A good product is not only a matter of a good idea. Once you decide to package and sell it, you want to be sure that someone other than your friends and mom thinks your product is the best thing since sliced bread. Before you make a leap of faith, it is essential to run a market opportunity analysis.
The common mistake many beginners (or even more experienced players) make is that they do not understand how many factors play a vital role in their respective industry and niche.
In this article, we will show you how your market opportunity analysis creates a foundation for a good marketing strategy and minimizes the risk of start-up failure.
1. Know Your Customers
Who are your consumers? What do they have in common? What are the differences between them? Start from the top and work your way towards the more intricate characteristics of your potential customers.
For example, one of the projects that resonated reasonably well on Kickstarter was FranciePants. FranciePants sells women’s underwear that fits all sizes, body types and preferences. Their products are made from natural materials, but they don’t compromise with style – the underwear is available in various attractive patterns and shapes.
In the broadest sense, all the women in the United States are their potential customers – roughly 157 million people. Clearly, not all of them are going to buy this underwear. We have to dig deeper to pinpoint women who will buy FranciePants instead of a regular 7-pack in H&M.
What sets it apart? FranciePants is one more player in the growing market that “divorced” itself from the fashion industry, focusing on clothes and accessories for women who don’t fit the lingering beauty industry standards.
In the late 1990s and early 2000s, women were ready to sacrifice comfortable feeling or even health for the sake of style – nowadays, women are moving to full coverage underwear, demanding comfort rather than style.
However, handcrafted garments made by sewing artists in the United States have their price. It stands at $32 per pair, a hefty number compared to that $15 seven-pack from H&M. On the other hand, it is still cheaper than top-notch lingerie brands.
FranciePants markets itself as a pioneer of crowd manufacturing, “making things that empower Americans to earn generous and flexible income, from home, and while prioritizing what matters to them.”
FranciePants consumers could be educated, young, middle-class women with social awareness. They are likely passionate about the more inclusive fashion industry and supporting local jobs. Their age and education level are “hard” variables in the customer equation.
However, the key to nailing down your marketing strategy and product development is awareness of the “soft” variables, such as lifestyle, social, and even political attitudes.
2. Think Like Your Customer
When you figure out the soft variables, you dig even deeper. Why would someone buy your product? Is it an essential need, or a pleasure? For example, people buy bagels because they are hungry.
On the other hand, nobody buys pop-corn because they are hungry – it is a snack usually connected to activities such as social gatherings or movies.
The second important thing you need to figure out is where and how people buy your product. Are they purchasing it on the street stand, in the store, or online? Even if we are talking about the same product or service, the way you are going to shape, develop and market it relies heavily on this context.
Third thing – are there any complementary products that people are likely to buy alongside yours? If you are selling a frying pan, people are likely to need a good spatula or a can of oil.
You may have noticed that some stores offer these packages with a discount – for example many supermarkets keep jars of Nutella close to the section with sliced bread.
When you take all these things into account, you gain valuable insight into the way people think about your product. This leaves you with plenty of opportunities to tweak it and make it more appealing.
3. Differentiate Yourself from Competition
This story brings us back to those FranciePants. After you are done with analyzing your customers, the next big thing is analyzing your competition. When it comes to the underwear and lingerie, we’ve already established that competition is abundant.
We explained how FranciePants differentiated itself from its big competitors, selling comfortable handcrafted underwear that blends style, body positivity, and social awareness into its recognizable start-up brand.
So, ask yourself, are there any shifting trends within your industry? What are your competitors’ strengths? What are their vulnerabilities you can exploit? How do they market their products?
Let’s look at the lingerie industry. When we think about the top-notch underwear, we are likely to think about Victoria’s Secret larger-than-life brand. As Kate Abnett from Business of Fashion noted, this brand “has transformed lingerie shopping from a chore into a blockbuster experience,” with lavish fashion shows where pop stars are merely sidekicks to the supermodels.
Victoria’s Secret dabbles in fascination, luxury and fantasy to sell its product – and no other player in the business can even come close to this household name.
Then there are companies like Calzedonia, Triumph International, and others, who are settled somewhere between high fashion and cheap retailers.
Ultimately, you have chains such as H&M or Forever 21, which have their own lingerie lines for the not-so-deep-pocketed masses. What all of these companies have in common is that most of their garments are produced on a mass scale in Asian countries.
When you take all of these factors into account, the way FranciePants team communicates with its customers makes even more sense. They offer women a personalized experience that blends their comfort and health with fashion.
On top of that, FranciePants is discreetly taking a dig at mass production and outsourced labor, which depersonalize both the creator of the product and the customer. By pointing out the handcraft and supporting people in the local community, FranciePants connects itself with the customer and detaches itself from its competition.
Sometimes, your competition is hidden in other industries. For example, lingerie companies found a solid competitor among regular clothes retailers who started producing stylish and affordable underwear. Bus and train transportation found themselves losing fares to low-cost airlines.
Exploiting vulnerabilities of your indirect competitors can be an integral part of market opportunity analysis, your product development, and marketing strategy.
4. Look at the Big Picture
A high-quality market opportunity analysis moves away from one’s own niche, industry, and complementary industries. It explores an overall business context. It may have seemed far-fetched ten years ago, but who would have known that smartphones would eventually be the death of taxi drivers thanks to Uber?
Who would have thought that truckers are going to have a hard time because of computers? But they did. A decade ago, freight season used to hit its peak ahead of Thanksgiving Day and slowly subsided in the following weeks. Around 2013, another peak started emerging in December, ahead of Christmas.
As e-commerce grew at a rate of 14% each year, by 2018, what was once known as a peak season turned into a regular day. As shippers are no longer able to catch up with demand, third-party logistics companies asserted themselves as a necessity in most businesses.
Politics and changing legal regulations are also an incredibly important factor in your market opportunity analysis. Renegotiated trade agreements, subsidies for renewable energy sector or climate changes may seem like large-scale events that have nothing to do with your small start-up.
However, they can drive customer demand up and down in a matter of months. You may sell handcrafted garments locally, but if you sell them online, every disturbance in the supply chain can hit your business as well.
If you observe carefully, you can turn a fallout into your own market opportunity.
How Do I Do All of This?
A high-quality market opportunity analysis is not something that can be done in a few days. If you want a holistic approach, you need to be up to date with the latest business trends, statistics, politics, and keep your eyes on the prize – your product. But difficult does not mean impossible if you know where to look for the information.
Some of the websites that can provide you with useful data are Statista, the U.S. Department of Commerce, your local economic councils or small business development centers. On these websites, you can find business statistics and relevant demographic information. Local councils and centers can help you with the specifics of small business development.
If you want to get in touch with your future customers, you can hire an agency that can do the market research for you – or you can slowly build your email list and explore the market by yourself. The latter option is also an excellent way to engage with your future customers.
Here we wrote about the way to use quizzes to grow your crowdfunding network. You can also use quizzes to advertise your startup in a playful, engaging form, test your new product, and learn a lot about your potential customers and market opportunities.