JUST because you build a better mouse-trap doesn’t mean customers and investors will start beating a path to your door. Companies need to make sure there is a need for their product and a niche for it in the market.
There are numerous techniques companies can use to find out whether there is a market for their new product, including scouring secondary sources such as newspapers and trade journals to see if there is a similar product already available, and holding focus groups to see if a need exists.
Proper research can also provide the necessary information to exploit any gap there might be in the market for the product.
Research Solutions director Nicky Munroe said trying to find out whether there was a market for a new product was “pretty classical market research”.
“You’re looking at who would buy it, where it would be positioned in the market, how it should be priced, those sort of things,” she said.
“In some cases you’re looking at a product that is available in other markets but hasn’t come here yet. You look at how it performed in those overseas markets.
“You do some basic research and then zero in on the people your research says would use the product.
“Once you’ve identified those people you may go on and do some greater research of the group to see if it would be a product they would use.”
However, research into new products can produce skewed results if it is not handled carefully.
University of Western Australia business school associate professor of marketing and chair of the Market Research Society of WA, Jill Sweeney, said the validity of the research was crucial.
“People are notoriously bad at imagining what they want,” she said.
“They need prompting and that can skew the research.”
Coca Cola discovered the danger of not fully exploring its market research when it tried to introduce New Coke.
All of Coca Cola’s research indicated that people preferred the taste of New Coke so they took the old Coke off the market and replaced it with the new variety.
The one question Coca Cola had not asked was whether customers would like the old version of the beverage replaced completely with the new one.
The resulting consumer back-lash from the removal of old Coke was huge and the soft drink giant had to quickly reintroduce it.
Venture capitalists like to know that there is an already identified market for the product and a plan ready to go to exploit that market before they will consider putting funds in.
Foundation Capital managing director Ian Murchison said he liked to see that the inventors of a new product had done some homework to identify a market for their product and a way to exploit that market.
Admittedly, most of the deals that come to Foundation for funding already have a sales track record.
“But often when you look at very early stage investments it’s more a matter of understanding the industry they’re in and the alliances they’ve made,” Mr Murchison said.
“What we like to see with a new product is some sales and marketing expertise running alongside it. The chances of success tend to be higher when the marketing and sales input comes at an early stage.”
Next week: Asking the right questions.
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