Conducting a market survey is essential before initiating a project: it’s what enables you to ensure that the project really has potential. But how can it be implemented effectively? What information should you collect and how?
WHAT IS THE VALUE OF A MARKET STUDY?
Every entrepreneur who has an idea is very impatient to launch it...and any coach will tell them that they must first pass through the market study phase. In fact, learning about the market in which you want to do business and analysing data about it will enable you to get an overall and concrete opinion about the idea’s potential, its profitability and its costs. Throughout this step, it’s essential to remember the primary objective of a market study: its purpose is to move from the idea to the “Proof of Concept” stage - validation of the interest in the concept - then to the “Proof of Business” stage - validation that the business can become profitable.
Here are the five steps to conducting an effective market study:
1. IDENTIFY YOUR MARKET SEGMENT
This first step is intended to hypothetically define the different consumer segments that could be interested by your product or service. It’s often said that in entrepreneurship, it’s pointless to “chase two rabbits at once”. It’s far more effective to concentrate on a specific market segment rather than trying to reach everyone.
HOW TO DEFINE YOUR MARKET SEGMENT(S)
- Brainstorm to identify the types of people your product or service could be of interest to and how it could be useful to them.
- Next, categorise the different types of customers in homogeneous segments.
HOW DO YOU KNOW IF CUSTOMERS ARE IN THE SAME SEGMENT?
Here are a few clues:
- Generally, customers in the same segment purchase the same types of products and follow a fairly similar purchasing process.
- They globally expect the same added value from the same product or service.
- Word-of-mouth generally works very well in a given consumer segment: consumers trust each other with respect to their opinion about a product purchased.
At the end of this step, you will have examined a number of assumptions about your consumer segments and your customers’ profile.
2. MEETING YOUR POTENTIAL CUSTOMERS
This is a fundamental step: it is intended to expose your assumptions to reality. This can be very discouraging...but it is, in fact, very enriching. This is where you will really learn to know the needs of your potential future customers. This is very easy to do: simply go out and interview as many people as you can who appear to belong to your consumer segments.
HOW TO CONDUCT EFFECTIVE CUSTOMER INTERVIEWS
ASK THE RIGHT QUESTIONS
The purpose of the interviews is to learn about the consumption habits of your potential customers and not to talk about your product or service! Focus on their current reality, without your product or service. How do they currently accomplish the task which your product or service proposes to do? Are they satisfied? What difficulties are they encountering? How much does it cost them?
ASK THEM FOR AN EMAIL ADDRESS
Close out the interview by asking the person if you can re-contact them at a later time to ask them their opinion about a project you’re working on. This will help you create a database of contacts, and potentially, of prospects.
COMPILE ALL OF THE DATA RIGHT AWAY
After each interview, take the time to write down the answers you received to the questions in a format which is easy to consult, even if the answers are similar from one interview to the next. The data are a goldmine which will help you throughout the entrepreneurial process.
3. MAKE A FIRST ASSESSMENT OF THE SIZE OF THE MARKET
This step may seem laborious, but it is absolutely necessary: estimating the size of your market will give you an indication of how profitable your business can be. Investors, advisers and partners expect you to be able to provide them with the market size and, especially, to explain the method you used to estimate it. To accomplish this, you will have to collect relevant data and analyse them in a consistent way.
WHERE ARE THE DATA FOUND?
- On the Internet, thanks to reliable and vetted sources
- By interviewing market players
- Thanks to your customer interviews
Example: here is a concrete example of a delivery service for premium dog biscuits:
- There are 46,000 dogs in the Brussels Region (information found in documentation available on the Internet)
- 15% - i.e. 6,900 - of the dogs are fed with premium biscuits (information collected interviewing one of the animal food distribution leaders in Belgium)
- we know that 25% - i.e. 1,725 - of these dogs’ owners aren’t satisfied with the way they have to obtain the biscuits (data collected during customer interviews)
- we know that each month, the owners spend on average €45 for their dogs’ biscuits (data collected during customer interviews)
Thanks to these data, the size of the market is estimated at €931,500 a year…which shows that the project isn’t actually profitable.
It is generally estimated that the size of a market must be close to €5 million a year in Belgium to ensure that an idea can be implemented and become profitable.
4. CONFIRM CONSUMER INTEREST IN THE PRODUCT OR SERVICE
It’s finally time to present your product or service to your future customers to assess their level of interest. But, what should you do when your product or service isn’t ready, you don’t have the budget needed to develop it, it’s based on an app and you aren’t a developer?
No problem! The goal here isn’t to sell a finished product, but to measure the real interest of consumers in your idea. In order to achieve this, you just have to put together a visual representation that will enable you to understand the benefits and added value of your product or service more than its functionality. Your visual representation can be:
- A landing page
- A very simple Internet site
- A brochure
- A PowerPoint presentation
- A drawing
Then, you will need to do more customer interviews equipped with the visual representation. Structure your interview in three sections.
- The demo: use the visual representation to illustrate the benefits for your customer of using the product. Ask them what they like about your solution, what may be missing and what isn’t needed.
- Pricing: evaluate how much the customer would be willing to pay for your solution, for example, by announcing a price and watching their reaction or by asking if they would be willing to pay €XX for the product.
- Follow up: again ask the people you’re interviewing for their email address and compile the data right away. They will be very precious for making changes to your product based on market requirements and for ensuring it really meets consumer needs.
5. ASSESS THE FINANCIAL VIABILITY OF THE PROJECT
Assessing if the project can be profitable seems to be a very complex task, but in fact, it’s simply a matter of doing a very simple calculation: do customers provide more income that it costs to acquire them? In other words, is the COCA (cost of customer acquisition) less than the CLTV (customer lifetime value)?
How can you know at this very early project stage when the product or service isn’t even being sold yet?
This is where all of the data you collected during the interviews will be useful:
- The cost of customer acquisition: you can infer a first COCA estimate based on the time it took you to find the people to interview and conduct the interviews. Divide the number of hours by the number of people you interviewed. Multiply the result by an hourly rate you selected. Add any marketing expenses already committed (brochures, business cards, online advertising, etc.) and divide by the number of people interviewed. This will give you an estimate of what it cost you to reach a potential customer.
- The customer lifetime value: this data is generally fairly difficult to estimate when the product or service hasn’t been launched yet. Base yourself on testimonials from the people you interviewed: how much does their current solution cost them to accomplish the task that your product or solution will accomplish for them? How much do they spend on it a month? Since when? This will enable you to estimate the average value that a future customer could provide you.
Once these five steps have been completed, your market study should have answered the crucial question: is it worth launching the project? And, especially, it will have enabled you to adapt your product to market realities and, why not, led you to a new, much more promising idea!
Article written by Nicolas Hubin of Skillsfactory