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The Best Market Opportunities Go to Companies That Test the Waters
(Marketing Memo, April, 2005)
Your company has spent five years in R&D (longer for life sciences
products), and you have burned through your life savings and millions
in venture capital. You want to build markets quickly because you need
revenues. To make sure that you are not building the wrong market, find
answers to the following questions: "Which market segment should we
target? Where is the pain? Where are the opportunities? What are the
barriers?"
WHICH MARKET SEGMENTS TO TARGET?
Before you can build markets, you must identify the right ones for
your company. If you want to introduce a product or service, determine
which industry and which segment within that industry needs your products
or services. Talk to prospects in the target market to verify your assumptions.
Is your telecom product or service best suited for equipment manufacturers
or for carriers? Is your software tool suitable for discrete manufacturers
that make countable items (mass spectrometers), or is it more suitable
for process manufacturers that make generic products (methyl alcohol)?
Is your diagnostic equipment suitable for in vitro diagnostics (lab
and near-patient diagnostics) or for in vivo (animal) tests? Your assumed
target market may not be your actual target market. You may have to
rethink your product or service and/or find another target market.
WHERE IS THE PAIN?
While you are developing products or services, talk to prospects to
identify their practices and unmet needs. For instance, the healthcare
industry needs technology for recruiting patients for clinical trials
and, as the Vioxx case demonstrated, technology for managing trial results.
Talk to prospects to discover whether your offering will actually
help them. After years of research, a medical device company discovered
that emergency medical providers, their assumed prospects, could not
use the company's cardiac monitor while responding to emergencies. Responders
could obtain as much patient information by looking at patients and
using a stethoscope as they could by using the monitor.
WHERE ARE THE OPPORTUNITIES?
To validate your choice of market and segment, look for market drivers,
such as new technology, buyer demand, and new government regulations.
- Technology Breakthroughs: Personal computers, televisions, cell
phones, and the Internet each spawned numerous products and services.
Now, the convergence of technologies is leading to opportunities for
infrastructure and for digital content modified for cell phones (games
and information) and personal computers (ebooks and emovies).
- Buyer Trends: One of the hottest gifts in 2004 was the iPod. From
teenagers to baby boomers, many want their own portable collections
of music and audio books. Add-ons, enabling products, and additional
content represent good opportunities.
- Regulations: The Health Insurance Portability and Privacy Act (HIPAA)
sets standards for electronic patient health, financial, and administrative
information, and it protects the patient's privacy. The need to comply
with HIPAA, Sarbanes-Oxley and other regulations represents opportunities
for software vendors to sell upgrades to existing software and to
provide new software that supports these regulations.
WHAT ARE THE BARRIERS?
Still other issues may make you question whether you have identified
the right target market. Examples are timing, competition, use of substitutes,
and special industry requirements.
- Timing: Check if your proposed market is ready for your technology.
A telecom company established headquarters in Israel, intending to
manufacture for the European market. The company moved its headquarters
to Rhode Island when it discovered that the market that was ready
for its technology was the U.S. market.
- Competition: Chart the competitive landscape. Is the industry as
concentrated as the pharmaceutical industry, or as diffuse as some
segments of the software industry? Who are the major players, and
where are they vulnerable? Can you compete with newer technology,
advanced features, pricing, or service?
- Substitutes: Watch for the use of substitutes or changes in practices.
Seemingly impregnable industries may lose ground to substitute products
or services. For example, hosted carriers for VoIP (voice over Internet
protocol) and cable companies are diverting business from AT&T, Verizon,
and other traditional carriers. If you have technology for traditional
carriers, you may find them unable to invest in new technology.
- Special Requirements: If you sell consumer electronics to Wal-Mart,
you will soon need to apply RFID (radio frequency identification)
tags. Your pre-launch inquiry should identify these and other special
requirements. Meeting the RFID requirement is challenging and costly.
- If your company pursues segments that can't or won't use your offerings,
you are penalized twice. Pursuing unsuitable segments costs you time
and money, plus you could have been obtaining revenue from a more
suitable market. To avoid these unnecessary costs, call, meet with,
and observe companies in your target market.
Reprinted with permission of Mass High Tech, which published
the article on Feb.7-13, 2005.
Winett Associates provides market analysis and writing services.
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