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Feasibility Analysis Step 3: The Market and Customer Research

Posted Sunday March 26, 2006 in Entrepreneurship

No matter what your product or service, you need to actively get people to buy it. That means knowing who your customer is, understanding what their needs are, and matching both your product and your marketing to the customer. There is no successful product that doesn’t solve some customer pain, and you must understand how the customer feels that pain and how the customer wants to hear about your solution to that pain. That means not just talking to the customer but also listening to them, at great length.

That brings us to the next step in feasibility analysis: consumer and market research. This is your chance to learn:

• Who is your primary market?
• What is their pain? How big is it?
• Just as important, what is not their pain?
• What messages do they need to hear?
• To what advertising platforms do they pay attention?
• What is their willingness to pay?

Prioritizing Markets

Understanding who might buy your product or service is a very important first step. Hopefully, when you developed your product or service, you had an idea of to whom you might sell it. But, often, the biggest challenge isn’t finding a possible customer; it’s finding the right customer. There are several factors you want to look at when considering your customer segments; here’s a list of many, but not all, of these factors:

• Ease to address: how simply can you contact, understand, and get into the market? Even if you’re not dealing with the biggest or most lucrative market, if you can get into it fairly easiliy, it might be a good place to start.
• Relatedness: can you address multiple markets through the same sales channels and/or with the same messages and materials, thus gaining what strategists call economies of scope — the savings that come from being able to do two things with one shared set of resources?
• Size: large markets can offer you the opportunity for sustained growth.
• Barriers to others’ entry: do you have some attribute which makes it easy for you to enter a market, but hard for others? For instance, if you share an identity, a language, or a social network with market members then it may be easier for you to enter a market than for others who don’t have those attributes. If you have particular knowledge that’s hard-to-get, or know key influencers, or are geographically more convenient than others, then you may also have a barrier to others’ entry. A market with less, or even no, competition can be very desirable.
• Visibility: even though you may make less money in a high-profile, well-covered, newsworthy market, these markets can help raise awareness of your product or service in other markets, through PR, news coverage, and things like that. Free marketing is good for everyone. This is one of the reasons that some organizations sell to academic and non-profit organizations, even though these customers can’t pay enough to be really profitable. Keep in mind that you’re looking for a market that is visible to other members of your target markets!
• Wealth: does this market have a high willingness to pay? When you can sell your products at a high margin, that makes life a lot easier, even if you can’t get volume (the best, of course, is when you have a large, wealthy market).
• Pain level: if you’re solving a pain, it’s logical that those with the largest pain would want your product or service the most, while those with a smaller pain will be less motivated to buy.

These factors play together differently during different phases in a company’s growth. For instance, an easy-to-address market may be the priority when just getting off the ground, but, later on, you may want a large market to provide sustained growth opportunities, or a high-profile market to provide exposure and generate press coverage of you and your product or service. By rating several markets on the same axes, you can build a list that tells you which markets you’ll want to enter when, and why.

Focusing On the Pain

I mentioned highly-pained markets above; pain is a key factor to consider when researching your markets. Ideally, you want to quantify your target customer’s pain and understand exactly when and how they feel this pain (and when and how they don’t). Try to get the answers to questions such as:

• How do you currently deal with the pain?
• How is this satisfactory? How is it unsatisfactory?
• What other options do you have? Why don’t you take them?
• How present is the pain in your mind?
• How serious is the pain?
• Are there times when it is more serious or salient?
• What other factors do we need to keep in mind when solving this pain?

Knowing the answers to these questions, you can evolve your product or service to better solve existing pains, to not solve anticipated pains that you don’t actually exist, and to work with the other major requirements your customers have.

Oh, and if it’s not a real pain, then you may well not have a real product. Sometimes an entrepreneur has to convince a customer that they are in fact feeling pain, but that’s always an uphill battle. Measure the degree of pain and make sure that it is pain that your customer feels.

Marketing Messages

You also need to put together the package of marketing messages that your customers want to hear. While you may offer the same product or service to multiple segments, each segment may need its own, unique message to spur purchase. Listen to what your customers say, and find a way to speak about what they feel it’s important to talk about, in their language. You need to look out for factors such as:

• Key words that they look for to establish your credibility or to match your offering to their own requirements
• Endorsements necessary (such as the white-coated actor playing a doctor in TV headache remedy ads)
• “Gotchas” that establish you as unknowledgeable or as an outsider
• Relative priority of different requirements

Marketing Channels

Once you’ve figured out what you need to say, you need to figure out where you need to say it; after all, it does no good to advertise a product for Australian cricketeers in a Russian hockey magazine, no matter how low the CPM is on that magazine.

• What media do your customers pay attention to? TV? Magazines? Newspapers? Radio? Blogs?
• Are there trade, professional, or academic publications? Popular publications?
• Are there key influencers, individuals who, once you sell them on your product or service, will evangelize to their colleagues?
• What is the ratio of academic publications to PR to advertising in the market? For instance, it makes no sense to advertise if the important platform is the academic journal.
• Within channels, are there individual platforms that are more widely-read or influential than others? For instance, an ad in the New York Times is likely to be more widely-read than an ad in the New York Daily News, at least among certain demographics.

Pricing

It all, of course, comes down to money. There’s no right price, but you can learn about what you might get your customer to pay. When you’re asking questions to find out how your customer is currently solving their pain, try to understand how much they’re spending. Remember that customers can make their own package of services or products to solve their pain, and that your product or service needs to beat that package. Ask questions like:

• How much does that package cost?
• How much of the pain does it solve?
• What is the customer paying to have similar pains solved?
• What limitations are there on paying (for instance, are you dealing with a low income community)?
• Is there more than one payer (for instance, an insurance company paying for medical services)?
• Who signs the checks? Whose approval do you need to get a check signed?

Where to Get This Information

You need to actually talk to the customer. Interviews are generally the best first step; there’s nothing like a relatively unstructured conversation to get out information you didn’t even know you needed to know. Make sure that you have a relatively standardized set of questions (of course, you need to follow-up on any new and interesting points that an interviewee brings up). Always ask an interviewee “who else should I talk to?” at the end of the discussion.

Once you’ve done a few interviews, you generally know the questions you need to have answered, and can do a survey. But how to do a good survey is a question for another time.

Once you’ve completed this section, go back to your best-case Excel spreadsheet and plug in any changes. Where are you now? Can you connect with customers in the way you need to and still make money?

Next: your product or service development plan.

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