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Wednesday, December 8, 2010

STP and Feasibility

Segment, Target & Position ("STP")
Identifying those certain variables which are relevant to our product is called "Consumer Profiling". We indicate the age range, gender, income, educational level, psychographics, hobbies, interests, or other pertinent information identifying your group or market. Can you determine from looking at the U.S. Census how many people fill that profile? (See ).

Once you have made the profiling, you can target your efforts on a more focused group within that segment and to winning them as your customers. We need to know what they buy, how they spend their time, and how to reach them and communicate with them. Which marketing vehicle can we use to best reach them: direct marketing, advertising on the TV, radio, newspapers, magazines or what?

Positioning is the act of designing the company's offering and image so that they occupy a meaningful and distinct competitive position in the target customers' minds. We must develop a market-focused value proposition as to why the target market should buy our product. We may consider the proposition on service like quick delivery of the product, or selling tender meats and poultry, or in the case of a car, reliability and safety.

Once we have determined whom our potential customers are, we need to know if it is worthwhile to target this group. Are there enough profiled customers out there to buy enough of our product so that it is feasible to go into this business? We wouldn't want to start a business and find out that the targeted group is not interested in our product or there aren't enough of them when they do buy in order to satisfy our own goals and profit levels.

We must also consider the price at which we expect to sell our product. When all is said and done will the quantity sold at the price offered be enough to make a profit. In order to determine this we must know how much it will cost to open our doors. What will the start-up costs be? Will we need to rent or buy space? Purchase equipment and supplies?

Operating Budget
Once you have established how much you will need to start your business you will have to create an operating budget. Determine from your start up costs those that will recur over time, such as your rent, electricity, salaries, advertising, etc. These recurring expenses are the start of your operating budget. These recurring expenses will mostly be Fixed Costs. These Fixed Costs will be used to determine your breakeven point, that level of sales at which you don't make a profit or a loss -- you come out even. Mathematically the formula is
Breakeven point (units) = Fixed Costs divided by (Selling price minus the Unit Variable Cost)
This means that you have to determine a sales price.

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