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Market Research and Product Analysis

In order to successfully assess what products to sell, you first need to determine what people want and need. This is done through market research. Market research is formally defined as the collection and analysis of data about customers, competition, the market and the larger business environment as a whole. In other words, it is an analysis of all the elements that could influence and affect your business and its future success. Understandably, it is also a critical piece of the puzzle when building and maintaining a business. After all, how can you hope to be a successful seller if you don’t know what your customer is looking to buy, who you’re competing against or what market trends are coming your way? Throughout the course of this article we will run through the key pieces involved in performing some basic market analysis as well as providing a few tips on how to tackle this in the comfort of your own home. It may sound a bit daunting, but you don’t need to be a corporate giant to use these strategies, as a small business owner you can manage them too.

Customer Analysis

Customer or consumer analysis involves identifying who your customer base is, or who you’re targeting to sell a particular product. It involves asking questions like: if I sold this product who would be interested in buying it? What quality and quantity do they want? What are their objectives? What are they really buying? Is there an unmet need in the market that I can meet with my product offering? This is important because different types of people will buy things for different reasons; they will also be willing to pay different prices and may respond differently to your marketing initiatives. Look at a potential product and make a list of your answers; if you have enough of a like-group of people to successfully sell that product to, then you may be on to something.

When attempting to identify a customer base or segment that you’d like to sell to, use the goldilocks analogy: Not too big, not too small, but just right. Bottom line; pick a product line that you think will support enough customers to be profitable. Too large and you’ll lack focus, too small and you won’t make enough money to stay afloat.

Competitor Analysis

So you think you think you’ve found a product that interests you but when you go to sell it, you find out that there’s a mammoth player in the market. Regardless of what you do or how you do it you just can’t compete. If this sounds familiar you may want to pay close attention to this next section as the process of identifying competitors is highly relevant in the market research process. When you’re looking to go after a product-line, make a list of all the potential competitors that may already be in that space. You can do this by searching the yellow pages, looking in print ads, checking out how many Powersellers are already playing in that space on eBay, even a simple Google search can also be quite telling. After all, if you pull up page after page of people selling cell phones you have to wonder if there’s room (or more importantly a need) for one more. Please note that these are just a few suggestions, get creative and I’m sure you’ll come up with many more.

Some questions to ask when performing a competitive analysis are: Who are your competitors? Are there any barriers prohibiting you from entering that market (high entry costs, low margins)? How are the players marketing themselves? What are their strengths and weaknesses? The rationale behind this line of questioning is to help you assess whether or not it’s worth your while to try to enter that particular market space. If there are too many players or a single big player who owns the field you better have a pretty impressive way of distinguishing yourself from the competition because it will be a battle every step of the way to get noticed. Plus margins will be tight, so it will be that much harder to make a profit. Looking at how a potential competitor is marketing themselves can give you an idea of how to successfully communicate with the consumer (if they’re doing it well) as well as to provide an opportunity for you to seize if they’re missing out on something big.

One last point to mention when discussing competitive analysis is that a quick look at successful versus unsuccessful competitors can also provide you with a wealth of information. Assess strengths and weaknesses and look for areas that you could capitalize on should you enter the marketplace.

Market Analysis

Generally the market analysis process builds on the customer and competitive analysis pieces to make assumptions about the market place and its unique elements. The two primary objectives of market analysis revolve around assessing a market’s attractiveness (can you make a profit over the long run by entering into it?) and its unique dynamics. Please remember that regardless of how attractive a market looks, it has to work within the constraints of your product offering.

In order to assess the viability of a market you need to look at several key factors:

Market Size and Growth - Determining an approximate market size is important. Ideally you’ll want to be able to develop a strategy and goals around increasing your presence in a particular market (as an aside, keep in mind that it is preferable to be a big fish in a small pond rather than a small fish in a big pond). However, to do so you need to be able to qualify just how big that particular market is. The best indictor of size is typically total sales, which can be determined through government sources or various trade organizations. Also determining how quickly the market is growing (or declining) is crucial as it will affect your decision to enter it. Don’t forget to assess future growth potential too. A growing market can mean more sales without increasing your presence within that particular market; it can also mean less pressure when it comes to pricing because there are more people who are demanding a particular product. On the other hand, a declining market can mean more competition across price and lower margins for sellers across the board. Look at factors like whether there is a lot of product differentiation in the market. When growth slows or even reverses, competitors will start to have a very similar product offering (think of DVD players, there isn’t lot of difference in the features offered by a Sony versus a Panasonic or Samsung, though some of you die-hard Sony fans out there would beg to differ). Also as a market matures buyers tend to become savvier and are less willing to pay for the security a big name provides. Look at whether there are substitute products or technologies that might negatively affect the sale of your product if you enter into the market (the classic example of this was the decline of cassette tapes with the introduction of CD’s). Market Saturation: If there has been a leveling off between supply and demand (i.e. the amount of product in the market matches the demand for that product) sales will decrease because there are no real new sources for growth. Finally assess customer interest, if customers have lost interest in a product or technology or appear on the cusp of doing so, it might not be a prime time to enter that market.

Market Profitability - Before committing to a product or product-line assess the profitability of that market. Simply put, make sure you can make money by entering into it. Assess the competition, How intense is it? Are there any threats from other major sellers looking to enter it or substitute products that might tank it? Will this market continue to be profitable in the future? Roll these questions around in your head; you don’t need to have a definite yes or no answer for them, but if the product you’re looking at selling seems very weak in these categories you may want to reassess your decision before you give away the farm so to speak.

Market Trends - By attempting to identify what’s important to the consumer and determine future market and product trends, you can highlight potential sales opportunities. As you can imagine, this can prove to be very profitable (Be warned however because misinterpreting a trend can be extremely damaging to the health of any business). In assessing a trend, look in the paper for ads to see what consumers are snapping up, look to eBay or Amazon to see what’s selling on auction sites. EBay Pulse provides a daily snapshot across all of it’s categories for its most popular searches and watched items. Also look around you, what are people talking about? What are they buying? What are they getting excited about?

When discussing market trends it is important to differentiate between a fad and a trend. A fad can be defined as a practice or interest that is taken up with great intensity for a short period of time but is not supported by any market fundamentals; the Chia Pet or the Atkins Diet for example. A trend, by contrast, is typically a longer term, broadly based movement that indicates a shift in popular beliefs or behaviours. Mountain biking, snowboarding and cell phones are all trends; people are using these products or partaking in these activities because there has been change in the behaviour or underlying motivation that extends beyond the item in question. For example, people buy cell phones for their convenience and their ability to make busy lives more efficient. They were not picked up en-mass because you can buy ones with Swarovski Crystals embedded in them. Fads are typically products, where as trends drive people to buy products. Your goal as a retailer should be to identify emerging trends and capitalize on the ones you see as most important within your business model.

Key Success Factors - Think about key assets and competencies necessary to compete successfully in your target market; are there certain factors you must have in order to be able to compete? Are there certain strengths that you have that could create the basis for an advantage and help you succeed? Perhaps a specialized knowledge or skill set in a particular field or area? Also consider how these success factors could change in the future. Before entering into a market, seriously examine its future viability and assess how these factors could evolve and change the current competitive landscape. Several key success factors in the e-commerce field that you should consider are the ability to tailor your product offering and presentation to a specific customer, as well as your ability to interact with customers and provide them an appropriate level of customer service.

Environment Analysis

An environmental analysis is a look at the broader environment surrounding your market or industry. In a nutshell it is an assessment of changes in government, economy, technology, demographics or culture that may create opportunities or threats for your business should they arise. As this analysis has a very broad scope, it is important to only tackle what is manageable. That being said, keeping abreast of current affairs, the economy and trying to make assessments on how certain of these factors could affect your business down the road could mitigate a potential down-turn in business or allow you to seize an opportunity if it arises.

To sum everything up, the process of market research involves evaluating key factors surrounding your business, including competitors, customers, the market and the external environment. Take into consideration both short and long term variables in each of these areas so that you can make an educated decision on the feasibility of pursuing a particular business plan. Before going all gung-ho into a product line, run a quick analysis and see what you come up with. You may be surprised with the results. A product line that your gut was telling you would be a winner may turn out to be a risky investment, or a category you originally thought might have been a less than stellar choice could turn out to be a front runner. You won’t know unless you do the research. Your end goal by creating an on-line business is to make money and be profitable, put the time in now and set yourself up for success down the road.