means that each person on the list will receive the emails which are likely to be of most interest to them, and they should then be more likely to open your emails and take action.
When sending out an email promotion, make sure you make it:
- Interesting. You want the people who receive your emails to actually open them. To do this, make sure your ‘subject line’ will grab their attention and make them want to find out what’s inside.
- Personal. Make sure you use the name (and perhaps other details) of the person receiving the email.
- Valuable. Make sure your email is worth opening. Every email needs to provide something of value or your emails will start to be ignored.
Factor to Consider
If you are going to use email marketing, you must consider the Unsolicited Electronic Messages Act 2007. This makes it illegal for you to send a commercial email to anyone who has not consented to receiving it and requires you to provide a functional facility for people to be able to unsubscribe from the distribution list. Note that the law also applies to other forms of electronic message such as texts and social media messages.
Social Media Marketing
Since most New Zealanders use one or more social media services, consider using social media as a tool to increase sales to both current customers and potential new ones.
Social media can be used as part of your marketing in the following ways:
- If you can get customers to ‘follow’ you on social media, it allows you to keep in contact, create engagement, and build better relationships with them.
- You can increase sales by letting customers know about new products, events, or promotions.
- You can purchase paid advertisements on social media networks and target these advertisements so they are only shown to certain audiences.
- You can place a ‘tracker’ on your website that can be used to target social media advertisements to social media users who have visited your website.
- Some social media services integrate online shopping services. You can also just make posts showing products and add a link to your website or contact information so that customers can buy them.
Which Social Media Services Should You Use?
The graph below shows the most popular services in New Zealand. Note that, whilst YouTube is used most often, it is video-based, and for many businesses, the main way to use it is through paid advertising. Other services such as Facebook and Instagram offer more scope for most businesses to connect with audiences.
Factor to Consider
Don’t make the mistake of trying to use too many social platforms at once. It’s best to start with just one, and when you’ve got the hang of it, and if it’s getting results, think about expanding to another. Even if you are a social media pro, don’t use more platforms than you can realistically manage on an ongoing basis.
When choosing which services to use, first find out which services your target market use. Facebook is used by people of all age groups, but younger people are often not as active on it as they are on other platforms. Other services, such as Instagram, have a younger user base, while Pinterest’s user base is mostly female.
- Facebook. This is the world’s most popular social network with about 2.2 billion users (about 30% of the world’s population). You can start your own page, which can be followed and commented on by other users. For example, you can promote new products or run competitions for your followers. You can also create events and invite people to attend them.
- Twitter. This service allows you to share very short posts called ‘tweets’ with people who follow you. Other users can then ‘retweet’ them to their own followers (with or without comments). For example, you can promote specials. Twitter has about 330 million users.
- Instagram. A photo (and short video) sharing platform. Users can take photos and videos, which are then shared with followers. This is very useful for letting customers see your products and is a popular option for businesses in the fashion and entertainment industries. Instagram has 800 million active users.
- YouTube. A video site, where users are able to follow each other. For example, you can post how-to videos or product demonstrations, or simply create paid advertisements which are shown on other users’ videos. YouTube has about 1.5 billion users.
- LinkedIn. A social network for business users. It is not useful for communicating with the general public. Instead, it is for connecting to customers that are businesses, networking with other business owners, keeping up to date with industry news, and connecting with potential employees and contractors. LinkedIn has 467 million users.
What Should You Post on Social Media?
Below are some things to keep in mind when posting on social media.
- Post regularly. Effective use of social media requires you to make regular posts – never leave a social media account idle for long periods. Post at least a few times a week, but don’t overwhelm your followers by posting more than once a day.
- Don’t go for the ‘hard sell’. Social media is about being ‘social’. Focus on building a relationship and adding value to your offering. Don’t just focus on selling (although this is appropriate when using paid advertisements).
- Make meaningful connections. You need to build trust with your customers. They’re more likely to become regulars if they know you care about what they think and feel.
- It’s not all about promotion. You can comment on other topics of interest to your audience. You can follow businesses similar to yours to see what they’re doing well.
- Try to avoid commenting on current events. Don’t get involved in political debates. And don’t encourage followers to like other pages unless you are certain it isn’t going to damage your reputation or offend followers.
- Vary your content. Use different types of content to get the attention of different customers. Videos and images are more engaging than text-based posts.
- Repurpose your content. It’s not necessary for you to come up with completely new content for each individual platform you choose to use. However, there should also be some reason for people to follow you on more than one platform. Some differences in content will reward your followers, and encourage them to follow you elsewhere.
- Keep your content short. Make sure your posts are snappy and ‘snackable’. Social media is consumed in small doses so you need to be careful not to bore readers.
- Make your content easy to find. That is, it needs to be searchable. You can do this by using ‘key words’ and things like ‘hashtags’ that people will be searching for.
- Make sure your content is something people will want to share with their friends. Social media is about your followers doing much of the work for you.
- Be responsive. When a customer (potential or existing) comments on, likes, or questions your business, respond quickly and thoughtfully. This will help you to engage with your customer base and build brand loyalty.
- Incentives. You can use social media to offer incentives such as competitions, special offers, and free samples.
- Link to your website. If you have a business website, use social media to drive customers towards it.
- Proofread. Read over any posts to make sure they make sense or aren’t likely to be misinterpreted by readers. Double-check your spelling. Ask a staff member or friend to read it before posting.
Paid Social Media Advertising Campaigns
Paid advertising using social media is a good way to attract members of your target audience and increase sales. You can pay for:
- Boosting some of your most popular posts, so that they reach a greater audience than just people who follow your business account.
- Advertisements that appear in people’s newsfeeds (or ‘timelines’), in YouTube videos, or in the side bars of social media sites.
The main advantage of paid advertising on social media is that you can make use of its targeting features. Social media services ‘know’ a lot about the demographics, tastes, and interests of their users. This allows you to precisely target your advertisements at the people you really want to see them. For example, you can create an advertisement which is only shown to people who live in a certain town, are in a certain age bracket, and who have specific interests. You can even target your advertisement to only be shown to people who have visited your website before, and are therefore familiar with your business (or are perhaps already customers).
Another advantage of paid advertising on social media is you can work with a small budget. You could, for example, set a budget of $10 per day for a certain number of days, or a total budget of $100, and then only choose to increase your budget if you are seeing results.
Examples of social media advertising services include sponsored ads on Facebook, promoted tweets on Twitter, carousel ads on Instagram, display ads on LinkedIn, and snap ads on Snapchat. Below is a list of links to the advertising pages of some of the main social media services:
Facebook for Business (https://www.facebook.com/business) shows you how to set up a business page and how to undertake advertising on Facebook. The two are tied together. While your page helps people connect with your business, Facebook ads can help them discover your business.
You will be able to measure the effectiveness of your social media posts and advertisements through feedback about the number of people who see the posts, and the number of clicks, likes, retweets, and other engagements the posts get.
In addition, you can analyse the effectiveness of your social media presence using ‘analytics’. It is particularly important to do this for paid advertising. For instance, you could test several advertisements, each using a small budget for a limited time, in order to decide which advertisement to use as part of your main campaign.
Some analytics packages cost money, but there are free options available. For example:
- Facebook Insights lets you track interaction on your Facebook page. From this you can determine things like the best time of day to post and what type of content is popular. Facebook Insights can be accessed from a tab on your business’s profile page.
- LinkedIn also has an analytics tab. This can provide you with metrics and trends about your business page, as well as about reader engagement. If you’re using paid advertising on LinkedIn to boost posts, you can compare the level of interaction with that of posts you haven’t paid for.
- Google Analytics, while not focused on social media, can also be used to examine your social media activity. This includes the number of page views earned from social media links and how well your website and social media accounts are working together.
Social media is a cheap, effective, and easy-to-use way of maintaining a relationship with customers and encouraging them to buy more.
What Else Can You Offer?
An additional way to increase sales to current customers is to offer other products. Looking at complementary goods is a good place to start. For example, if your business sells lawnmowers, it might be a good idea to sell products and services that are associated with the use of lawn mowers such as gloves, weedeaters, oil, or replacement parts and mower servicing. This is called extending your product mix.
Look carefully at your target market. You might find that, in addition to the needs that are currently satisfied by your business, they have other needs in common as well. It can therefore be a good strategy to allow them to satisfy all those needs at the same time, at your business. It follows that you should spend some time looking for products that satisfy needs associated with products you are selling. You may be able to expand your offerings to take advantage of the fact that you already have them coming in to buy one of these types of products.
Consider selling add-ons for products you already sell. For example, a business that sells outdoor barbecues could also start selling LPG cylinders, an exterior house cleaning service could add pest-control spraying services, or a business which sells windows for residential houses could offer to add a tint to window panes. One strategy is to keep the price of the main product reasonable, and make a higher profit margin off the ‘add-ons’ – once a customer has already committed to the price of the main product or service, they typically don’t give as much thought to the cost of all the ‘extras’.
When you need to discover what customers want, build the question into your sales process, conduct market research, look at what other businesses are doing, or just ask – e.g. you can post discussion questions and ask for ideas on social media.
Factors to Consider
Just because customers want something does not mean it makes business sense for you to provide it. You should carefully consider the pros and cons of adding to your product mix. There are many factors to consider, including:
- Are the profit margins sufficient to make it worth your while?
- Will it take time away from, or damage, your core business?
- Do you have the knowledge and right staff to extend your product mix in this way?
- Will customers buy the new product instead of the main (i.e. more profitable) product?
How Can I Find New Customers?
You can also increase sales by finding new sets of customers to sell to. The benefit of new customers is that they are an entirely new, and as yet, untapped income stream (at least for you).
If you plan to expand your business, at some point you will no longer be able to rely on existing customers – after all, they only have so much to spend. You will have to venture out and find new ones. Four ways to find new customers are shown below.
Look in your Existing Market
If you already have a target market, it is unlikely that you have made a customer of absolutely everyone in that market. It’s likely it still contains ‘untapped reserves’ as well as your competitors’ existing customers. Some options for doing this are set out below.
Search Engine Optimisation (SEO) and Effective Websites
These days, the internet is the first place many consumers look to find businesses which offer the products they are interested in. It is therefore important that your business has some presence online so that it can be found quickly and easily. Given there are many businesses online these days, you want to make sure potential customers find yours. To do this, you need to think about Search Engine Optimisation (SEO) and what it means to have an ‘effective’ website.
SEO is a process to help improve your website so that it’s more attractive to search engines. If it is attractive, when people type in particular keywords for their search, your business will feature higher in the search results. Google is by far the most popular search engine in New Zealand, so it’s important to make sure your business appears high in Google’s search results.
On Google, people usually click on one of the first couple of search results – few click on a result that is fourth or fifth in the list, and hardly anyone ever looks at the second page of results. Being one of the top results means the person searching is significantly more likely to visit your website.
There are many things you can do to improve your likelihood of being near the top of relevant search results. Some examples are as follows:
- Identify keywords that people are likely to use when searching and use these words in your website content (especially in titles and headings, but also in the filenames you give to the images you upload to your site).
- Get other websites to mention or link to your business (and its contact information). When other websites link to you, Google takes this to mean that your website is more important.
- Make sure that everywhere your business appears on the internet, your name, address, and phone number are consistent. Search yourself and make sure that online directories have the right information.
- Ensure your website works well on mobile phones.
- Regularly update with quality content. Use text, images, videos, and links – the more quality content you post, the better. Again, ensure you include keywords in the content you post.
- Use Google My Business and encourage customers to review your business on Google.
- Use social media and try to get a lot of customer engagement. You want people to ‘like’ Facebook posts and tweets about your business.
Remember to check that your SEO is working. You can use Google Analytics to measure its effectiveness – e.g. that you’re getting more website visitors. Google Analytics can show you how many visitors your website gets, how long they stay on your site, how they find your site (including the keywords they use), and the path they follow when using your site.
Google AdSense and AdWords
You can also make use of advertising over the internet to attract new customers from within your target market. This works just like ‘traditional’ advertising: you choose a message, image, or video and pay to put it on someone else’s website. For example, you can pay Stuff to advertise on their website.
A more popular way of advertising online is using ‘contextual advertising’. This is where advertisements are automatically placed for you — the webpages where they are shown depend on who and where the person using the website is. This means that when one person visits a website, they will see different advertisements to those shown to another visitor to the same website.
There are various kinds of contextual advertising. Some, such as Google’s AdSense, place advertisements automatically on other websites. AdSense uses factors such as the content of the website, the user’s location, and the user’s demographics, interests, and browsing history to determine which advertisements to show each visitor to a website.
AdSense is priced through an auction system. That is, advertisers can bid different amounts. Where the ad is shown depends on the quality of your advertisement, the amount you bid compared to others, and the websites that Google thinks are most relevant to your ad.
Another type of contextual advertising is Google’s AdWords. This creates ads that appear on relevant Google search results pages and Google partner sites. Whether or not your advertisement is considered ‘relevant’ to a Google search depends on a set of keywords you associate with your advertisement. When users search using these terms or visit websites relevant to these terms, ads from businesses that have specified these keywords are shown.
You can also choose a geographical location in which website visitors must be for your ads to appear. So, for example, a bike shop might select keywords like ‘bikes’, ‘bike repair’, and ‘fixie’, and only want its advertisements to appear to people in the local area it serves.
Google Analytics can also be used to monitor the performance of your contextual advertising. For example, you can see how many people have seen an ad, how many have clicked it, how many times it was displayed, and so on. You can use this information to make your future advertisements more effective.
Google My Business
You may have noticed that when you search for a business on Google, you often get an information box in the top right-hand corner of the search results which features a business and its contact details. This is a ‘Google My Business’ listing. Google automatically creates a listing for any business it finds, and fills in information such as location and opening hours. If Google has not already found your business and created a listing, you can do this yourself.
Ensure that you claim your business listing on Google and check the information on it (such as your opening hours and contact details) is correct and up to date.
Getting reviews of your business is a good thing! Many customers look for reviews when deciding which business to use, and many trust online reviews just as much as personal recommendations.
Your presence on social media platforms gives customers one way to review your business, and other potential customers a place where they can look to see what people are saying about your business. There are also Google reviews which can be given through Google My Business listings – when your Google My Business listing shows alongside someone’s search results, the user can look through any reviews given. You may also have a place on your website where customers can submit and read reviews.
Finally, there are external review sites which customers can use to rate and review your business. A few examples of review sites are:
- Yelp! where users can submit reviews of local businesses using a one to five-star rating system. Businesses can set up a free account to post contact information, hours, photos, and other basic information. Users can place reviews, react to other reviews, plan events, and talk to each other, and businesses can respond to reviewers.
- TripAdvisor, where people can review travel-related businesses such as hotels, airlines, tourist attractions, and restaurants. A listing on TripAdvisor lets you write a business description, add photos, respond to reviews, and measure yourself against competitors. You may even allow people to book with you through TripAdvisor.
- Finda, a business directory, also lets users review businesses. You can get a free listing or a paid listing on Finda and can advertise and offer coupons on the site. The front page of the site shows ‘Latest Reviews’ and ‘Most Loved Businesses’.
- NoCowboys is also a business directory, but is for service businesses in New Zealand. Customers can rate businesses they have used in terms of reliability, value for money, quality of work, and communication. If your business registers with NoCowboys you get a personalised profile page. This can be tailored to suit your business and can link to any social media you use.
The key to making the most of all these review sites (and social media) is to ask people to give you reviews. If a customer is particular happy with your product, and tells you, ask them to write a review. Perhaps encourage customers to review your business through an online competition or in-store incentive. After a customer completes a purchase, you could send a follow-up email (provided they have consented to receive emails) which includes a link to a review site. If you send out a regular email newsletter, think about including suggestions that customers write a review.
Public relations (or ‘PR’) is where you create and maintain a good image of your business. It’s about managing information about your business, so it maintains a good reputation. There are many ways to do this and most are quite cheap.
Your communications with the public affect your business’s image. Social media, your website, and emails you send out to customers all count as part of your PR, as do things like public speeches and interviews on the radio, television, or in print media.
Getting involved in your local community is also good for PR. This can be as simple as attending and participating in community meetings. Or it could include lobbying for changes that benefit your local community.
You could even sponsor a local event, organisation, or cause. This does not need to involve giving away money: you might donate products or services as prizes for a fundraising event or for use by the person or group being sponsored. In return, they will promote your business. Hosting your own events is also a possibility. These could range from launching a new product to hosting a community ‘fun run’ event.
Another common PR method is giving charitable donations. This could be in the form of money, but it could also be providing products or services, or simply time, to charities that need them. Taking this further, you could become part of a non-profit partnership. This can make your charitable donations more prominent and greatly improve the public perception of your business.
PR also includes things like creating an awareness campaign that promotes your business or industry. You could talk to your local small business association and develop ideas to raise public awareness of local retail stores and services. Work with other businesses to host events or awareness campaigns. Entering industry competitions is another way to build PR. Many industries have an annual award ceremony or competition. For example, the pie industry has pie awards for small and large bakeries. Many local business associations hold ‘Best Shop of the Year’. There are also several regional and national business awards, such as the David Awards for small and home-based businesses. Competing in and (especially) winning such a competition draw attention to your business.
Another form of PR is publicity. This is when people in the media (in a newspaper, on the radio or TV, or online) talk about a business. You may get publicity when, for example, you do a radio interview, sponsor an event, win an award, or make a charitable donation, and so on.
You do not have to rely on the media finding out about your business – you can go directly to the media. For example, you can write ‘press releases’ and provide these to the media. Your local newspaper will usually publish articles about events and activities of interest and benefit to your local community, so if your press release meets their criteria it may be printed free of charge. You could also invite them to write an article about your business.
Targeted Promotions and Remarketing
Rather than general advertising, a targeted promotion is aimed at a very specific group of people. This group is often those people who are close to becoming your customers, but just need a little ‘push’.
In a sense, many small businesses already do targeted promotions. For example, most tradespeople will restrict their promotional activities to their local area. However, just focusing on location will not be an effective strategy for many businesses. If you know your target market, you will want to reach out to those people based on other characteristics. The internet offers small businesses many low-cost opportunities to do this. For example, you can use email marketing, social media marketing, or even contextual advertising to target very specific groups of people.
‘Remarketing’ is getting back in touch with people who have already had some kind of interaction with your business, even though they have not yet bought anything. For example, someone might have come into your place of business, left a phone message, or simply visited your website or one of your social media accounts. Remarketing is just getting back in touch with them, often with a promotional message designed to tempt them to become customers.
The internet has made remarketing much more sophisticated. For example, you can include a Facebook ‘bug’ on your website that tracks anyone who is logged into Facebook when they visit your website. These people can then be automatically targeted for advertising messages through Facebook. The same thing can be done with other online advertising services. You might have noticed that when you visit a business’s website or look at one of its products online, you start seeing more advertisements from them – this is not an accident; it is just them remarketing to you.
Encourage Word of Mouth
Referrals from friends and whānau are one of the most effective forms of marketing. People trust their friends and loved ones far more than they will ever trust paid advertising. If you can get satisfied customers talking to their friends and whānau about your business, it will be an easy way to increase sales. The best way to do this is, of course, to provide an excellent customer experience. That way when anyone is asking one of your customers who they recommend, it is sure to be you.
Having said that, word of mouth is a passive method of marketing – you will have to wait for someone’s friend or relative to ask them before you will get the referral. On the other hand, if you have memorable promotions, this will encourage your customers to start talking to others. Sometimes you can do a bit of both. For example, how many times have you seen businesses host face painting for children? Inevitably, people who see the face painting ask where it was done, which means free promotion for that business.
There are also various ways you can encourage word of mouth. For instance, you can encourage people to share your social media posts, give customers free samples of products which they can share with others, or suggest that customers bring a friend to an event or appointment.
Find New Distribution Channels
Sometimes you will be able to reach new customers just by selling in a new place. You will be expanding the range of people that your business markets to, and thus expanding your potential customer base.
Selling via Social Media
You can acquire new customers by selling on social media. As well as for promoting sales, social media can be used to sell your product or service directly. While you can link from social media to your business website, you can also sell directly on sites like Facebook and Instagram.
Whatever option you choose for selling via social media, make sure the process of buying is easy. Customers should not need to work hard to purchase what they want.
- Facebook’s Marketplace. This allows users to buy and sell in their local area. You can use it to sell your product in your community. Using the Marketplace is easy – when logged into Facebook, you simply click on the Marketplace icon and follow the instructions to sell something. When someone sees your post and decides they want to buy from you, they can click to message you. You then work out a sale together from there. Buyers and sellers interact directly with each other.
- Shopify’s Facebook Sales Channel. Shopify is an e-commerce platform. You can use Shopify to create a shop section on your Facebook page to allow you to sell through Facebook. You can do this even if you do not have an online store with Shopify.
- Instagram’s ‘Shop Now’ Button. On Instagram you can post pictures of your products to get people interested. With this button, people can buy the item, not just like your post. When a user clicks this button, they are taken to your website to buy the product.
- Yotpo. This is another way to sell through Instagram. Yotpo links your Instagram pictures to an online store which has the look and feel of Instagram (a ‘shoppable Instagram’).
- Buyable Pins. These allow you to sell through Pinterest. When users click on pins they are taken to your website to purchase your products. Right now, Buyable Pins are only available to businesses which have a website created through Shopify, and which ship to US addresses and sell in US dollars using select payment gateways. However, this could soon change.
Auction and Sales Sites
You can sell through online selling channels – ‘online marketplaces’ – such as TradeMe, eBay, or Amazon.
- Trade Me – the most popular auction site in New Zealand
All three offer channels for small businesses to sell their products in New Zealand and overseas, although sales through Trade Me are limited to users in New Zealand and Australia. Selling through an online marketplace is something you may want to do even if you have your own online store. It is a cheap and easy way of getting new customers. Once someone has purchased from you through an online marketplace, they will know your business exists and may choose to buy direct from your website in the future.
Factor to Consider
If you decide to sell through an auction site, be aware that the Fair Trading Act 1986 requires all businesses that sell online to identify themselves as being ‘in trade’. This is so customers know that you are a business, not an individual, and laws such as the Consumer Guarantees Act 1993apply to anything they buy from you.
The typical way of using an auction site is to simply list your good or service for sale and give buyers the option of bidding for the item or paying a ’buy now’ price (or both). Once an item is sold, the buyer makes the payment and you arrange shipping. However, there are other options. Both Trade Me and eBay offer you the ability to open ‘Stores’ on their sites: for a monthly subscription fee, you can display all of the items you have for sale and tell buyers more about your business through a customised page. You also get a unique Trade Me or eBay web address to promote.
Although selling through an auction site seems a low-cost option, be sure to build in the cost of fees to your product price. This includes both listing fees and success fees (fees charged when an item sells). If you need to list an item several times before it sells, ensure you account for this.
Other points to be aware of are:
- You may not have access to some overseas markets.
- You do not own the site, so cannot make changes that you might want to make – you must agree to their terms and conditions and ‘make do’ with the functions of the site.
- You cannot link to your website or provide contact details in your listings – this stops you from getting customers to contact your business and buy your products outside the auction site.
- You have no control over the look of the site, which makes it hard to keep a consistent brand identity across all points of contact with your business. In fact, using an auction site may not be suitable for some brand images.
- You may find it difficult to sell products that people are not directly searching for.
You may be able to sell through a distributor. Distributors are mainly wholesale businesses that specialise in selling to retailers. They don’t sell directly to consumers. Getting a distributor to on-sell your products to retailers can provide your business access to much greater numbers of final customers and, hence, potentially much higher sales.
Since distributors sell your products for you, they can save you money on staff for marketing. Plus, having a distributor may mean you don’t need to maintain a retail location – which costs rent and other overheads.
The main disadvantage of using a distributor is you will need to sell your products at a price which is low enough for the distributor to make a profit. Given that any retailers they sell to will also need to make a profit, the price you charge distributors may need to be less than a quarter of the retail price charged to the end customer.
Selling on Consignment
When selling on consignment you basically offer your products to a retailer for them to try and sell for you. The retailer displays the items and includes them in their line of products. If the items sell, the retail store owner pays you the sales price less an agreed percentage and any other costs. Some retailers find it attractive to accept goods on consignment as it allows them to get inventory without having to pay, others may prefer to purchase outright so they can make more profit on each sale.
Some of the benefits of consignment selling are that it:
- Saves on overheads and rent
- Gets the product in front of customers
- Gives retailers an opportunity to see how well your product sells before committing to purchase them on a wholesale basis
- Allows you to ‘test the waters’ for new products or new sales channels
- Allows you to reach different locations and markets
- Enables you to keep a higher proportion of the final sale price than if you sold on a wholesale basis
The main disadvantages are that it can be time-consuming to manage and problems can arise with stock control. You will need to have systems in place to be able to monitor product sales and a clear agreement with the retailer.
Regardless of whether you already have a physical store, you can also make use of ‘pop-up stores’. These are temporary physical stores — they often last only a day or two. It may be in a rented retail space, a small kiosk, a cart, a van or truck, or even just a small stand, and could be in an empty retail store, on the side of the road, in a mall, or at a public event.
A few examples of pop-up shops include:
- A jewellery maker hosting a pop-up at the premises of a local clothing retailer to help her products reach new potential customers.
- An online gift store running a pop-up store in a kiosk in a shopping mall over the Christmas holidays to increase sales.
- A clothing retailer offering a new line of products opens up a pop-up shop in an empty retail store to introduce the line.
- A donut store with a mobile (van) pop-up which visits different locations.
- A specialist juice producer teams up with a local chef to host a pop-up diner featuring their drinks.
The benefits of doing a pop-up (especially for an online business) are:
- Being able to test a new revenue stream. It is a lot cheaper to trial using a pop-up store than to set up a permanent retail store.
- It gives customers the chance to engage with your product offline. Being able to physically touch a product before buying is still important to many customers.
- It creates a ‘get it while it lasts’ sense of urgency in customers. This is especially true for new or limited products.
- It enables you to take the opportunities offered by special occasions such as a season, holiday, or even a sale. For instance, a pop-up shop could be set up to sell costumes for Halloween or flowers for Valentine’s Day.
- It provides the opportunity to demonstrate the benefits of a new product to customers. This could be live demonstrations to encourage early adoption or pre-orders before starting bulk production.
- It allows you to test several locations to work out which is best for your customer base before committing to a retail store.
- It creates brand awareness through engaging with customers. Giving customers a good experience can help you develop new customers and encourage customer loyalty.
To make the most of a pop-up, make sure your marketing gives it a boost. Build buzz beforehand through your social media (you could for example, create an ‘event’), email marketing, and other forms of promotion. Also remember to put some time and effort into ‘day-of’ marketing—many shoppers will decide to visit your pop-up on the day. So, for example, handing out flyers on the day of the pop-up can attract customers who are walking through the area and who would otherwise not have visited your store.
Think about marketing even after a pop-up store closes. Share pictures and stories on social media. You want people who visited your pop-up to remember how much they enjoyed it. You also want people who didn’t visit to think about coming to your next one.
Markets, Expos, and Events
Attending markets, expos, or special events is often a good way of finding new customers to sell to. People who go to markets often do so with the intention to buy, however, sales are more likely for low-priced items.
Markets in locations away from your primary location can be a useful way of testing your product or service in new areas. They do not require a huge investment of time or money and can give you useful information that you might then use to expand permanently into those locations. However, to use a market as a gauge of demand in the area, make sure that the market is one which will be attended by people who are likely to be in your target market.
Expos are usually industry-related (for example, farming or travel) or related to an area of interest (such as parenting or lifestyle). People who attend expos are often also looking to make a purchase, and may be prepared to buy larger value items than they would at a market. One of the advantages of selling at an expo is that the people who attend like to see new products and services, and may expect to be ‘pitched’ to.
Unlike markets and expos, special events need not be focused on buying or selling themselves, but potential customers will still attend and will often be looking or willing to buy. For example, some towns hold mid-winter festivals where the council and local businesses put on all sorts of winter activities. Similarly, large sports events can be an opportunity for businesses. Many people attend these events, either as spectators or competitors, and enjoy visiting stalls to see what businesses have on offer.
Find New Markets
Another option for increasing sales is to find a new target market. In some rare cases a business might want to switch target market entirely, but it is more common for a business to find a new target market that complements its existing target market.
Changing your Target Market
In some cases a business might want to start selling to a whole new group of customers, because the existing target market is not profitable enough.
For example, a business might decide to move upmarket by selling its product or service at an increased price (and perhaps in a higher-quality version) to wealthier consumers. Just raising the price on its own will be unlikely to succeed: you will often need to change other parts of your marketing mix to appeal to wealthier customers. For example, you might have to start selling in more upmarket areas or use different promotional strategies and channels. If you already have a well-established brand image, you may need to use a different brand to appeal to the new target market.
Focusing on wealthier customers does not necessarily mean more profit – especially if there are not many members of this target market. A business may find that by lowering prices and / or providing a more basic version of a product or service, demand may increase enough to offset the lower prices and increase profits.
Finding a new target market may be necessary if a business has been selling a product that is now starting to fall out of fashion. People who were prepared to pay a premium price for something fashionable are no longer prepared to pay that price – the business will then have to look at moving to a target market who is less concerned with having the ‘latest’ items. This may include people who have always wanted to buy the product or service but could previously not afford to.
Finding an Additional Target Market
It is quite common for businesses to start selling into additional target markets as they grow and as society changes over time. Good examples of this are the skincare, cosmetics, and jewellery industries. Historically, these industries catered mostly to only one gender: women. These days, however, men are becoming more concerned about their appearance and it is no longer rare for men to use skincare products, cosmetics, or wear an expensive ear ring or piercings.
Businesses that had been producing these products for women had an early advantage in this new market because they already had most of the experience and capacity to produce the required products. Of course, the industry could not utilise the same marketing mix it used to sell products to women: it had to be modified to suit male consumers. For example, new products with new kinds of branding had to be developed, and the promotional channels and campaigns that worked well for female customers were mostly unsuitable for selling to men.
Expanding locations is a typical strategy for small businesses which are regionally-focussed to reach a new target market. For example, a tyre business usually serves a specific location because it is not worth people coming from far away just to get new tyres. Opening another branch in a separate location is a way to target a new group of customers. Even so, you may have to change your marketing mix depending on the location. For example, the product mix of a tyre business in the far north will likely not include a large selection of snow tyres, whereas one in the far south of the country may.
When trying to find new markets to sell to, consider:
- Emerging trends which might affect who purchases your product or service.
- Where in the product lifecycle your existing products or services are.
- The ways in which an existing product might be repurposed for new customers.
- How you might rebrand existing products to appeal to new sets of people.
- Any opportunities you may have to modify existing products for new groups of customers.
- Whether your business would have a competitive advantage in a new location.
- If your branding might be seen as new, interesting, and fresh by people who have not yet heard of your business.
Your business may also consider finding new markets through exporting. There are many ways in which you can do this, with the less risky options being simply selling via your current website or having a website specifically targeted at an overseas market. Higher-risk options include selling to a distributor in the overseas market or actually setting up a physical store overseas.
Another option is to use the Fulfilment By Amazon (FBA) service, which makes it easy for small businesses to export, and more importantly to experiment with exporting at a low cost. To use FBA, businesses send their products to one of Amazon’s warehouses (called ‘fulfilment centres’) and list their products for sale on Amazon. When items sell, Amazon handles all shipping and returns. You pay Amazon for inventory storage and the orders Amazon fulfils, and the cost of shipping is included in your fees.
You can also use Amazon fulfilment centres to deliver products sold through other channels (such as eBay or your own business website).
When exporting, even via Fulfilment By Amazon, make sure that your products comply with local laws.
Improve Your Sales Process
An effective sales process has five basic steps (see below). To increase your sales, you can work on improving each step in this process.
The Sales Process
A summary of what the steps involve is as follows:
- Make a Personal Connection with the Customer. Don’t just launch straight into a sales pitch: start a conversation with the customer. Make them feel valued and establish a bond with them. This can help you make a sale later on.
- Learn about the Customer. Find out what your customer needs. They will not buy your product or service if they do not want it or think they do not need it. By finding out what they need, you can decide which product or service is the most suited to them.
- Provide the Right Solution for the Customer’s Need. Once you know the customer’s needs, you can offer them the solution. This solution may involve a different product or service to that which the customer had enquired about.
- Make the Sale and Deliver the Product. This is when you ‘close the deal’. It may involve responding to objections or questions and, if so, your responses need to be honest. Always deliver what you say you will deliver. This is good for your reputation and customer loyalty.
- Maintain Rapport and Turn them into Advocates. Try to maintain a good relationship with your customers. Loyal customers benefit you in the long term. Show them you care about their wellbeing. You can do this by, for example, sending them a ‘thank you’ email after a major purchase or a voucher on their birthday.
Some suggestions for improving your sales process include:
- Develop the sales process beyond payment – make sure the customer’s after-sale experience is just as good as their pre-sale experience.
- Encourage customers to follow you on social media – this helps you maintain a rapport with the customer and to get their interest when you post about new offers.
- Upselling – offer customers additional items to purchase at the point of sale. It is important not to be pushy, and it is a good idea to make the additional offers relevant to what they are already buying. For example, if a customer is buying a new television, perhaps you could upsell a surge protector as a way of protecting their purchase.
- Staff incentives – the quality of your customer experience depends in a large part on how well your staff interact with them. Happy, motivated staff will do a better job. Therefore, it can be a good idea to motivate your staff so that they will always be doing their best. Incentives are one way of doing this.
- Loyalty schemes – offering customers a special deal for continued custom is a good way to get them to come back to your business.
- Getting to know customers better – customers appreciate it when you take an interest in them and remember them: it makes them feel that they matter. Take the time to establish good relationships with your customers and keep in mind that they will likely remember their interactions with your business better than you will.
- Invest in a customer relationship management (CRM) system – this can be used to guide customers through the sales process and ensure all leads are followed up in a consistent manner. It also holds customer information, making it easier for you to ‘remember’ what customers like and promote to them more effectively in the future.
Networking and Alliances
You Don’t Need to do it Alone
Although the success of your business ultimately rests on your shoulders, you do not have to do it alone. You can leverage the knowledge and resources of other people to improve your chances of success.
Always remember that other businesspeople are in a similar situation to you: they also want to succeed and thus can be interested in pooling information and resources for mutual benefit. This is the case even with direct competitors – you often have common interests with them based on your industry.
A business network is similar to a social network. Whereas a social network has people linked by friendship, a business network starts out as an association based on business interests. It can help you find reliable advice, pave the way to alliances and other beneficial relationships, and even help you find new customers. Similarly, if you are looking for a reliable business to act as a supplier or perform services for your business, you will often be able to find one through your network connections.
Māori business networks can be particularly beneficial. If you want to build your brand and point of difference around Māori factors, working together with other Māori businesses can amplify this. For example, a Māori business which sources all supplies from another Māori business creates a stronger brand than a Māori business which imports its supplies.
Being part of a group can make your business more effective. The principle ‘stronger together’ clearly applies. For example, if a group of businesses cluster together, they will be taken more seriously than if each operated completely alone.
These days, the ‘Māori brand’ has strong appeal internationally. When you pool your resources and product offerings with other Māori businesses, it becomes easier to reach and appeal to those markets.
Similarly, if businesses group together to try to influence government decisions about regulation, they are likely to be more effective than if each business went it alone. Smaller businesses can also partner together to secure large contracts that each business could not secure on its own.
As a business owner, your aim will be to become a well-known and trusted member of the business community. This might be your local business community, an industry community, the New Zealand business community as a whole, or the Māori business community, for example. You therefore need to get yourself out there and make you and your business visible — do not wait for others to come to you; you must be proactive.
Many people who are highly successful in business owe some of that success to their skill at networking. Their strong business networks help them to solve problems and take advantage of opportunities quickly and efficiently.
Some suggestions for improving your business network include:
- Join business or industry associations such as the Chamber of Commerce
- Attend business related events, such as public lectures, openings, or seminars
- Participate in public meetings or hearings
- Give back to your community
- Find and cultivate like-minded people. Do not miss the opportunity to make worthwhile friendships.
- Help other businesspeople
- Accept favours only if you will return them
- Be active in the community and social media
- Have business cards printed and always exchange them with other businesspeople
- Attend trade shows
- Develop a good reputation as an owner and employer
- Deliver a public lecture about your business or your industry to other businesspeople
- Follow up any contacts you make
- Ask contacts to introduce you to new people
- Be a giver, not a taker
- Nurture your existing business contacts. Think of them as being like plants: without regular care they may wither and die.
You must be patient: good business networks can take time to develop. Make sure to start work on your network before you really need it.
Factor to Consider
Keep in mind that, although a lot of modern networking is done through social media, nothing beats the effectiveness of face-to-face communication.
Benefits of Good Business Networking
In some cases, a business might be presented with an excellent business opportunity, but not have enough resources to take on that opportunity. In this case, joining together with one or more other businesses would allow the business to take advantage of the opportunity.
A good example of this would be two businesses pursuing an international opportunity together. For instance, many trade shows that are important to New Zealand businesses are held outside of New Zealand – you would need to attend these shows to meet with potential distributors. Having a stall at one of these trade shows can be quite expensive, due to the many costs involved. Partnering with another business is a way of sharing these costs and making it possible for both businesses to attend the show. Offering complementary products may also appeal more to potential buyers at the show.
Partnering with other businesses has many benefits. For example:
- Share the risks.
- Share the costs associated with large contracts.
- You can seek partners who have complementary skills to yours.
- Opportunities for growth – access to your partner’s distribution networks may help you gain market share faster than if you go it alone.
- Access resources – your partner may be able to help you by giving you access to resources such as specialised staff, finance, and technology.
- Access the target market – working with a local partner may be the only way you can access your target market.
- They can provide support and motivation.
Keep in mind that while partnerships can be very beneficial, they can also create disadvantages. Although you should be open to partnerships that will benefit your business, do not hesitate to turn down any that look like they do not make business sense. Remember that the wrong partnership could risk your reputation as a competent businessperson or even risk your business!
Some disadvantages of partnerships include:
- Disputes – if the relationship breaks down, ownership of intellectual property (IP) and jointly developed products can be an issue.
- Cultural difficulties – working with other businesses can bring some cultural issues, even if those businesses are also New Zealand-based. Your ways of doing business and your values may be very different from those of others.
- High level of commitment — to make a partnership work requires a high level of commitment both in terms of finance and time management.
- Share profits – if you work together on a project or contract which has a set level of income, you will need to share those profits with partners.
You do need to be wary of joining forces with someone you do not know and are unsure of whether to trust. For this reason, businesspeople who have spent time building strong networks and developing a reputation as competent and trustworthy are much more likely to be able to find partners to take advantage of opportunities when they arise.
It is a good idea to always be on the lookout for opportunities to partner with other businesses, even if they are only small opportunities. If you can partner successfully with other businesses on a few small things, they will be much more likely to agree to partner with you on a larger business opportunity.
Do not wait for other businesses to come to you. Instead, be proactive when looking for partnership opportunities. Being proactive will gain you a reputation as a businessperson who is looking to get things done and who is willing to co-operate. This will, in turn, make your business more attractive to others who are seeking partners.
A strategic alliance is an agreement between two businesses. In a strategic alliance, both businesses retain their independence and no new business entity is formed. Strategic alliances are often useful when two or more businesses offer complementary services. For example, a plumber could approach a builder, electrician, landscaper, concrete layer, architect, project manager, and interior designer and arrange for all parties to promote full house-building packages.
Remember that the greater the number of business entities in a strategic alliance, the harder it will be to manage. This is because the businesses retain much of their independence and there is no central authority to resolve disputes.
Each new member in the alliance creates additional relationships with all the other members – these increase rapidly as you add new members. For example, two members have one relationship, three have three, four have six, five have ten, and six have fifteen relationships. Given that a problem with any one of these relationships could jeopardise the alliance, it follows that you should think carefully about entering alliances with many members.
A joint venture is similar to a strategic alliance in that two or more businesses pool their resources towards a common goal. However, unlike a strategic alliance, a joint venture exists as a new business entity, separate from the members’ other business interests.
When two or more businesses enter into a joint venture, they typically have an agreement which sets out each partner’s rights and obligations, the purpose of the joint venture, and how profits and losses will be distributed.
An example of a joint venture would be two businesses which make different kinds of cosmetics joining together to create a new cosmetics brand for overseas export. By creating a joint venture, the businesses share the cost of brand development, brand promotion, and distribution, and at the same time create a valuable new business entity.