Before you can make money selling a new product or service, you need to answer some big questions. Who will you sell to? Do those people want what you’re offering? Which groups of people need your product or service? And who will actually buy it?
Comprehensive market research will analyze things like market size, competitors, buyer behavior, market trends, and most importantly, demand for a product. Timely information about these important aspects of business reduces your risk and helps you spot sales opportunities. On the other hand, if you’ve misjudged your market potential, or you gather data from non-reputable sources, you may be sorely disappointed at product launch time.
Startups who seek third-party financing like venture capital need to have a realistic picture of their market size – potential investors will certainly ask for detailed information and research to back it up. Even if you are not seeking external financing, understanding your market potential is an essential part of business planning for marketing and budgeting, as well as product development, distribution planning, organizational structure and employee training.
This brief guide should serve as a starting point for understanding your market demand.
Defining your target market should always be first step in estimating market size. Your determined market definition in terms of age, location, income, gender, interests, and more will guide the rest of the data collection process.
To determine possible market segments for your product you’ll want to:
Secondary research is sometimes called “desk research”. It looks at existing data like current market reports, studies by government agencies, trade associations or other businesses in your industry. If you have an existing company, this may include historical data within your business.
Secondary research is important for learning about the companies and products in your target market. But you also need to get out there and do primary, or field research, to get a stronger understanding of the market. Primary research will apply specifically to your business venture and could include onsite visits, in-depth in-person interviews, focus groups, surveys and more.
Take a good look at the current marketplace within your target industry. You’ll want to determine both current numbers (and projected growth of) your potential customer base. Look at trends within your industry and ask a lot of questions: What areas of the industry appear to be expanding? What areas are declining? Is the industry adapting to serve to new types of customers?
Getting a close-up of the competition is a key aspect of market analysis. Examine current and possible future competitors on both a local and (if applicable) national scale. Your analysis of competition should cover their SWOT (strengths, weaknesses, opportunities, and threats).
A balanced combination of industry and competitive intelligence should help you gain a clearer picture of your market potential.
If you already have an existing customer base, these individuals can provide a wealth of information. Use social media or email surveys to gauge interest in a new product idea. Review existing customer information such as sales records, customer complaints, receipts and records. Information about where your customers live and what they buy may show whether there’s a need in the market for your product.
Equally as important, talk to your customer service employees. They know which items customers request most often, which features drive people nuts, and they have a good picture of what your ideal customer looks like.
Defining market potential is an essential, yet complex part of business research. Armed with data about your potential market demand, you can target a specific group based on their needs and wants, so you sell directly to people who are looking for your product. Trust us, it pays to do your due diligence. If you still have questions, let us know!