How to Recover from Failure as a Small Business Owner

Fifty percent of small businesses fail. Or maybe it’s 66% or 70% – depends on who you ask. Failure – on a small scale or a grand scale – is a part of doing business. When you run a business, you need a plan not only to succeed but also to recover from failure so you can keep trying.

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What Does Failure Look Like?

There are a billion ways to fail in business. You can make a product that no one wants. You can run out of cash and have to close up shop. If you’re a bad boss, your team could walk out on you. You can make a wonderful product, but fail to market it in a way that makes sense.

Life is incredibly complicated. Running a business is even more so. It is statistically improbable that you will succeed on your first try. That means you need to be prepared for failure. You need to give your business love and attention but have a backup plan if things go sideways. (And things will go sideways.)

My Ill-Fated Board Game Kickstarter

It happened to me in 2018. I created a board game called Highways & Byways. I spent over $8,000 to create it, and it completely failed on Kickstarter. What’s more, there was no conceivable way for me to rework the product and relaunch, because that would require changing the entire game from the ground up, from theme to gameplay to artwork to materials. It was a total dud.

Two years later, using the lessons I learned from that Kickstarter campaign, I launched another game called Tasty Humans that raised almost $30,000 on Kickstarter, BackerKit, and our online store. Not bad considering our budget was $5,000!

It’s Part of the Process

Failure is part of the process of creating a sustainable business. You’re not going to get it right on the first try. You can read all kinds of guides about how to successfully launch products or services, but you will inevitably screw something up. Whether that leads to total failure or not depends on the particulars of your circumstances.

11 Most Common Reasons Businesses Fail

That said, no one sets out to fail. Drawing heavily from this Entrepreneur article, we’ve can think of 11 reasons why businesses fall apart.

1. Poor product-market fit

There is no phrase we use on this blog more than “product-market fit.” It’s so incredibly important.

Referencing our prior post on the subject, product-market fit can be thought of as “being in a good market with a product that can satisfy the market.”

To put that into plain English: the people you are selling to have to want what you’re selling. You have to make something that people care about. This is why Highways & Byways failed. It was a good game, but no one cared about the theme or the gameplay, and the price was too high!

2. Poor market positioning

Even if you make the perfect product or service, you still have to sell it. That means you need messages that speak to the unique needs of your market. This is where market positioning comes in.

A market position is “the place a brand occupies in the minds of the customers and how it is distinguished from the products of the competitors.” To simplify Wikipedia’s explanation, it’s a reason for people to care about not only your product but your brand.

3. No target market or a poorly understood target market

It sounds super basic, and it is. A lot of times, people get into business and they don’t really know who they’re selling to. Or perhaps they get strange ideas in their heads about the people to whom they are attempting to sell. You have to take the time to find a good target market for your small business.

4. Poor conversion optimization

If you have a basic level of marketing savvy, it’s not hard to draw attention or stoke people’s interest. Ultimately, though, you need to get them to buy your product or service.

If people are paying attention and interested in what you have to say, but not buying, then you suffer from this problem. You aren’t getting sales, or in marketing lingo, conversions.

If this happens, you need to figure out where people are dropping off and address the problems before they sink your business.

5. The business is untrustworthy

Reputation is everything. If your small business has a bad one, deserved or not, it can sink you faster than just about anything else.

6. Your business can’t compete with the market leaders

It’s not fair, but you have to compete with the big, bad bourgeoise of your industry to succeed. If you ship people’s packages, you have to be better than Amazon at something. If you make candles, you have to be better than Yankee Candle at something. Otherwise, people will just keep buying form the big company that always does a good job.

7. Bad expense management

There’s a reason there are stereotypes about startup companies working on card tables while their owners eat ramen. Business expenses are high. If you can’t cut the garbage, you’ll default faster than you can say “my poorly conceived, over-leveraged business has gone bankrupt.”

8. Bad leadership

If you want to succeed, you will probably need a team. That means you will probably need to be someone’s boss. If you’re a bad boss, your best workers will quit and you’ll be left with only mediocre and bad ones. That will crush a fledgling company fast.

9. No team spirit

Freedom, passion, and team spirit are the reasons a talented worker would choose a small business over a big one. Big companies typically offer better pay, more chances for advancement, better benefits, and more perks. Small businesses have the benefit of charm, humanity, and authenticity.

If your business depends on a team, and there’s no team spirit, it will sink your business. People need to look out for one another. This is the only way David companies can slay Goliath conglomerates.

10. The business can’t scale

Many companies become victims of their own success. Once you start selling a lot of units or providing a lot of services, expenses can go up very quickly. If you’re not ready, the growing pains will knock your business out.

11. Cash flow problems

Even if you’re very careful about managing expenses, you need to keep some cash on hand. A lot of businesses do well, but end up folding because of a few missed invoices or late payments.

Failure is Not the End

When starting a business, you always want to leave some room for failure. You don’t want to take on too much debt and you don’t want to put all your hopes and dreams on one particular product. Give your business your earnest best effort, but make sure you always have enough resources left to recover from failure if things don’t work out.

Always have enough resources left to recover from failure. Repeat to yourself several times, because it’s a golden rule of business. If you can do this, then failure is not the end. You can try again and again and again until you succeed. Smart risk management is the structure upon which persistence is built.

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What You Should Do Immediately After You Fail

Let’s assume that you failed and that you’re looking for a way to recover from failure.

First, I’m sorry that happened. I’ve been there. I know it sucks.

As long as you have enough resources left to try again, there is hope. From here, I recommend following a four-step process that I outlined in a post I wrote on a different blog after my own big failure experience.

1. Assess your situation

Before you go any further, take a moment to ask yourself if you can try again. Do you have the money, time, and will to try something new?

If the answer to all of those questions is yes, then proceed to the next step. If the answer to any of those questions is no, then stop now, cut your losses, and move on with your life. You’ll be glad you did.

2. Categorize the failure

Take a moment to reflect on your failure. Try to understand what went wrong and why. The particulars of your situations are naturally going to be different than anyone else’s situation.

The odds are pretty good that you made a common mistake. Review the 11 reasons businesses fail earlier in this post and see if any ring true.

You may also find that your failure happens for a reason that doesn’t fit neatly into a specific category. It could be that your business collapsed because of COVID-19 or because a healthy loved one suffered an injury and you became their caretaker.

Completely bizarre events happen, and we call them black swan events. If your business failed for reasons that are truly out of your control, ask yourself whether the failure was caused by a black swan event.

3. Define your process

After you identify the broad cause of your failure, map out your entire business process. Write down every significant step from idea to execution. (A game design example can be found here.)

4. Work backward to find your problem

Once you have detailed your entire business process, which may take a while, look at the last step. Figure out where things all went wrong, and keep asking questions and analyzing whether the roots of your problems came from earlier steps.

To use a concrete example from my own board game’s failure, the Kickstarter campaign failed to fund. The outreach efforts, promotional marketing, sampling and prototyping, artwork creation, play-testing, and game design processes all went well. However, the basic concept design had no product-market fit.

Because the root problem was so deep, it would have required an entire rebuild of the entire product. That wouldn’t have made sense, so I had to scrap the game. However, if the problem were with, say, promotional marketing and outreach, I could simply have run some marketing campaigns online and relaunched successfully a few weeks later.

How to Address a High-Profile Failure

After you have figured out what failed and why it happened, it’s time to address the problem. Odds are your team are expecting an explanation. You may owe one to your customers as well, depending on what went wrong. In short, it’s time to do damage control as a leader.

You have four broad options, all of which are appropriate in different situations.

  1. Ignore it or walk it off: or, in other words, do nothing. Sometimes calling yourself out on small mistakes will make you seem bumbling and uncharismatic. This is obviously a bad approach if your mistake is a big one.
  2. Minimize or explain the mistake: if you make a small mistake that’s too big to ignore, but still small, you can explain the mistake without apologizing. Large organizations tend to do this after public mishaps. In my opinion, this isn’t the best way for a small business to proceed.
  3. Accept the mistake and apologize: in short, own your failure and say I’m sorry publicly. This is a good option for big mistakes. However, it can be very insincere if the mistake is massive, like the BP Oil Spill of 2010.
  4. Explore your failure for public benefit: be a good sport about your failure, talk about it, and help others avoid making the same mistakes. This can make you look like a very good, generous person, but it’s the most emotionally draining option of all.

How to Emotionally Recover From Failure

We’ve spent the bulk of this post talking about how to recover from failure and do damage control so that your business can keep going. But don’t forget about yourself!

Small business is about passion. It’s about loving what you do and going up against absurdly difficult odds because you have a vision you want to impose upon the world. When you get rejected, it hurts. It’s deeply personal. It stings so badly and can really mess with your confidence.

Your emotional and psychological health is so important. That’s why I want to share a few quick tips from yet another blog post I wrote after my big business failure. These helped keep me sane in a difficult time, and I hope they do the same for you.

  1. Focus on fixing the failure, not the pain of rejection.
  2. Make a plan to fix the failure so you have a sense of control again.
  3. Now that you’ve done that, let it hurt.
  4. Once you’ve acknowledged the emotional pain, try to find a silver lining. You probably have new opportunities now.
  5. Keep a sense of perspective. It’s not the end of the world.
  6. Start something new to keep your mind occupied.
  7. Build a dream team. Surround yourself with positive, competent people.
  8. If you’re still stuck, take a break.
  9. If you’re stuck after taking a break, seek a professional’s advice. That could be a therapist or a career coach.

Final Thoughts

To err is human. Failure is part of building a business, but you can recover from failure if you have the right mindset. Don’t risk more than you’re willing to lose, and be ready to learn from your mistakes. Do this for long enough and you can join the noble ranks of people who tried and tried and tried again, and then finally made it.

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7 Factors to Consider When Pricing Products for Your Small Business

When creating the perfect product for your customers, you have to ask yourself a lot of questions. What do they need the most? How can you best meet those needs? For whom is this product designed? One of the biggest questions, though, comes up when pricing products and services: how much should I charge?

Pricing strategy is complex. There is no sugarcoating it. Yet every product and every service must be assigned a price. Fortunately, there is an art and a science to pricing products.

Mercifully, it doesn’t involve throwing darts at a dartboard and adding a couple of zeroes to your score.

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Price Isn’t Just a Number: How Pricing Creates Meaning

Price isn’t just what you pay for a product or service. Yes, that is its primary purpose: to tell a buyer what a good or service costs. Yet price is also a data point which consumers weigh heavily into their decision-making process.

This is more easily illustrated than explained. Borrowing from our post about decision-making styles, imagine eight different kinds of buyers: the perfectionist, the image-conscious, the hedonist, the frugal, the novelty seeker, the impulse shopper, the confused, and the loyal.

Pricing & Decision-Making

The same person can be a different kind of buyer in different situations. These decision-making styles are flexible. Bear that in mind as we discuss how each individual processes prices.

Perfectionists seek long-term value. They may spend more money up-front, but their goal is to get the highest value out of their purchase. In a sense, they’re perfectly rational about pricing. This is rare.

The image-conscious flocks to more expensive items because they are more expensive. They’re a price snob! They want to buy something exclusive to set themselves apart from others.

The hedonist is just having fun. They’ll spend a lot because they can or because they want to. They’re not trying to impress anyone.

The frugal does the exact opposite. They spend the bare minimum amount of money, even if that means buying garbage.

Novelty seekers want a new experience and are willing to pay extra for it. They don’t pay extra to set themselves apart from others like the image-conscious does, but they will ignore a steep price tag and risk making a poor purchase (in terms of long-term value).

Impulse shoppers don’t think, they just buy. They are attracted to sales and price tags that end in 99 and 95. Pricing strategies for impulse shoppers go out of their way to make sure the impulse shopper doesn’t have second thoughts.

Confused shoppers are overwhelmed with decisions. They may pay extra for an established name brand because of the comfort and security that a familiar experience provides. They are not evaluating prices in a perfectly logical way.

Loyal shoppers keep buying the same goods, but does so in a way that seeks comfort whereas the confused shopper seeks to avoid discomfort. That is to say, the loyal shopper isn’t really evaluating prices in a detached, unemotional way either.

7 Factors to Consider When Pricing Products for Your Small Business

I mentioned customer decision-making styles because it’s important not to see pricing as a math problem. Prices are meaningful, emotion-loaded numbers first, and math problems second.

With everything mentioned above in mind, now we can talk about seven specific factors you should consider when pricing your products or services.

1. Your business goals

Before setting a price for your product or service, consider your overall marketing objectives. Your marketing objectives will affect the kind of customers you want to attract and how you go about attracting them.

Some common business goals include increasing the number of sales, increasing profitability, creating brand awareness, retaining customers, and generating leads.

Some of the objectives will push you toward different pricing strategies, so you need to figure out which objective or objectives are most important to your business. If your goal is to retain customers, you may want to focus on a high-price, high-quality product with a price to match. If you want to increase the number of sales, you may want to set a low price.

The point is: know your business and know what you want to do before you commit to a price tag.

2. Your target market

As discussed above under Pricing & Decision-Making, different people see prices differently. The same person may be frugal with cars but image-conscious with clothes. That means when choosing a pricing strategy for your business, you need to think about your target market.

Your target market will likely gravitate toward one or perhaps two different decision-making styles. Talk to your potential customers and conduct marketing research until you figure out how the specific people you want to sell to react to different prices.

3. Cost of producing your product

No matter how earnestly you wish to please your customers, you need to make sure that you make a profit off what you’re selling. Large companies such as Amazon may be able to take a loss on tablets in order to sell something else, but you likely cannot.

Make sure to consider not only the manufacturing and shipping costs, but also the selling and advertising costs. You need to turn a profit when all is said and done to consider a product or service a success.

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4. Profitability

Don’t just stop at covering your expenses, though. You need to consider profitability. Making 50 sales at a slightly higher price might actually be better for you than make 100 sales at a lower price. You need to crunch the numbers and figure out where your product is most profitable.

If you’re not even sure where to begin, then I suggest the following. First, figure out how much money you make from an average customer. Next, figure out how much it costs to acquire a new customer.

The first figure is known as lifetime value. The second figure is customer acquisition cost. In general, you want lifetime value to be three times greater than customer acquisition cost.

If you cannot quite pull off a 3:1 ratio here, you have a few options. You can upsell or cross-sell to make more money from each customer. Similarly, you can simply charge more per item. You can create entirely new products to sell to existing customers. Lastly, if you can’t make a steady, solid profit, you can always push your product farther along in its natural lifecycle.

5. Positioning through pricing

We’ve talked about market positioning at length in another post. As a quick recap, a market position is when you sell to very specific people with very specific brand messages.

Recall once more that pricing creates meaning. That is to say, a handful of digits after a dollar sign send a marketing message about the kind of company you are. A low price says “we’re here to save you money.” A high price says “we make premium quality goods.”

Figure out what is important to your customers. Think in terms of decision-making styles, if you must. Are they the perfectionist, the image-conscious, the hedonist, the frugal, the novelty seeker, the impulse shopper, the confused, or the loyal?

Price accordingly.

6. The competitors’ pricing strategies

Of course, even if you do your homework on your customers’ psychology and triple-check your own revenue projections, you could wind up at a price that looks wacky. This is where context is crucial.

Pay attention to what your competitors are charging. If you charge somewhere in the middle of the pack, that’s pretty safe. If you charge way more or way less, then you probably need to gravitate closer to the center or double-check your assumption that “different is good.” Sometimes having a really different-looking price is worth the risk, but it is still a risk.

You might be able to create phenomenal tennis rackets and make a profit selling them for $5 each. Yet if everyone else is charging $20 or more, then you can get away with charging $15.99 and consider yourself a “low-cost leader.” Likewise, you might have just made the best board game in the world, but the $149 price tag is a massive red flag for many people, even if that’s not fair.

7. The price itself

Lastly, you’ve probably noticed that prices tend to end in .95, .99, or an even .00. At the gas station, you may even see the strange anomaly that is 9/10 cent prices per gallon.

People have been fighting for years to prove or disprove whether or not psychological pricing strategies affect consumer behavior in one way or another. The results have been mixed.

Our advice is this: if you’re looking to appear cheap, go with the .95 or .99. If you want give people an impression of luxury, go with a .00 price. We suspect it makes a difference, if only a small one.

A couple more aspects to keep in mind here is that psychological pricing will change in the near future. A lot of countries are getting read of their .01 and .02 coins, meaning that .99 and .98 prices are falling out of favor there.

Additionally, when selling online, websites such as Amazon and eBay allow you to sort by price. Having a price that is one cent lower than a competitor will make your item show up higher in the listing when sorting from low to high.

Final Thoughts on Pricing Strategy

As with all things in marketing, consider your customers’ needs and wants. A price conveys meaning through a simple number. Think about your marketing objectives and what kind of image you want to project, and then name your price accordingly.

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How to Find a Market Position for Your Small Business

It’s difficult to find your place in a noisy world. This is even truer for small business, where competition abounds. As if crafting the perfect product or service wasn’t hard enough, you have to craft great messages as well. In other words, you have to find your market position.

Don’t let the complexity catch you off-guard, though. We’re here to help!

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What is a Market Position?

First things first, we need to talk about positioning, and what that term means in marketing. According to Wikipedia, a market position is “the place that a brand occupies in the minds of the customers and how it is distinguished from the products of the competitors.”

We spend a lot of time talking about product-market fit. The idea of product-market fit is that you need to create products (or services) that perfectly meet the needs of your target market.

Branding works the same way. Your brand needs to reinforce the idea that your product is a perfect match for your customer. By carefully crafting messages, you can enhance the customer experience, increase sales, and improve your return on marketing spending.

Why is Market Positioning Important?

Market positioning is important for a lot of the same reasons that product-market fit is important. For starters, carefully choosing a marketing position pushes you toward clearer communication. By thinking about what your brand means to your prospective customers, you are forced to craft great messages.

A few paragraphs ago, we describe product-market fit as what happens when you create products (or services) that perfectly meet the needs of your target market. Similarly, market positioning can help you find audience-message fit: crafting messages that perfectly fit your audience.

It gets better from here, too. The research you put into market positioning will help you create better products and services, too. The very act of learning how to describe your product to others can help you see weaknesses and strengths.

Lastly, market position is relative to your competition. That is, market positioning means finding a way to distinguish yourself from the competition. Finding out how to distinguish yourself from the competition means thoroughly researching them, which is a good idea in general.

Market Positioning & Your Target Market

If you speak to a room of ten people, everyone will hear the same speech, but each person will have their own understanding. Because of this, you need to be keenly aware of who your target market is when staking out your market position.

As we say in our recent post about the subject, a target market is a group of potential customers to whom you want to sell products or services. Target markets have specific qualities, such as age, location, or interests that set them apart from the general population. You want your message to speak them and their unique needs.

It’s also worth mentioning that while a company can serve a large target market, each individual product or service can appeal to different market segments. If this is the case, you may want to stake out a different marketing position for each market segment you serve. (Read up on market segmentation here.)

Market Positioning & Your Niche

We’ve talked about market niches before and why they’re important. The short version can be summed up as follows: “you’ve found your niche when you’re able to make very specific products for very specific people with a very specific message.”

Let’s break that down a bit. You have three parts:

  1. Products: very specific products
  2. Target market: very specific people
  3. Branding: very specific messages

When you combine 1 & 2, that’s product-market fit. Combine 2 & 3, and you have your market position. Put them all together, and you’ve found your niche!

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The 5 Common Market Position Strategies

With all of the above in mind, market positioning strategies tend to fall into a few broad categories. Marketing91 did a good job of listing them and they provide inspiration for our own take on the subject below.

In messy reality, bear in mind that you will probably use a mix of these when staking out your market position, though one strategy will likely be more prominent than others.

1. Consumer Benefits

One way that you can differentiate your product from others on the market is by emphasizing the benefits. If you sell cars, you could claim that your car is the “safest” or “the most fuel-efficient.”

2. Pricing

Another way you can differentiate your product from others is by setting the price much higher or much lower. That way you can either position yourself as “the low-cost option” or “the pinnacle of luxury.”

3. Use or Application

Pumpkin spice lattes could be made at any time of year, but they are typically consumer by Starbucks consumers in the autumn. This is part of what makes them special. In this sense, the product’s use is what truly sets it apart on the market.

4. Product or Process

Alternatively, you can also position a product by how it is used or who uses it. A good example straight from Marketing91 is the following: “Johnson and Johnson repositioned its shampoo from one used for babies to one used by people who wash their hair frequently and therefore need a mild shampoo.”

5. Product Class

Lastly, you can find your market position by classifying your product differently than others on the market. For example, some toothpastes are teeth-whitening. Others are breath-freshening. (You’ll notice that this is not dissimilar to differentiating by product benefits.)

How to Find a Market Position

With all of the above in mind, we are now going to help you find your market position. You find it in much the same way that you find product-market fit – a lot of research and trial and error. Understand that it will take some time to find your market position, but it will be well worth it when you do!

1. Review your company’s strengths and weaknesses.

Finding a market position is all about coming up with attractive messages that you can send to potential customers. However, you also need to be very honest when you do so. Take a moment to think about what your company can and cannot do well.

2. Analyze your competition.

Market positioning, as we said earlier, is relative. The whole point is to set yourself apart from the competition. Take some time to really research your competition. Know their strengths and weaknesses. Look out for opportunities to exploit and threats to avoid.

3. Conduct marketing research.

Marketing research is really important to your business’s success. In fact, it’s a favorite subject of ours that we’ve written about many times:

Even if you don’t read any of those articles, the message is clear: you need to take the time to really learn about what your customers need and like. Don’t make assumptions without testing them! Ask a lot of questions.

4. Figure out what makes your products distinct from others.

This is where the market positioning strategies which mentioned in the previous section come in handy. Think about what makes your product different than others on the market. Does it offer unique benefits or uses? Is the price different? Is it in a category all of its own?

5. Determine which of your products’ qualities will attract customers.

After you figure out what distinguishes your product from others on the market, you need to think about what qualities will actively attract new customers to it. In other words, what’s the X factor?

Your customers are not making rational decisions to buy much of the time. They’re making emotional decisions. What makes them excited to buy your product?

6. Revisit your target market and niche.

Once you figure out what sets your product apart, it’s time to revisit your target market and your niche. Is your product really meeting your target market’s needs? Are your messages going to really resonate with your target market to the extent needed to carve out a niche?

If you can’t say “yes” to both those questions with a high degree of confidence, test out different marketing messages and see which ones people respond to!

Final Thoughts

Finding your market position is not easy. It’s a complex process that takes time. It’s well worth it, though. Knowing what makes your business special will help you gain and retain customers.

Consider your target market’s needs. Figure out how to meet their needs with great products or services. Then figure out how to communicate with them in a way that feels natural. Lastly, find a way to distinguish yourself from the competition.

It’s a lot of work, but you can do it and it will be worth it. If you have any questions, feel free to ask in the comments below. We always loving hearing from our readers 😀

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The 4 P’s of Marketing: Why They Matter To Small Business Owners

For a small business owner, wise use of marketing can tremendously improve the odds of meeting big goals. After all, the main goals of marketing are to improve customer satisfaction, generate profit, find or create demand, and craft a brand with a specific public image. All of these benefits and more can be neatly summed up by an old marketing model: The 4 P’s of Marketing.

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First, you’ll hear people use the terms “4 P’s of marketing” and “marketing mix” interchangeably. Marketing mix is the more general term, and it can be used to refer to different versions of the 4 P’s, such as the 4 C’s or the 7 P’s.

In any case, the marketing mix is a foundational model for businesses, historically centered around the product, price, place, and promotion. You’ll notice all of those terms start with the letter P because this is where the 4 P’s come from.

In this post, we are going take a closer look at what the 4 P’s are, why they are important, and why they matter to you as a small business owner.

What do the 4 P’s of Marketing Mean?

As mentioned above, the 4 P’s of marketing are product, price, place, and promotion. Each of the P’s in marketing mix is different, but they all work together to help you reach your target market more effectively.

When running your small business, reaching your target market is incredibly important. You want to make sure that what you are selling or providing is effectively meeting the needs of those it is intended for. The 4 P’s can help you identify what consumers are searching for, how the product can be improved, and what you need to do to launch the product successfully.

Best of all, it’s a neat mnemonic device so you don’t have to remember so much abstract marketing theory. Anyone can remember four words that start with the letter P.

Product

Believe it or not, the first P is exactly what it sounds like.

A product is an item that satisfies a customer’s needs, whether that be a good or service. You can create any product you wish, but to succeed in business, you must meet a need or satisfy a want with your product.

By making sure that your product is meeting the needs of your target market, this increases your potential for sales. (And let’s be honest, making more money is always a plus). This just happens to be very easy to overlook!

Remember: when creating products, you need to think about all business processes involved and whether or not they serve the customer. Your product isn’t just the product – it’s also the design, packaging, branding, and its functionality. Your product is how people feel when they use it, too.

Price

The second P is price. As you may expect, the price is the amount that the consumer will pay for your product or service. Of course, if you’ve ever tried to price an item, you know how incredibly complex that can be! There are so many important elements to consider when setting a price for your product.

First, consider demand elasticity. Demand elasticity is essentially a really fancy way of saying “know how many people will leave if you raise the price by $1”. Ideally, you want your price to be set to where you make the maximum amount of profit – not so low that your margins are bad, but not so high that you lose too many potential customers.

Next, consider what your price says about your product’s value. Low prices can signal low-quality products and high prices can signal high-quality products. There are also certain “magic numbers” that change the way people view a product entirely, and these are different in every industry. For example, you might spend $10 here and there on an item you want, and you not think much about it. Whereas if you were buying a new $1,000 TV, you might spend a little more time thinking about which one you want and the benefits of one TV over another.

Finally, take a look at your competition. Competitive analysis is one of the cornerstones of thoughtful marketing strategy. People look for the best prices on things. Ask your coupon-clipping grandmother – this is no secret! You might even share some of the same customers as your biggest competitors! The point is, you need to set a price with a full understanding of the context that your customers will be using to make buying decisions.

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Place

The next P is the place, this is sometimes referred to as the niche. If you are really looking to see maximum growth for your product, then finding a niche to settle into can help skyrocket your success. To quote an earlier post we wrote on the subject, “[y]ou’ve found your niche when you’re able to make very specific products for very specific people with a very specific message.”

This P also deals with where your product will be distributed, sold, and manufactured. After all, getting your product or service to people is a part of the mix as well. The supply chain of physical items usually involves data management, materials handling, production, packaging, inventory, transportation, warehousing, and often security. In other words, this is the “how” part of how people will receive their products once purchased.

Promotion

Promotion is the fourth and final P. In order to reach your audience, you need to be able to effectively communicate with them. In marketing, promotion is every method of communication that you use to inform people about a product or service.

Promotion is vital for your small business’s growth. When your business is starting out, informing people of who you are and what you offer is one of the most important things you can do. This is because people might not know about you yet and what you have to offer. Through effective promotion strategies, you can reach your target market, and hopefully, generate some leads from it.

Promotion covers a lot of different concepts, including outreach, product reviews, crowdfunding, advertising, and much more. The most valuable promotional tool for your business depends heavily on your industry, and you will probably need to experiment until you find one that works.

Remember: the goal of promotion is to generate demand. We’re already assuming you can satisfy customers because if you can’t do that, no amount of promotion will save your business!

Why Do the 4 P’s of Marketing Matter?

Your small business needs a strategy in order to keep growing and moving forward. It is no secret that having a business plan is vital for your success.

The 4 P’s of Marketing are four of the most important factors to consider when you create that strategy. Once you have a basic understanding of product, price, place, and promotion, you can begin marketing your product or service in earnest.

These factors, as we have discussed, are both internal and external in nature. When you are considering how to reach your target market, or better engage them, using the 4 P’s will help ensure you are asking yourself the right questions and taking the best steps.

When you have addressed each of the 4 P’s, and know each one of them well and what that means for you, then it will be time for you to start selling your product! Effective marketing strategies will help drive in more leads. If your product is good enough, that means you’ll see more sales and success!

That said, once you do start succeeding, revisit the 4 P’s from time to time. You want to keep your product fresh for the duration of its lifecycle.

Final Thoughts

Growing your business from the ground up can be very difficult, stressful, and even frustrating. More than anything else, you just want to see your product make it into customers hands.

Marketing will help you make sure this happens. The 4 P’s of Marketing are one of the easiest ways to succinctly summarize the complexity of our discipline. It takes work, but seeing your product make it to your customers will make this long process worth it in the end.

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35 Factors That Influence Consumer Buying Decisions

When you walk into a store, you are surrounded by different products. As you traipse down the aisle, you make thousands of tiny decisions. You purchase some items and pass on others. Sometimes you stick to your list, and other times you don’t.

Do you ever wonder what’s behind your consumer buying decisions?

As customers, we are constantly evaluating our options. There are tons of psychological, social, economic, cultural, and cognitive factors that cause us to choose (or not choose) to buy something. Knowing what some of these factors are will make you a savvy consumer.

As a business, this knowledge is even more helpful! With it, you can understand why customers do what they do. We’ve said it before and we’ll say it again – understanding consumer behavior is critical to success!

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The Consumer Decision Making Process

Before you can understand the different factors that sway consumer behavior, you need to understand how consumers make decisions in the first place. The decision-making process varies from person to person but tends to involve five distinct stages.

Need identification

First, the consumer recognizes that they have a need. In marketing, needs are not always what you may expect them to be. We will now borrow a passage from one of our older posts to expand upon that point.

In first world countries, the people who have the disposable income to buy your products or services largely have their basic needs met. If you’ve taken a basic psychology course, you may be familiar with Maslow’s Hierarchy of Needs, posted below. Once basic needs are met, your mind – looking for a problem to solve – turns toward more abstract needs.

Maslow's Hierarchy of Needs

You have food and enough money to get by, so now it’s time to find love. You have a wife, so now it’s time to achieve something worthwhile. You’re an achiever, so now it’s time to really push yourself to your creative limits.

To a small business marketer who is studying consumer behavior, this is a really valuable framework. When you’re creating products, you want to address a specific need your customers have, in a way they would like for it to be addressed. Those of us with the great fortune of living in the USA, the UK, Western Europe, and other wealthy countries often spend our days chasing abstract needs (or, really, wants). Marketers need to remember this!

Consumer Behavior 101: People are Weird, Markets are Weirder
The information search

Next, the consumer does some research. They read websites online, or perhaps check the newspaper. They talk to friends, family, and coworkers. Sometimes they see advertisements. In this stage, consumers get a sense of what products or services may address their need.

Evaluation of alternatives

At this point, once the consumer has done some initial research, they weigh the pros and cons of different options. This can happen quickly or slowly, consciously or unconsciously. You may choose one brand of toothpaste over another for no deeper reason than because the packaging is prettier and catches your eye. On the other extreme, you may spend months choosing the right car to drive.

Purchasing decision

After identifying their need or needs, gathering information, and considering alternatives, the consumer makes a decision to purchase.

Post-purchase evaluation

After their purchase, the consumer asks themselves whether their purchase was a good one. They may experience joy or relief, or alternatively, buyer’s remorse. What happens here determines whether or not they will make a similar purchase in the future.


35 Factors That Influence Consumer Buying Decisions

With the consumer decision-making process all spelled out, you can imagine there are a variety of different factors which can change how consumers make decisions. Some are individual, psychological, cultural, or social. Others are the result of errors in judgment, which we will refer to later as “cognitive biases.”

Some of these factors are ones that you – as a business owner and marketer – can influence directly. Others, you cannot, and you can only use this information to decide how to respond to common objections. Either way, you need to understand what is happening in consumers’ minds when they are making decisions. This will help you to more effectively sell your products or services!

Individual Factors that Influence Consumer Buying Decisions

Every person is unique and their needs are therefore different. There are a number of different factors unique to individuals which sway their decision-making process when it comes to making purchasing decisions. We’re going to talk about five big ones.

1. Occupation

People often define themselves in terms of their job or career. Occupations affect the amount of time that people have to spend throughout the day, and that can skew their preference for convenience vs. cost savings. Executives will tend to lean toward the former with part-time workers leaning toward the latter.

What’s more, occupation can affect what people need to get through their daily life. Executives will need professional clothing. College students, for the most part, won’t.

2. Age

Age impacts a lot of different purchasing decisions. Teenagers don’t buy houses and they don’t (or at least shouldn’t) buy beer. Likewise, people in their mid-40s are a lot less likely to spend money going out to clubs or buying flashy clothing, mid-life crises excepted.

3. Economic status

People with a lot of money can spend a lot of money. People without a lot of money cannot spend a lot of money. This is incredibly obvious but still has an outsized impact on what people are willing to purchase.

4. Lifestyle

Quoting directly from Management Study Guide: “[l]ifestyle…refers to the way an individual stays in the society. It is really important for some people to wear branded clothes whereas some individuals are really not brand conscious. An individual staying in a posh locality needs to maintain his status and image. An individual’s lifestyle is something to do with his style, attitude, perception, his social relations and immediate surroundings.”

5. Personality

Everybody has different likes and dislikes. Often, they are so deeply ingrained into us, that we can’t explain why we like or dislike something! Don’t underestimate the importance of personal preferences in purchasing decisions.

Psychological Factors that Influence Consumer Buying Decisions

Consumer buying decisions are also influenced by hidden factors that consumers themselves may not even be aware of. We can think of these as psychological factors.

6. Motivation

The consumer decision-making process is ultimately based on the drive to meet a certain need. This is the essence of the consumer’s motivation. Are they seeking safety or comfort? Are they seeking stimulation or recognition?

7. Perception

Branding goes a long way toward influencing what people think of products, services, and the companies that provide them. Luxury is, for better or worse, a made-up concept. It’s largely determined by how a company chooses to present itself.

In the consumer’s mind, Apple products may be seen as more luxurious than Android products. A Lexus ES300, despite being functionally identical to a Toyota Avalon, can command a higher price because of perception.

8. Learning

Every consumer has a different background, meaning they have different knowledge and skills. Each consumer will take their own individual life learning and apply it to the consumer buying process.

9. Attitudes and beliefs

Similarly, every consumer has different attitudes and beliefs that influence what they think about particular products. Usually, overcoming attitudes and beliefs is very difficult, but it can be done. For example, Old Spice had a reputation for being an old man’s deodorant in the early 2010s, until they launched a very successful viral marketing campaign that changed young people’s beliefs about the brand.

10. Prior experience

If your brand is big enough, there is a chance that individuals you meet will already have had an experience with your brand. Whether that experience was a good one or a bad one will swing their decision-making process.

Cultural Factors that Influence Consumer Buying Decisions

Individual and psychological factors imply that the consumer decision-making process is highly individualized. This is not the case, however. People are intrinsically social, and their behaviors are informed heavily by the culture in which they were raised.

11. Culture

Depending on where you grew up, you will pick up certain beliefs, customs, and rituals. You do this because people around you are doing the same and you learn from them. These vary from region to region. Just look at the difference in McDonald’s menus in different countries.

12. Subculture

Cultures can be broken down into ever smaller pieces. People in Los Angeles have a different life than people in rural California. Taking it one step further, people in Beverly Hills have a different lifestyle than people in Anaheim.

As you look deeper at individual cultures, you find an enormous variation in people who you would think have a lot in common. Want to see a good example of subcultures that is easy to get your head around? Watch the Breakfast Club.

13. Social class

Whether you are working class, middle class, or wealthy will determine the way you live your life. Consumers who fall into these social class categories will exhibit different behaviors. The working class will try to satisfy basic needs and save a lot of money. The wealthy, meanwhile, don’t care as much about money but rather often make purchases to save them time.

14. Religion

People’s religious beliefs also influence their purchasing decisions. Once more, Management Study Guide provides a great example.

A Hindu bride wears red, maroon or a bright colour lehanga or saree whereas a Christian bride wears a white gown on her wedding day. It is against Hindu culture to wear white on auspicious occasions. Muslims on the other hand prefer to wear green on important occasions.

For Hindus eating beef is considered to be a sin whereas Muslims and Christians absolutely relish the same. Eating pork is against Muslim religion while Hindus do not mind eating it.

Cultural Factors affecting Consumer Behavior, Management Study Guide
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Social Factors that Influence Consumer Buying Decisions

Consumer buying decisions are often affected by deeply personal factors (individual and psychological). They are also affected by the basic social context in which we live: cultural factors. Even still, there are often more explicit social factors that affect how consumers make decisions too.

15. Family

Children tend to pick up buying behaviors from their parents and siblings. This comes from sharing personality traits by genes and also from learned behavior. If you’ve ever seen a newly wealthy person saving mustard packets from a fast-food restaurant, it’s likely that they picked up the habit from their working-class family.

16. Reference groups

A reference group is a group of people that you would like to be associated with. Often people buy items in order to become part of a group. For example, a newly graduated law student may choose to buy a fancy suit so that they can fit in with high-powered lawyers in their firm.

17. Decision-making roles

Decision-making styles are often influenced by the role a person has in a purchasing process. We’ll quote from a previous post on this one.

In this research paper written by John R. Rossiter and Larry Percy in 1985, Rossiter and Percy posit that there are five roles that go into consumer decisions. In the decision-making process, you can be one or more of the following:

1. You could be the initiator, or the person who suggests a brand or product. I could say “have you thought about T-Mobile lately?” That’s neither a positive nor negative statement, but simply one that mentions T-Mobile.

2. Instead, you may be the influencer, a person who recommends a brand or product.  If your friend said to you, “hey, you should really check out this great blog called Marketing is the Product,” they are the influencer. They are also a great friend.

3. The decider is the one who chooses to make the purchase. If a teenager says to their dad, “I really want the new Samsung phone – can I buy it?” Then the dad is the decision maker.

4. The one holding the wallet is the purchaser. If the teenager then goes to the nearest Best Buy and buys the phone, he or she is the purchaser.

5. Lastly, the user is the one ultimately using the product. Your company decides which computers to buy, the purchaser places the order, and you are the user.

I Choose You: How Consumer Decisions Work in Small Business

Cognitive Biases

For better or worse, people are not rational thinkers. Sometimes this can be good. Making decisions on sloppy heuristics allows us to do what we need to do without being paralyzed by continual analysis of all possible outcomes.

Of course, relying on heuristics to make decisions can have some comically bad effects sometimes.

A cognitive bias is a systematic error in thinking that affects the decisions and judgments that people make. There are a lot of cognitive biases.

Wikipedia has a pretty thorough list here. Below, we’ll paraphrase and simplify their list. Each of these biases provides yet another way to influence your consumer behavior.

18. Selective factfinding

We like to find facts that support beliefs we already had to begin with. As you can imagine, that would lead to some pretty flawed reasoning.

19. Selective perception

On an even deeper level, we can see and hear things that already support our beliefs. That’s because deep down, we’re not even paying attention to evidence that doesn’t line up with our preexisting beliefs.

20. Premature termination of the search for evidence

This is exactly what it sounds like: you stop looking for evidence long before you ought to, meaning you are never exposed to critical information.

21. Conservative bias

This refers to a tendency to stick with thought patterns that have worked in the past but don’t apply to new situations.

22. Limited experience

Similar to the conservative bias, this implies either an unwillingness or inability to use information that falls outside of prior experiences when making decisions.

23. Wishful thinking

In selective perception, you see what you expect to see. With wishful thinking, you see what you want to see. Both can steer you wrong.

24. Recency bias

This happens when you consider recently discovered information more strongly than old information. The best way to counter this is by thinking in terms of Bayesian probability.

25. Repetition bias

People often tend to believe what they hear a lot. This is part of why propaganda works in an authoritarian regime. It’s also why people believe they need to drink eight glasses of water per day.

26. Anchoring bias

Anchoring happens when the first source of information you see on a subject overshadows all subsequent information. An example of this in the wild: a shirt is marked as 50% off a ridiculously inflated price.

27. Groupthink

This happens when your individual decision-making preferences are overridden by the desire to fit in with others who hold different beliefs.

28. Source credibility

If you don’t like a person or organization, you may ignore what they say, even if what they say is sound advice.

29. Incremental decision-making and escalating commitment

Think of this as being a “frog slowly boiled.” This happens when a company convinces you to try a free or cheap version of their product and then upsells you later.

30. Inconsistency

Simply put, this means using different decision-making criteria in similar situations.

31. Attribution asymmetry

Direct quote from Wikipedia: “[w]e tend to attribute our success to our abilities and talents, but we attribute our failures to bad luck and external factors. We attribute other’s success to good luck and their failures to their mistakes.”

32. Role fulfillment

This is what happens when you make a decision based on what you think other people expect you to do.

33. Illusion of control

This entails making decisions based on a failure to account for uncertainty. Put bluntly, we know less than we think we do.

34. Overgeneralization

Exactly what it sounds like: imagining things as being simpler than they are, and allowing that to destroy an otherwise good decision-making process.

35. Ascription of causality

Often, people like to believe that A causes B when A just so happens to occur at the same time as B. In other words, “correlation does not imply causation.”

Final Thoughts

Thinking about the many factors that can influence consumer buying decisions will make you a much savvier marketer. Even simple decisions are made with an enormous amount of unspoken context. Taking time to put that context into words will allow you to market more effectively and meet people’s needs!

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Product-Market Fit & Why It Matters to Your Small Business

If you want to make money, you need to sell something with good product-market fit. There is no way around this. It is an essential truth of business.

If you searched through our entire blog for the phrase “product-market fit”, you’d find it in at least 70% of our articles. That’s how important it is. It is the bedrock upon which all marketing plans are built.

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What is Product-Market Fit?

First, let’s define product-market fit. According to Marc Andreessen, creator of Netscape, “product-market fit means being in a good market with a product that can satisfy that market.”

We know that sounds broad, but this is so important. The most essential, basic purpose of a business is to meet needs by creating products or services and selling them to people who need them at a profit. This is so obvious that people seldom actually explicitly say this.

To expand a bit on the prior definition, allow me to borrow a quote from Eric Jorgenson on Medium, who in turn, quotes Marc Andreessen again:

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening.The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it.

Product/Market Fit: What it really means, How to Measure it, and Where to find it, Eric Jorgenson, Medium

Why Product-Market Fit Matters

Thinking in terms of product-market fit really refocuses your attention on what matters: the customer.

Look, the market doesn’t care about you. It’s not personal – it’s just not that into you. To quote UX Planet, “most startups fail because they blow away cash without first carefully considering whether customers actually want what they are selling.”

Of course, this gives you plenty of negative reasons why product-market fit matters. There are plenty of positive reasons to pursue great product-market fit as well.

  1. Good product-market fit dramatically increases your overall revenue potential.
  2. Every dollar you spend on marketing will go much further. Your product or service will speak for itself because it truly meets a need.
  3. Your product lifecycle will be extended far beyond what it otherwise would be. In other words, you’re likely to make money for a much longer time.
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Target Markets, Consumer Behavior, and Finding Your Niche

The most important thing to remember about product-market fit is that value is in the eye of the beholder. That is to say, to improve your odds of achieving a good product-market fit, you need to be extra clear about your target market and about their needs.

Defining your target market

We talked about target markets in length a couple of weeks ago on this blog. To reiterate, a target market is a group of potential customers to whom you wish to sell products or services.

You can define your target market in terms of demographics and pscyhographics. Demographics include information such as age, gender, location, and income. Psychographics include personality, values, interests, and opinions.

When defining your target market, you want to see them as individuals. You can even create fictitious personalities known as customer personas to help you imagine them more vividly.

In short, you want to understand the people you are selling to. You want to know them so well that you could write a book about them.

Consider consumer behavior

One of the most important areas in the field of marketing is consumer behavior. It’s the study of why and how people buy things.

If you’re not familiar with the fundamentals of consumer behavior, you might find its many lessons unintuitive. Consider the following passage from our prior article on consumer behavior. It will help you to understand how we use the word “needs” in a marketing context.

In first world countries, the people who have the disposable income to buy your products or services largely have their basic needs met. If you’ve taken a basic psychology course, you may be familiar with Maslow’s Hierarchy of Needs, posted below. Once basic needs are met, your mind – looking for a problem to solve – turns toward more abstract needs.

Maslow's Hierarchy of Needs

You have food and enough money to get by, so now it’s time to find love. You have a wife, so now it’s time to achieve something worthwhile. You’re an achiever, so now it’s time to really push yourself to your creative limits.

To a small business marketer who is studying consumer behavior, this is a really valuable framework. When you’re creating products, you want to address a specific need your customers have, in a way they would like for it to be addressed. Those of us with the great fortune of living in the USA, the UK, Western Europe, and other wealthy countries often spend our days chasing abstract needs (or, really, wants). Marketers need to remember this!

Find your niche by meeting the needs of your target market

Your company has finite resources, be it time, money, or something else. That means that you need to start as small as you possibly can, meeting the unmet needs of a market that is willing to spend money.

Your niche is how you can uniquely meet the needs of specific people. This is an absolute necessity in our noisy world. People are so bombarded by useless messaging that only the really tailored and relevant messages manage to break through.

The upshot of all this is that it is far easier to achieve and maintain product-market fit if you have a specific niche.

How to Find Product-Market Fit

At this point, we would absolutely love to give you a simple, repeatable 10-step guide to finding product-market fit. (It would be great for our SEO, if nothing else.)

Unfortunately, like many things in life, it’s just not that simple. Product-market fit is so important and so valuable largely because of just how difficult it is to achieve.

Trial and error

Three little words that sum up so much pain, frustration, missteps, recalculations, recalibrations, lost months, and lost years. We’re not being glib, though. It’s the truth.

You can only find your product-market fit by observation and analysis. If you want to craft the perfect product or prepare for a product launch, you have to make a prototype and share it with people. This same principle applies to services, as well.

In sharing your product or service with people, you will receive feedback. From there, you can implement the feedback and inch ever-closer to having a product or service which perfectly meet the needs of your target market through the niche you wish to pursue.

Second, but better

I’ve always admired the pioneers of the world. That is, the people who were playing with electricity in the late nineteenth century or learning how to use synthesizers to make music in the 1960s. Our culture, at large, has a fascination with people doing brand new things.

Too bad you couldn’t tell by the way people shop! As a general rule, pioneers see less financial success than the people who enter a market second (or third, fourth, fifth…) and improve upon what has already been built. This is because it’s much harder to convince customers that a brand new product or service will meet actual needs.

People love watching and honoring novelty. However, when it comes to making purchasing decisions, people become considerably more risk-averse. Being able to say, my product is “like X but with Y difference” makes it much easier to demonstrate product-market fit.

Achieving product-market fit takes a journey…and then you have to fight to maintain it

It is a long winding journey to achieve product-market fit. Things don’t just spontaneously come together. When they finally do, though, it can be tempting to milk the cash cow and otherwise take it easy.

Markets move on and needs evolve. Once you achieve prdouct-market fit, running your business will become easier. However, the challenges won’t stop there. You have to continually update your product or service to make sure you keep meeting needs.

At the same time, you must realize that eventually your product or service will no longer be relevant. That means once you achieve product-market fit in one area, it’s time to start looking in another!

Final Thoughts

Product-market fit is essential to success in business. Having it improves revenue potential and the effectiveness of marketing. Finding it requires empathizing with your customers along with the patience and persistence to slowly zero in on the best way to meet their needs.

As many others have said, product-market fit is something you can “feel” when it’s there. Are people passionate about what you’re selling? If so, you’re in a good place. If not, keep trying until you get to that point!

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Why You Should Segment Your Market and How to do it

Last week, we took a closer look at the importance of finding your target market. This is the first step in being able to execute marketing plans effectively. Now we are going to take this concept one step further and talk about market segmentation: what it is, how to do it, and why it is so crucial for your small business’s success.

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What Is Market Segmentation?

Market segmentation is the process of dividing a market of potential customers into groups, or segments, based on different characteristics. Commonly used characteristics include demographic information such as age, location, and gender. Additionally, market segmentation may also consider psychographic characteristics such as attitudes, values, and interests.

Segmenting your market provides abundant benefits to your small business. Good segmentation can help you improve sales, gain market share, increase customer retention, improve your return on advertising spending, and even make your branding more relevant. Any of these benefits alone would be a good enough reason to segment your audience.

The main purpose of segmenting your market is to narrow down your target market into smaller groups. That way, you can pitch specific products or services and tailor specific messages for that particular market segment.

Long story short: market segmentation is another way to give people what they care about!

4 Examples Of Market Segmentation

Before we talk about how you can break down your target market into smaller segments, we’re going to show you what that looks like. That way, you can get an intuitive sense for market segments look like.

1. Health and Beauty Stores

Investopedia has a great example of how healthy and beauty stores lay out and segment their products.

Walk into any drugstore, and you quickly notice that women’s skincare, haircare, and grooming products are packaged in soft, gentle colors. Most often, the packaging is pink. The messaging used often refers to freshness, softness, or a carefree lifestyle. The women featured on the packaging are generally laughing or playfully smiling, embodying the effortless beauty to which many women aspire.

Conversely, the packaging for men’s products is predominated by blacks, grays, reds, and oranges. The messaging focuses on strength, durability, and ruggedness. If a photograph is included, the subject is often a close-up of a granite-featured model with the perfect amount of stubble, looking fiercely independent and brooding.

Investopedia
2. Law Offices

Law offices do a great job of segmenting their audience. Offices may have multiple specialties, segmenting based on their clientele’s needs. Market segments for law offices include victims of automobile accidents, single dads, athletes, and so on.

Law offices often segment to try and narrow their market to help effectively reach more people.

3. Clothing

You can go into almost any mall or department store and see a dozen examples of how manufacturers try to target different groups of people. Everything from bridal shops to sports clothing stores targets a different market segment. The department store may have a wide target market, but each area will appeal to a different market segment.

4. Real Estate

Real estate will be around for a very long time. People will ALWAYS need a place to live.

That in mind, much of real estate market segmentation comes from different variables that come with homeownership (or commercial leases). These include the price of the home, location, the view, number of rooms, and so on.

An individual real estate agent may serve a wide target market, but when making sales, they have to focus on individuals and what someone in their market segment would need.

First, Understand Your Small Business & What it Has to Offer

We talk about this so often, because it is one of the most important things you can do from a strategic perspective to help your business succeed.

Make time to evaluate your small business. The evaluation process will look different for each business because the particulars of your situation will always be a little bit different than they are for others. No matter what, though, performing a SWOT analysis is a good place to start.

SWOT stands for strengths, weaknesses, opportunities, and threats. You can read more about that here.

After you think about your small business itself, think about your target market. If you need help defining your target market, here is another article you can read to help you get started.

Once you can clearly define your target market, you can break it down into segments. When you want to break your target market down into segments, think about who currently comprises your target market. Ask yourself:

  • Who is my target market?
  • Are there natural categories of people who make up my target market?
  • If not, how can I sensibly categorize people in my market by common qualities such as age, gender, interests, or attitudes?

Why Evaluating Your Business is Vital For Market Segmentation

Evaluate your business to see which products and services are performing best. Odds are good that you have some standout products or services that overshadow others. That is just a part of business.

Through evaluating which products or services are doing the best, you can get a feel for how your overall target market can be broken into smaller segments. You can also see what kind of people read your emails, respond to your social media messages the most, and so on.

After evaluation, you know where and on whom to invest your time and your money. This lets you properly plan and schedule your time to be the most effective as you can possibly be.

What Is A Niche?

As we’ve said, a market segment is a segment of a larger market that can be defined by its own unique needs, preferences, or identity that makes it different than the market at large. Some people also use the term “niche market.” They’re interchangeable.

Having a niche means finding a unique way to meet the needs of a particular market. Breaking your target market down into smaller market segments can help you find yours.

Having a niche is vital for the growth of your small business. By segmenting your target market, you make it easier to reach a specific group of people, with a specific product, in a way that appeals the most to them.

As a thought exercise, think of any subgroup of people. This could be anything from people who work from home, cat owners, or even those whose work has been affected by COVID-19. In fact, for the sake of this exercise, let’s say these three qualities define your target market.

You already make pet toys, so you’re in a unique position to create something for cat owners who are now working from home because of COVID-19. You can find people like this online and find out what they want. If you found out that they wanted, for example, a quieter scratching post so they can focus on working from home during quarantine, you can make that.

Thus, this becomes your niche because it’s where your abilities (to make cat toys) and your target market (cat owners who are working from home because of COVID-19) meet.

How to Find a Target Market for Your Small Business
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Demographics & Psychographics

Demographics are how we are able to break down a group into smaller subgroups. We have touched on some examples of demographics, but to refresh your memory, demographics can be anything from age, location, gender, and even income.

Demographics break down groups into sub-groups by quantitative information. Psychographics do the same thing by using qualitative information, which allows us to predict consumer behavior. Psychographics include opinions, interests, personality, and so on. These are your own thoughts and beliefs that make up your opinion on a product.

Through demographics and psychographics, you are able to more accurately segment your audience. There are many tools to segment your audience. One of our favorite platforms to use is Facebook Ads, where you can get as nitty-gritty with details as you would like to narrow down by both demographic and psychographic traits.

Why Should You Segment – All In All?

By focusing on narrow market segments, you increase your overall chances of success. We have walked you through many examples of how successful segmentation helps your business.

To really drive the point home, think about it like this: if you are selling a product or service that appeals to first-time homebuyers, you aren’t going to market it to every homeowner. By excluding everyone who isn’t a first-time home buyer from your market segment, you increase your odds of success.

3 Steps To Start Segmenting Today

As we wrap up, we would like to give you three quick steps you can use to start segmenting your market today.

  1. Tap into Facebook Ads. You don’t even have to run an ad. Just create an audience in their ad system.
  2. Find your niche.
  3. Choose who you are trying to reach and create a plan.

Final Thoughts

Market segmentation is really important to growing your business. With more businesses popping up every day, knowing who you are trying to reach will help you craft marketing messages that work. Segmenting your target market might take some effort, but it’s well worth it!

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How to Find a Target Market for Your Small Business

Finding a target market is critical to success in business. Focusing on a specific group of people helps you pursue clear goals and make excellent products or services.

This week, we are going to talk about target markets at length. In this post, we’ll talk about:

  • What a target market is
  • Why they’re important to your small business, and
  • How to find the best target market for you
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What is a Target Market Anyway?

A target market refers to a group of potential customers to whom a company wants to sell its products and services. Every successful business has a target market. Finding yours will help you start your company, or if you’ve already started, increase revenues and improve your return on marketing spending.

There are myriad reasons as to why having a target market is useful for your small business. The biggest one is simple – you can focus your marketing efforts on specific people with similar attributes.

It’s good to cast your net wide in some ways. That’s how you explore new markets and discover new needs. But once you have a good idea of what you want to do, you need to focus. That means zeroing in on a market whose needs you will meet better than anyone else. This will help build a foundation for your brand that will serve you for years to come.

As you might expect, data analysis is important to finding and establishing your target market. We’ll talk about that in more depth later. The main point to remember now is that data will help you understand your target market beyond what you can discover from observation alone.

Figure Out What Makes Your Small Business Special

Every business has unique strengths, weaknesses, opportunities, threats, and goals. You need to know yours. Sometimes that means writing a business plan, and other times, that means figuring out details with a business partner.

This exercise helps you clarify your goals, both short-term and long-term. This makes it much easier to figure out who you want to serve and how you wish to do so.

If you have a current audience, take a moment to think about them. Who are they? What do they like and dislike? What do they spend money on? Where do they get their news? How do they make purchasing decisions? Does your current audience match your target audience?

If you don’t know the answers to these questions, research them or ask directly. Of course, this is easier said than done. To help you get started, we’ll suggest a few things you can do right now.

1. Check Google Analytics.

Google Analytics is one of the best tools out there for data analysis. Even better, it’s free! Granted, you need to have a website with some amount of traffic before this is useful.

Google Analytics makes it easy to see what people are looking at on your website and how they are finding you. You can also see how long they are spending on your website and whether they are doing what you want them to do.

If you look at this information for long enough, you will notice patterns emerge. This can tell you a lot about how your existing audience behaves and how that lines up with your expectations.

2. Engage your audience and ask questions.

It seems simple enough, right? Sometimes the best way to see how your business is doing is to ask people who already interact with your business. That can be through a focus group, or a survey, or even a Facebook post.

Starting conversations helps brands succeed, especially when that means asking for feedback. You might even be surprised at the amount of feedback you receive. With so many people quarantined and active online, you may even find a surge of people who have considerable time on their hands.

3. Research the people engaging with you and your site.

Research goes a long way in business. Spend some time learning about your audience.

Don’t just stick to dispassionate research through Google Analytics, though. Find specific people and try to understand what they want.

Here are some questions to consider asking yourself. Who are my main customers? Where are they from? How old are they? What are they interested in?

All of these questions are important to ask at this point, as they give you the necessary insight to tailor your marketing efforts.

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Why Ask These Questions?

By evaluating your business before pursuing a target market, you can see where you currently stand in different areas. This gives you the necessary information to come up with a plan. Simply put, you cannot plan for the future if you do not understand the present state of your business.

Business evaluation shines a spotlight on how to spend your money. You learn about your current customers and intended customers, giving you the insight you need to meet their needs.

Take a Look at Your Competition, Too

Competitive analysis important for small businesses. There are a few reasons for this. You might work in a field where there isn’t much data. Perhaps you are trying to identify target markets by looking at competitors. No matter what, though, you need context that can only come through observing rival companies.

By looking at businesses who are your direct competitors, you get a feel for who their target markets are. Their markets will probably resemble yours, but with a few differences that you can use to your advantage.

Watching your competitors also gives you a sense of business trends. You can see what kinds of products or services your target market are pursuing or leaving. Similarly, you can monitor other businesses’ spending and sales trends, giving you a sense of how much you need to spend and how much you could potentially earn.

The Role of Demographics & Psychographics

Demographics are how we break a population down into smaller groups. Some examples of demographics include age, gender, location, and income. Demographics are quantitative, meaning they leave no room for interpretation.

Psychographics allow us to predict consumer behavior. Psychographics include personality, values, interests, and opinions. These are all qualitative and can be interpreted in different ways.

Both are important to your small business. You want to think about the demographics and psychographics of your target audience. To help you understand your target audience as people, you can even create customer personas (fictional people with defined demographic and psychographic qualities).

This is the essence of finding your target market. Pick an audience with customer demographics and psychographics that your company is well-suited to serve by meeting their needs.

Once you figure out your target market, you can use any number of tools to reach out to them. One of the easiest ways that we often recommend is Facebook Ads. You can narrow down audiences by super-specific demographic and psychographic qualities.

Finding Your Niche

A niche market is a segment of a larger market that can be defined by its own unique needs, preferences, or identity that makes it different than the market at large. In short, this means that a niche is essentially a more narrow target market.

Having a niche is vital for the growth of your small business. You can absolutely release products with a wide market in mind, but you still need to focus your efforts on those that are most likely to buy your product.

As we define it, you’ve found your niche “when you’re able to make very specific products for very specific people with a very specific message.”

Put another way, you find your niche when you make something with good product-market fit and pitch it to a well-defined target market with well-crafted branding.

As a thought exercise, think of any subgroup of people. This could be anything from people who work from home, cat owners, or even those who’s work has been affected by COVID-19. In fact, for the sake of this exercise, let’s say these three qualities define your target market.

You already make pet toys, so you’re in a unique position to create something for cat owners who are now working from home because of COVID-19. You can find people like this online and find out what they want. If you found out that they wanted, for example, a quieter scratching post so they can focus on working from home during quarantine, you can make that.

Thus, this becomes your niche because it’s where your abilities (to make cat toys) and your target market (cat owners who are working from home because of COVID-19) meet.

You’ve Got Your Target Market & Your Niche. Now What?

You’ve got a good idea by this point on how to find a target market and a niche. It’s simple: now you reach out to your target market. You can do this through a number of ways, such as:

Once you’ve reached this point, it’s really just a matter of wisely spending your marketing money and consistently reaching out to people. From a strategic standpoint, what we’ve discussed in this post is the most important thing to get right. A well-defined target market makes all the hard work of sales and promotion much more efficient.

Final Thoughts

Finding a target market for your business can be tough. It’s worth the effort, though. Power through the struggles until you find people with needs to be met whose needs you can meet. Once you figure that out, everything else will be much easier!

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Services vs. Products: A Field Guide for Small Business Owners

Every small business owner asks themselves the same question at some point. “Should I sell services or should I sell products?” The battle of services vs. products has no clear victor. In this article, we will discuss the advantages and disadvantages of both options so that you can make an informed decision.

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What is a product?

A short while ago, we wrote a post called What is a Product that talked about why this is such a complicated, nuanced question. For the purposes of this article, though, we are going to assume the simplest possible definition.

A product is an item offered for sale, either physical or virtual. Successful businesses often sell more than one product and spend a considerable amount of time creating new ones.

What is a service?

Services, on the other hand, do not involve physical goods. When you buy a service, you buy access to someone else’s “resources, skill, ingenuity, and experience.”

The line between product and service is blurry

Regular readers of this blog knew it couldn’t be so simple. Marketing is more than meets the eye, after all.

We discuss this point at length in What is a Product, but it bears repeating here as well. Products and services are closely intertwined these days, and for many businesses, it is hard to meaningfully separate the two.

The best way to illustrate this is to talk about the concept of “levels of product.” To quote What is a Product:

The core product is the feeling that customers are buying. A wealthy man buying a Lexus may actually be buying status. A hungry woman buying a meal is buying freedom from hunger. The core product is different for every person and every product. Marketers spend an enormous amount of time, money, and energy figuring out what people are actually buying.

The tangible product is exactly what you think it is. If you buy a bike, the bike is the product. The tangible product covers features, quality, style, and packaging. It’s everything that can be touched, seen, or heard.

The augmented product includes any after-sale service, delivery, or installation. This is your Fitbit’s software updates or your video game’s patches. When Home Depot installs your brand new washer and dryer, that’s a good example, too.

Lastly, you have the promised product, which includes potential trade-in value, dependability, and status. Lumen Learning says it best in this quote:

There is no definite promise that a Mercedes-Benz holds its value better than a BMW. There will always be exceptions. How many parents have installed a swimming pool based on the implied promise that their two teenagers will stay home more or that they will entertain friends more often?

What is a Product?

The point we’re getting at here is that while reading this post, you must remember that reality is messy. Our pros and cons can point you in the right direction, but your understanding of your own business model must always be more nuanced than any cookie-cutter, textbook material you find online.

Pros of Selling Products

Many entrepreneurs feel the lure of creating products. After all, it fits in beautifully with our society’s stereotype of an entrepreneur in the first place. You have a fantastic idea, you turn it into a physical product, and knock on doors until you make a million bucks!

It’s a bit of a fantasy, but there is a kernel of truth at the core. Products give you complete creative control. You can truly express yourself when you create a product. You don’t have to follow any client’s vision. Instead, you follow your own vision on how best to meet the customers’ needs.

Products scale easier than services do. If you are providing nothing but services, you will eventually run out of time to trade for money. This is not the case with products.

Products make money while you sleep, too. They make money while you’re on vacation, while you’re sick, and while you’re having friends over for dinner. The revenues are much steadier.

If you get really sick of selling products, you can always discontinue them. With services, particularly in specialized professions, it can take weeks, months, or even years to disentangle your interests from your clients.

Cons of Selling Products

It’s not all sunshine and roses with product-based business models. There are some serious downsides that absolutely must be considered.

First and foremost, you need upfront capital. Sometimes you even need a lot of this. Clearing the economic threshhold needed to launch a product-based business can be formidable. You could be looking at anything from hundreds to millions of dollars to get started.

Couple this with the fact that product-based business models are risky. It’s hard to estimate demand in advance. Once you get started, it’s hard to change course if something goes wrong. You can’t un– manufacture goods if they fall out of style.

On top of all this, you have to provide at least some level of customer service, too. That means that even a relatively passive business model, a product-driven one, cannot be totally hands-off. For many, this takes away from the promise of a product-based business in the first place!

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Pros of Selling Services

If you want to dip your toe into the waters of starting a business, creating a product might not be the right way to do so. In fact, there are a lot of advantages to selling services that should not be forgotten.

First and foremost, you don’t need much startup capital to sell services. All you really need is know-how and a few critical supplies. That also means the barriers to entry are mercifully low.

Products require a longer time to develop, and even the most run-of-the-mill product requires some amount of explanation. On the other hand, if you sell a service, you can enter right into an existing market without much fanfare.

There are also psychological benefits to getting into the service sector as well. In order to succeed, you will likely need multiple clients. This will keep your responsibilities varied and fresh, where they may grow stale and routine in a product-based business.

Cons of Selling Services

As good as the upsides may look, selling services is no cakewalk. Some of the downsides are real doozies and there is no way around them.

When you sell services, you are selling your time. There is no way around this. By its very nature, the service sector is labor intensive and your bills are often based on your hours and not your output. For this reason, it’s also much harder to scale a service-based model.

On top of that, there are other problems. It’s tough to constantly be working for someone else. You will literally depend on your clients, and when one of them drops, your cash flow can rapidly decline. You may find yourself choosing between stifling your creativity or losing money – and that’s a tough choice for many entrepreneurs to make again and again.

Which one is right for your business?

If you must choose between products or services, do so with an understanding that the particulars of your situation will determine the best path for you. If you’re just getting started in business and don’t have a lot of upfront capital, it’s likely easier to start by selling services. However, if you are more experienced and have some capital to spare, selling products will likely put you in a position to scale your business far beyond what a service-driven business could achieve.

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The Product Lifecycle: Why It Matters to Your Small Business

Pet Rocks. Tamagotchis. Fidget spinners. Some products become very successful very quickly, only to fade in prominence after a short period of time. Fads are remarkable because of how quickly this happens, but the simple fact is that all products have a product lifecycle. Understanding this simple truth and all the complicated things it implies is vital for small businesses.

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What is a Product Lifecycle Anyway?

Last week, we talked about how to launch your product. This week, we’re going to follow that up by talking about what happens after your product is launched.

Every product has a lifecycle, just like people do. There’s a whole discipline in business dedicated to this called product lifecycle management. Understanding this is critical to your business’s long term success.

First, let’s go over the stages in a product’s typical life cycle:

  1. Development and introduction
  2. Growth
  3. Maturity
  4. Decline

Each of these stages must be handled in a different way in order to succeed in business. We are going to cover each one in-depth in the sections that follow.

Stage 1: Product Development & Introduction

If there is any stage of the product lifecycle that gets too much attention, it’s this one. Just like what it sounds like, product development and introduction covers the creation of a product and the period of time after its launch.

During this stage, products are first introduced to the market and attention has to be earned. This can be done through advertising and promotion. Businesses must focus on drawing attention and interest in the hopes of getting the first few sales.

During this stage, a few basic principles will apply:

  1. Marketing costs tend to be high because you have not yet built a loyal audience.
  2. It takes time to build sales, so early revenues will probably be low.
  3. Depending on the market, there may or may not be a lot of competition.
  4. You have to create demand or actively seek to fill existing demand.
  5. Finding customers and generating leads is critical.
  6. You have to be very selective about distribution.

If you want to take advantage of the product development and introduction stage, bear in mind two basic principles. First, create a product that is tailor-made for a specific audience’s needs. That is, you want a good product-market fit. Second, promote the product as much as humanly possible. Once you have loyal customers, it’s a lot easier to stay in business, so finding that first handful of customers is mission-critical.

Stage 2: Product Growth

Once you scrap and fight for long enough in the product development and introduction stage, then comes the fun part: product growth. During this stage, people know you exist. You may see an influx of customers who are newly aware of your product and ready to give it a try.

This stage is marked by the following characteristics:

  1. The product is established and perhaps being gradually improved.
  2. Sales revenue increases, as does profitability.
  3. Customers are aware you exist.
  4. You may start seeing more competition.
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Once you reach this stage, your goal is to gain customers and increase revenue. Instead of focusing on drawing attention and stoking interest, you want to focus on getting leads to convert. That is, you want people who know you exist to start taking action and buy your stuff!

Stage 3: Product Maturity

Once your product matures, you won’t see the aggressive sales growth that you used to. After all, even the most well-crafted product cannot grow forever. This is a simple fact of life. Characteristics of this stage include:

  1. Competitors start dropping out of the market.
  2. Prices might start dropping.
  3. Marketing costs less.
  4. Branding becomes much more important as a differentiator.

The goal once your product reaches the maturity stage is to defend your revenue. You want to keep customers coming back for more. You have to make sure that your brand provides a good experience. Maintaining customers becomes more important than generating new leads. At this point, you may also want to look into launching other products or services to shore up your business’s weakness before your product goes into decline.

Stage 4: Product Decline

It’s sad, but every product will get old after a while. It might take a month or it might take 200 years. The point is, once you reach this stage, you will need to find a decent way to phase out your product and move on.

How do you know your product is in decline? Here are a few signs:

  1. The profit margins are becoming very narrow.
  2. Sales figures are dropping.
  3. Prices keep dropping.
  4. People at large are generally losing interest.

At this point, you have three broad options for moving on:

  1. Rejuvenate the product to try to extend its lifespan.
  2. Narrow down your market and sell to a smaller niche.
  3. Drop the product entirely and liquidate your inventory.

How to Extend the Product Lifecycle

As you might imagine, a business wants to keep its products in the growth and maturity stages for as long as possible. Both the introductory and decline stages are perilous, although for different reasons.

Fortunately, there are loads of different ways that you can extend the product lifecycle.

Advertising

One of the easiest ways to extend a product’s natural lifecycle is to advertise. This can increase audience size and gain potential customers, keeping a product in either the growth or the maturity stage for longer than would otherwise be possible.

However, advertising will receive diminishing returns as a campaign drags on. Even the best advertising campaigns will reach a point of saturation. In our experience, this happens faster than you would expect, too. So you can’t rely solely on advertising to keep a product alive.

Diversify your business

Launching new products is important for businesses in order to succeed in the long run. The greatest insurance your company can have against become a one-hit wonder is to make multiple hits!

That is to say, you may want to expand into new markets. With a little marketing research, you can identify latent customer needs and meet them.

Cut price

If you want to get attention quickly, cutting the price of your goods is one very aggressive way to do so. It’s quick and dirty and sometimes it works. However, the problems with this method are clear: you cut into your profit margins.

Improve the product

There’s a reason Apple comes out with new iPhones every year. They are always making incremental changes so that they do not fall behind the competition. As such, they are perpetually adding value to the product in order to manage the lifecycle.

Give the product a facelift

Sometimes you don’t need a fancy technological change, though. Deodorant, for example, hasn’t changed for a long time. However, Old Spice knew that their aging audience wouldn’t be buying deodorant forever, so they created a bizarre, surreal series of commercials that were famously targeted at millenials in the early 2010s. Their sales figures skyrocketed.

You don’t even have to go to this extreme either. Even simple changes to packaging can go a long way.

Run a special promotion

Sometimes all you need to make a product feel fresh is run a simple promotion. It could be “refer a friend” or “buy one, get one free.” For example, Subway didn’t even the sandwich, but they did invent the five dollar footlong.

Final Thoughts

Understanding that products have a natural lifecycle allows you to make important strategic decisions for your business. It helps you know what kind of products to pursue and how long you can reasonably expect to profit from them.

There are a few simple ways you can extend a product’s lifecycle, and you shouldn’t be shy about using them. But our advice to you is simple. Remember: all things pass, including products. Be prepared for that!

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