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Marketing - The Survey.
In past articles, I have ask you to listen
to your customers. But finding out what the customer wants, is often the hardest part. So here is a simple guide to performing
your own market survey. The principles apply to any product or service, not just to studio facilities and what is outlined
here can be applied to every type of business.
Defining the market
This is largely
a matter of common sense. If you are an equipment manufacturer, you will need to divide up your market into amateur and professional
users and you will need to divide up the market into regions. If you are a demo studio, both your reach and your competition
will be local. A mid-sized studio will be able to draw custom from a larger region and if the studio is in a romantic setting,
may even be able to draw some international trade. Large, prestige studios can draw national and international trade.
Size
of the market.
This is possibly your most important statistic and in niche markets, such as recording
music, one of the hardest to gauge. Market size is defined as the total annual turnover of all companies in that market sector.
There are several ways to ‘guestimate’ this and if you are an equipment manufacturer, the task is made easier
for you by large public companies publishing annual figures and some even give figures for various key geographical areas
and market sectors. These figures are usually to be found on their websites, under investor relations.
By multiplying
their figures by their market share, and doing this for several companies, you can zero-in on a fairly accurate figure for
the whole market and even get a good idea of market size for regions and sectors.
For studios, gauging the size
of the market is more difficult and you are going to have to talk to a great number of people and get their opinions. It has
been my experience that the smaller the studio, the more empty is the wall-chart. This is almost entirely because it is cheaper
to set up a small studio and therefore more people do just that, so this end of the market suffers from severe over-supply.
Also, home recording really has taken away most of their bread-and-butter work, so counting up dozens of demo rooms in your
area, each with little or no turnover, may not give you much idea of the size of the market. Larger operations that have to
pay taxes and wages tend to account for nearly all of the market.
A healthy studio business should be booked
about 50% of the time, except that things are just not that healthy right now, so if you take the one-month lock-out fee and
multiply that by six months, that should give you an idea of approximate turnover. Of course many studios will be doing much
more and many much less, but if you add up that figure for every larger studio in your area or region, you will not be far
from the true figure for the whole market.
Internal audit of trade
I am sometimes
surprised to discover that many businesses (and not just the very small ones either) have little idea where their trade comes
from or even what type of trade brings the greatest profit. So before you rush out, clipboard in hand, your very first task
is to look at turnover and analyse each type of transaction for profitability. If you are a studio, you must be able to answer
such questions as "What brings the most profit, a scattering of one-day bookings, or a solid one-month lockout at half the
day rate? Because some types of business create more costs than others, you will have to analyse your costs and assign them
to the various types of business.
It is also important that all new customers are asked how they came to hear
of you, so that you can identify which types of advertising works best and for which sectors of the market.
Benchmarking
and Positioning
These are just fancy words for gauging where a studio, product, or other service stands
in relation to the others, and is one of the most interesting and revealing tasks in market research.
There are
various questions you can ask, that, combined with other data, give you an idea of how others see you. For a studio, a typical
question would be "Name three good studios in this area." or "Name three poor studios in or around this area." or more specifically,
"If you were recording a jazz combo, which studio would you use?"
For equipment, a typical question about prestige
equipment would be "If you were a billionaire and money were no object, what mixing desk would you buy?" On the other hand,
a question about mid-priced equipment could be "What desk provides exceptionally good value for money?"
These
questions can of course be applied to any goods or services and can ask after any quality, good or bad. Please note that in
these examples, I have avoided using names. This way, you measure the market awareness of a brand. (Very often, market surveys
asking interviewees to respond to given names are either just another method of advertising unknown brands, or a vanity exercise
in proving to management that the profile of a brand is higher than it really is.)
Analysing the Results
At
the end of your survey, you should have sheets of paper (or entries in a database) listing each respondent, which DAW they
prefer, what musical instruments they expect a studio to provide, how much they expect to pay and anything else that you need
to know. Those entries will also tell you what kind of potential customer you are dealing with - rock, classical, amateur,
professional, label, agency, management, whatever.
You now add a profit weighting. Your internal audit should
tell you how much operative profit comes from each type. If independent producers requiring lock-outs account for 30% of turnover,
but, because they just pack up and go and don’t ask for any extra ‘favours,’ account for 45% of your profits,
their responses have to be weighted with 45%. Demo trade may account for 50% of turnover, but if they create additional costs,
you will have to adjust the profits and therefore the weighting accordingly.
These attributes have now to be
assessed for cost. If a certain DAW came top of the list, but you already have that model, then the cost is zero. If you do
not have that item, you have to calculate how much extra profit that item would bring and whether that extra profit would
exceed the cost of the item, taken over its expected life-span. If a new DAW costs £20,000 and is expected to last five years,
that is £4,000 (plus interest of course!) extra profit that the DAW must generate before it begins to benefit your business.
Finding
your Comparative Advantage
A comparative advantage is that quality that gives you an advantage. In reading
through your results and in particular, finding that quality that your most profitable customers are looking for, tells you
what you should be telling your customers about your business.
This quality may not seem to you to be an advantage
at all - indeed, I have known studio owners desperately try to hide the very quality that potential customers were actively
seeking, assuming that it was a weakness. This could be the fact that it is a cosy ‘Mom & Pop’ operation,
it could be the food, the atmosphere, the age of the desk or the fact that the owner is gay. Knowing that customers are seeking
you out for a specific quality, means that you can underline and possibly enhance your comparative advantage and target your
advertising more accurately.
I can think of one studio that sold their old, analogue desk, assuming that the
customer wanted a digital control surface. A year later, they had to buy an analogue desk to stay in business. Another nearly
sold their collection of vintage instruments to pay for a new DAW to replace the old tape machine. At the last minute, protesting
customers made them realise that they were about to rid themselves of the very things customers wanted.
More
usually, customers seek out the services of a specific engineer. If that person works at a certain studio, then that is their
comparative advantage.
Price
As strange as it may seem, your customers may not
be as price sensitive as you might think. More importantly, your rate card is often taken as an indication of quality - so
being too cheap may deter good customers and attract the kind of trade that you would rather live without.
Your
price has to be tied in with your benchmark. A product or service that costs half as much as the competition, runs the risk
of being viewed as being half as good, so an accurate benchmark of how others perceive your business is vital in setting your
prices.
Implementing Change
You now have a hit parade of customer wishes, the
position of each wish decided by the amount of actual profit each potential improvement could bring. Remember to include all
the factors involved, such as the often forgotten interest rates (to be included even if you do not have to borrow any money)
and the residual value of any purchases. The residual value of a fancy desk will be fairly low, the residual value of a residential
lodge to house musicians will be very high indeed.
Your internal audit of trade should tell you where your strengths
and your centres of profitability lie. Your external survey should tell you where future growth can come from. If these surveys
are performed at regular intervals, then trends can be identified, and being able to identify that next big thing, can mean
the difference between life and death for a business.
A survey will also tell you how strong brand recognition
and company image is. If these are poor, then you might need to read next month’s article, advertising your studio.
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