Welcome to this part of the food farm business series. I’m Patrick Nehring, community development educator and professor for UW Madison Extension in Brown and Kewaunee Counties, and we will be talking today about market research, knowing your market, what are the market characteristics, determining the market area, potential purchasing power, competition, market data, and then your marketing efforts. 

Market characteristics is who typically makes the decision to purchase your product, this may or may not be the person who has ultimately consumed the food product that you have. As an example, a product may be appealing to young kids, but they’re not the ones purchasing the product, so you want to reach their parents. Sometimes I see the kids asking the parents for what they want, but a better sales approach may be to appeal to the parents directly. This brings up a key component of market research. What are the characteristics of the people who decide to purchase your product? As mentioned, if the product is for kids, a characteristic of that population is that they’re parents.

An example of this as the origin story for McDonald’s filet of fish. Originally, McDonald’s was a burger establishment only. Lou Groen understood the market that he was in. His restaurant was located in a neighborhood of Cincinnati. He understood that neighborhood better than the company’s founder Ray Kroc, and he found that he didn’t have the same profitability on Friday because the predominantly Catholic neighborhood wouldn’t eat meat on Fridays. Sales slumped, and he had to find a new way of building up his business. So he invented the filet of fish as a way to reach those customers. Similarly, if you’re in Wisconsin, you learn pretty quickly that you don’t schedule a major promotional event on a day that the Packers play unless you incorporate the football game into your event. Knowing the characteristics of your customers is an important part of market research.

Another key component of market research is determining your market area or your market space. Typically retail farmers markets and restaurants are drawing from the local area and the out of town patrons that stand out, but that is because they’re the largest segment. The largest segment of the regular customers is from the local area. They may be seasonal owners or visitors that happen to be on vacation in the area. But they’re also there for other reasons. They’re the local customers.

Few people will travel from Cincinnati to Wisconsin to purchase a food product from a Wisconsin store or go to a Wisconsin restaurant unless they are coming here for other activities. If you’re selling your product wholesale, to a distributor, a processing company or manufacturer, you’re still looking at the local market as your primary market. Or you will need to factor in the cost of shipping. The shorter the distance, the higher your profits will be. If you’re primarily selling online, you still want to know your market space. What are people looking for when they find your products? How are they doing that searching? 

A way of finding out your market area is looking at Riley’s law of retail gravitation. It is based on the theory that people will travel greater distances to larger retail centers than smaller retail locations.

Another way is to determine your market areas to travel as travel time or distance. If you’re looking at selling your raw product or selling your product, wholesale travel time and distance are a cost to consider and at some point those costs will eliminate the possibility of making a profit. So this way of determining your market area is an important factor for both retail and for wholesale.

You can also use customer location data to determine your market area. As I mentioned earlier, the largest block of your customers will be coming from the local area, but what are the boundaries of that local area? You can sometimes obtain customer information from credit card transactions under indirect methods like rewards or customer loyalty cards or, or customer apps, but you can also ask your customers what their zip code is. They may be reluctant to give you their address, but most people will be willing to give you their zip code. They’re also an analytic option for tracking your customers through the websites or social media. So that analysis options that you have for your website can be a way of finding out who your customers are in that market space. If we do have, if we don’t have customers yet, you can also look at commuting patterns. The census is a good source for this information.

The census is one example of a data source. You may determine your market area by looking at the data boundaries around your business. What fits what you know about your potential customers. For example here, this business uses the towns that surround a small village of Briggsville.

Another thing to know is how many purchasers are in that market area with the characteristics that you’ve identified. What is the average income of a household or a business in your market area?

How much of their income do they usually spend on your product?  By looking at the number of purchases in the area, and multiplying the number by the average household or average business income. And determining the percentage of that income that is used for purchasing products like yours, you can have an understanding of the potential purchase power in your market area or in your market space.

Another factor you need to consider though, is who is your competition? How many of them are in your market area or your market space? What’s the average sales for a business like yours?

Knowing the number of competitors you have and the average income of a business like yours, you can estimate the market potential that you can fill or how difficult it will be to obtain customers from your competitors.

When researching your market, look to see where the data is coming from. Is it being made up? How is the data collected? Try to compare apples to apples. You can use an inflation calculator to make all of the dollar values the same year. You may want to have market information that is as accurate as possible. But it’ll never be 100% accurate. There’s always a margin of error to consider.  If the margin is too high, it may negate the value of the data. For example, if the information is plus or minus 50 households, and the number that you have in your data source says 60 then either you have 10 households, which is a very small number or you have 110 households. That can be quite a range between those two. You also can ground truth your data. Data collected at the state level may not be as accurate as you walking down the street and seeing what businesses have opened up in the area, and what businesses have disclosed. A couple of example data sources are the US Census Bureau. The American Community Survey is what was formerly called the long form for the Census. It’s collected annually. And there’s a five year average that is continuing. So every five, every year, there’s a new five year average. That can give you a lot of information about your customers. County Business patterns is another source that the census bureau has. It tells you about the types of businesses within a county and their income. Another is the US retail trade survey. And that’ll tell you about the types of businesses in your area. The US Bureau of Labor Statistics also has some valuable information that you can look at and do these market analysis techniques. The Consumer Expenditure Survey is a survey that identifies how much people are willing to pay for various products as a percentage of their income. And the Consumer Price Index is a way for you to factor in inflation. The Wisconsin Economic Development Corporation has recently worked with the company to set up a new data source for you. And that’s size up Wisconsin.

As you’re looking at your market research, you’ve identified who your what the characteristics of your customers are, you’ve identified where your customers are. So as you’re doing your marketing for your product, or for your business, you want to match your message and your promotions, and their selection of data to those characteristics and that market area. So if you’re looking for a radio advertisement, you want to look for a radio station that reaches the type of characteristics of your customers and in the area that your customers are located.

So this is an overview of market research and a way of knowing your market, the market characteristics, determining your market area, potential purchasing power in that market area, your competition and how your competition can impact that purchasing power.

Things to consider when looking at market data and a marketing strategy. On the screen is my contact information. I’m located in Green Bay, and I’ve covered Green Bay or Brown County and Kewaunee Counties.

Additional research that resources that you should look into the local and regional economic development corporation or the municipalities in which you’re located. They often have resources put together to understand the market of their community, and another source is Wisconsin Economic Development Corporation. And as I mentioned before, they have size up Wisconsin is one of the resources on their website. And a good source for counseling on the market. Market research is Wisconsin business development centers. I have their website there and they’re located across the state of Wisconsin.

We also have resources through extension. And these are a couple of different websites that you can take a look at and farming and farm management as well as community development and business development. We also have a center for cooperatives if you’re interested in your cooperative business. And we have a part of our community development program focused on community food systems.