Whether a business idea involves selling a copycat product (or service) or selling something that’s totally unique, there are only two reasons why an entrepreneur should undertake the time, effort, and expense of creating a new business to introduce it: (1) customers have shown that they want it and, (2) there is sufficient enough demand for the proposed product to make a profit.
Before setting out on a new business venture, it is therefore important to know the reasons why most failed products do not achieve their objectives. These reasons include:
- The potential market was poorly studied and/or overestimated.
- A ‘me too’ type of product was offered, which was no different from the competition’s.
- The costs of developing the product were higher than budget restrictions allowed.
- The product was improperly positioned in the market. − The paying public saw the product as too expensive.
- The product was poorly designed.
- Competitors fought back harder than anticipated. Conversely, products (or services) are more apt to produce a profit when:
- A well-defined concept is initiated beforehand in which the market is thoroughly analyzed, customer requirements are met, and the benefits of the product are made abundantly clear,
- The product is seen to be unique and superior to its competition,
- A successful merger between technology and customer needs is made, and,
- All stages of a successful product launch are addressed (customer needs are determined, the product is well designed and thought through, extensive tests are conducted to ensure that the product will be purchased by its intended customers, development needs are met, a cost analysis proves profitability, production methods are found to be sustainable, delivery times and targets are feasible, and the product is well marketed).
Good research will help you do all of these things. Research can determine if a product idea has profit potential and if demand will sustain a steady income.’ Additionally, a thorough research investigation will help:
- reveal more about a product idea (including its costs) and the target market.
- discover how the product should be sold (and how much of it people might buy).
- determine the optimal location where the product should be sold.
- find the best price at which to sell the product.
- the entrepreneur learn to speak more intelligently about the product.
- the entrepreneur connect with the paying public.
- reveal information about the size and abilities of the competition.
- explore the demographic make-up of a potential customer base.
- discover ways to modify the product or service to maximize its potential, and,
- determine if it’s time to let go of an unsuitable idea and find another one.
The Objectives of Market Research
When asked how he succeeds in business, Simon Windsor, the now retired former owner and founder of the UltraForce Group worldwide recruitment firm (which was based in the UK) said, ‘The absence of evidence is not necessarily the evidence of absence. So I’m usually very sure before I invest in the unknown.’ To help shed light on the unknown, Simon suggests that every business research project should pursue two main objectives:
- Determine an accurate estimate of costs, and,
- Produce a reliable estimate of revenues.
Research into the answers behind these objectives should:
- identify who is going to buy the product,
- determine how many are going to buy it and,
- provide a good estimation of how long demand for the product will last.
Tools for Conducting Marketing Research
Market research is a four-stage procedure.
- During the first stage, a question or opportunity is defined in regards to the product the entrepreneur wishes to introduce. (For example, can the local market support a new ice cream parlor?)
- In the second stage of research, the entrepreneur must decide on the tools he or she will use to obtain the necessary data (e.g.: surveys, demographic studies, income analysis, etc.).
- Collection of information occurs in the third stage.
- The fourth stage analyzes all information that has been gathered.