Market Analysis Summary
The Water Factory will be targeting personal contacts as the prospective customers. This is an ideal market segment because a positive relationship already exists with the personal contacts, making Aitch Tuoo’s job of selling the products significantly easier.
As a network marketing business, the company has an unusual market segment that it is targeting. With network marketing, sales and recruitment are done through personal contacts. Once these people are users, salespeople try to convert them from users to salespeople for the products. This is also called multi-level marketing. A company sells a product to a consumer (typically personal contacts) via direct selling methods, and recruits new people to help sell. The salesperson is then being compensated for the sales made as well as the sales of the people recruited.
Because of this unusual business arrangement, the market will be segmented into personal contacts. Personal contacts typically take the form of the following groups (not an exhaustive list): past classmates, current and past neighbors, landlords, tenants, repair people, grocers, club members, sport partners, children’s teachers, children’s playmate parents, spouse contacts, and fellow congregation members.
This market segment that will be targeted will be called “personal contacts,” and makes up the majority of the market.
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Target Market Segment Strategy
The Water Factory is focusing on this portion of the market because to some degree a trust relationship has already been developed between the personal contacts. Due to the nature of this business, where you sell directly to the consumer, it helps considerably to have already established a relationship. With a relationship already established, it is far easier to then sell the product because the prospective customers skepticism has been lowered. This then creates an opportunity when The Water Factory can explain the cost advantages of home water filters relative to bottled water.
Additionally, this market is targeted because once the prosect is a customer, it is then easier to convert them into a sales agent for The Water Factory. The advantage to the company of having sales representatives is an extra income stream of sales commissions. The advantage to the customers becoming sales representatives is a lower cost for their own product and a revenue stream from the sales of filters to their clients. If their clients then become sales agents, the customers then get a second level of revenue. Lastly, for every new recruit that Aitch’s recruits bring in, Aitch gets a commission. So Aitch would get a commission for his sales, a commission for the sales of his recruits, and if they recruit someone, Aitch will get a commission off of them as well.
Network marketing, also known as multi-level marketing, is a growing industry. The large names in the industry are Amway, Shaklee, and Herblife. Other well-known companies that participate in the space are AT&T, Proctor & Gamble, and Coca Cola.
Several years, ago network marketing received a bad reputation because of it’s association with pyramid schemes. Make no mistake however, network marketing is far different from pyramid schemes. Pyramid schemes were also multi-level businesses, however they did not have a viable product or service. They just had a many levels of people paying money to become a part of the pyramid with the promise that people would be paying them to become a lower part of the pyramid.
In network marketing, personal care products and household products dominate. However, there are also other services and products that are sold, including travel arrangements, insurance services, pet care supplies, phone service, etc.
Competition and Buying Patterns
There are several different sources of competition:
- Other network marketing companies selling water filters. There are four to seven other network marketing firms that also sell water filtration units. Prices can be competitive.
- Water filters sold through traditional retailers. There are approximately ten different manufactures of home filtration units. These units can be competitively priced, however, there is not the option to become a sales agent and get lower purchase prices for yourself as well as a future revenue stream.
- Office style water dispenser (typically leased). There are several companies that will lease these large, stand-alone water coolers. The equipment for this solution is more expensive, in part because you are leasing a refrigeration unit to cool the water, and the cost per gallon is also more expensive.
- Bottled water. There are hundreds of companies that sell bottled water with the price ranging from $1-$5 a gallon, which is significantly more expensive.
- Soft drinks. While this is not a direct substitute for water, people consume soft drinks when they are thirsty. Besides the many negative health issues surrounding soft drink consumption, it is as pricey as bottled water.
Over the last five years the market for filtered water, typically in the form of bottled water, has exploded. It is ironic how people complain about the price of gas when they will pay up to five times the price for a gallon of water. Regardless, demand for filtered water has steadily grown, and home water filtration units offer huge price advantages relative to bottled water alternatives.