Niche Marketing Matters

“In order to make an apple pie from scratch, you must first create the universe.” – Carl Sagan, Astronomer

Creating new products can be complex but it is not as complicated as the above quote suggests. Rather, I think new products need to withstand a feasibility test, also known as a concept test. This feedback is critical for a new offering.

Sadly, most entrepreneurs don’t properly test their ideas. Former Apple evangelist Guy Kawasaki joked that at Apple that new products only required a funky name, a few thousand t-shirts, and a media blitz—then they would figure out what the product’s
specifications would be. Apple is greatly admired for innovation, but I wonder if they might even be more successful if they did more concept testing.

Concept testing can use qualitative or quantitative research methods; most commonly, qualitative tools such as in-person interviews and focus groups are chosen for their expediency and live feedback. Essentially, prospective customers are given an early viewing of an offering to assess their reactions before the provider invests more money in the new offering. It forces the entrepreneur to expose the offering to the customer base to solicit real feedback. The test verifies that the benefits of the offering are recognized and valued by the customer. This feedback is essential but sometimes difficult for the entrepreneur to accept, particularly if the feedback is negative.

Sometimes, the test identifies problems such as possible confusion about how the product is positioned with competing products. Often the marketing messages are still in draft form, so this concept test also assists in refining the basic messaging. In fact, concept tests are frequently performed for advertising campaigns to verify that the target customer can understand the benefits of the products.

However, concept testing may not be a good indicator of purchasing behavior. Just because someone understands the benefits of a new product and even admits to liking the product, it does not mean that they will buy it. Additionally, concept testing may identify product attributes that are significant but this type of research can struggle to assess which attribute is more important.

Concept tests typically try to answer the following questions:
1. What is unique about this new product or service concept?
2. How does it compare to competitive offerings?
3. How might it benefit the customer?
4. What are the relative strengths and weaknesses of the new product or service concept?
5. Would the customer buy the product?

Ironically, many startups and entrepreneurs go to market without conducting a concept test; instead, because of their strong belief in the product or service concept they often elect to skip this step. The ramifications are many including failure.

John Bradley Jackson
© Copyright 2008 All rights reserved.

You own a small business and don’t have a lot of money for market research firms or consultants. What can you do to better understand your competition?

Here are a few ideas:

• Visit your direct competitor’s stores and talk to the sales staff; it is amazing what people will say.
• Websites can be a treasure trove of information, so dig deep; register on their websites.
• Talk with your customers who are doing business with the competition or used to do business with the competition.
• Suppliers often have keen insight on the health and strategy of your competition; take your suppliers to lunch but beware what you reveal since the door swings both ways.
• You can gather secondary data on the competition from trade associations, and publications. These member fees can give great access to low cost industry data.
• Have lunch with former employees of the competition—they often sing like canaries.
• Put a team member in charge of gathering this data; I bet you and your team have a great deal of info which has never been collected in one spot.
• Watch for press releases, radio commercials, and TV spots.
• Save print advertising and promotions used by the competition.
• If feasible, buy your competitors’ products or services.

When this is complete, analyze your competitor’s products regularly for improvements, weaknesses, and quality trends. Make a short list of anticipated competitor strategies and tactics for the current year. Map out your retaliatory strategies and tactics, including situations to which you will not respond.

He or she who is most prepared wins.

John Bradley Jackson
© Copyright 2008 All rights reserved.

P.S. Create a market research budget for next year; it will be money well spent.

The market place may seem large, but it is really made up of many smaller markets with customers who share similar preferences or needs. These smaller markets are called market segments. Your target market is the market segment that you choose to serve.

Yet, to truly serve your target market, you need to be able to answer these basic questions:

Who are they?
What do they want to buy?
When do they want to buy?
Where do they want to buy?
Why do they want to buy?
How do they want to buy?

Until you can answer these questions fully, you don’t deserve their business.

John Bradley Jackson
© Copyright 2008 All rights reserved.

You may not be a blogger yourself, but reading blogs written by your competition and your customers may prove to be a great way to conduct market research. Increasingly blogs, along with forums, are becoming honey pots for people to gather insight and information about products, companies, and industries.

Blogs and forums are creating communities for people to express themselves about their wants, needs, and desires. For example, discussion groups are common in the financial arena as investors share their insight about stocks and companies. Check out Yahoo! Finance and you will see what I mean.

Blogs are a great way to understand your competition and the messages that they send to their customers and partners. While it is common for a big company to use a Public Relations firm to assist with blog publishing, many smaller firms will freely tell the world how they feel about things.

Sun Microsystems has embraced blogging as a company and has over 4000 individual bloggers; this candid dialog makes for instant communication with their customers. The downside to Sun is that the same commentary is available to read by their competition.

Customer forums are cropping up everyday in virtually all industries from consumer products to professional services. Many of these forums are highly specialized. For example, I read a forum for Corvette enthusiasts called the Corvette Forum (http://www.corvetteforum.com/) which allows people like me to share their thoughts about buying, selling, and maintaining Corvettes with other Corvette owners. This forum has no affiliation with Chevrolet, but you can bet that the folks at GM read this forum religiously.

Consider setting up a RSS feed to search for subjects of interest to you and your business. For the average web surfer, RSS provides a way to see at a glance if your favorite blogs have updated their content. Using a simple RSS feed reading program, you can subscribe to the feeds from any supporting site to get this information and link directly to the new articles that interest you. You can set up the RSS feed to find articles or blogs by keyword.

Let the research begin.

John Bradley Jackson
© Copyright 2007 All rights reserved.

Market research can be one the best uses of funds at a small firm, but, typically it seldom gets done. The reasons include lack of funds, little or no experience with market research, no time to do the research, and often the autocratic styles of entrepreneurs don’t allow for third party feedback.

There are many uses of market research including competitive analysis, customer satisfaction, brand awareness, message testing for advertisements, employee satisfaction, and new product development. Generally speaking, all research requires the help of a third party since a third party conducts the research without bias. This is often hard for entrepreneurs to understand.

The best place to begin when you need market research is with secondary research which is pre-existing research. Already prepared, secondary research is on the shelf and can be inexpensive or even free. Sources include:
- Trade journals (a good source of technical trends)
- Market research firm publications
- Trade associations
- Magazines
- Internet resources
- Conferences
- Multi-client studies
- Subscription services

When more specific research is needed, custom or primary research is the preferred choice. Primary research is original research that is conducted for one client. Primary research can use qualitative and/or quantitative techniques.

Most primary research starts with qualitative market research techniques to determine the key issues or problems. Qualitative research uses open-ended questions that “fish for answers” using techniques such as:
- Focus groups with a professional moderator
- Intercept interviews at the place of business or point of purchase
- Telephone interviews seeking opinions
- Pre-arranged interviews with target executives
- Email focus groups for the convenience of the participant.

Once the key issues or problems are identified, quantitative market research techniques are typically employed to verify the qualitative findings by polling a sample of the population to give a statistically significant picture. Quantitative techniques may include computer aided telephone interviews, in-person interviews, mail surveys, and e-mail surveys.

Market research is money well spent by the entrepreneur.

That’s a quote from Vittorio Alfieri, an Italian dramatist considered the founder of “Italian tragedy”. OK, I had not heard of him either, until I saw the quote and looked him up on Wikipedia.

Regardless, this quote reminded me that inspiration may be an important part of marketing and entrepreneurship, but no idea is so great that it cannot be verified or tested. Maybe the biggest mistake that entrepreneurs can make is to love their ideas too much. In fact, loving the idea or thought too much is exactly the wrong orientation since it is not about what the entrepreneur thinks or loves. It is what the customer thinks or believes. Nothing else matters.

Entrepreneurs need to divorce themselves from the emotion of the first idea and become more deliberate and analytical. At this stage, concept testing is just what the doctor ordered. Maybe the best concept test can be done with focus groups.

The purpose of a focus group is to help find answers to difficult questions. A consumer research technique that uses open-ended questions, focus groups can quickly discern key issues and determine why the issues are important. Focus groups are moderator-led discussions of six to ten people randomly selected from a sample list comprised of participants in your target market.

An independent, third party moderator who is trained at managing the complex interpersonal dynamics of a group discussion best conducts “true” focus groups. The goal of a focus group is to smoke out hidden issues, test ideas, and seek feedback from the participants on topics such advertising, new products, or customer needs. The group discussion environment can be a very powerful tool for determining how people feel about the topic.

The client who sponsors the focus group predetermines the objectives of the session, but the format is flexible enough to accommodate the serendipity of qualitative research. You never know exactly what you will learn in a focus group. Most moderators prefer to follow a discussion outline, but they let the discussion lead the way.

A focus group that is poorly or unprofessionally moderated is a waste of time. Generally speaking, focus groups are best left to the professionals. Often small firms will attempt to moderate focus groups by themselves; this is often a poor choice since the entrepreneurs are inherently biased (or, call it passionate) about their businesses and will only hear what they want to hear.

First thoughts should be tested since they are not always the best.

John Bradley Jackson
© Copyright 2007 All rights reserved.

Show me a startup without a business plan and I will declare it a “rudderless” ship. For without a business plan to guide you, a business will just float along chasing one opportunity after the next, while ending up nowhere special.

Business plans are not hard to write, but they do challenge you to think things out ahead of time, while asking you to address the hard questions about who you are and what you really want to do.

The basic elements include:

The Title Page- This includes all the basics such name of the business, logo, your contact info (such as your address, phone, and website), and the date that the plan was prepared. Be sure not to clutter this page up with too many details.

The Executive Summary- This is the single most important part of the plan; virtually all readers (who actually read the plan) read this section. I recommend writing this section at the very end. Wordsmith it to death since it is your principle sales document.

Outline or Table of contents- You know what to do here.

The Marketing Plan- If you piqued the reader’s interest with the executive summary, then this section is typically the next section that he or she will read. If it says one thing, it needs to tell a story about your strategic competitive advantage. This is a statement about how your business does things differently or how it does different things. If you can’t position your business as unique, you might as well break camp and head home. Show’s over.

People and Organization- This section says who you are and why you are qualified. It also reveals who is needed to get the job done. It should say who is on board today and give a vision of what the organization might look like in the future.

Financial- This section is boring and nobody reads it. Wrong. Except the fellow that will write the check. Often this is the weakest section in most plans. This is caused by creating the numbers using a “tops-down” methodology. A much better practice is to start at the bottom with your product, create a time line for product development and launch, figure how many people are needed to manage and sell the products, and then create your forecast. This approach creates a more realistic plan which will be believed by your banker or investors.

Everything Else- All the other stuff goes in the appendix and is used only when it is needed and should be bound separately. Present this second volume only when asked.

John Bradley Jackson
© Copyright 2006 All rights reserved.

Maybe the smartest money ever spent by an entrepreneur is to conduct a “concept test” which is basic market research on an offering before you go to market. Concept testing can use qualitative or quantitative research methods; most commonly, qualitative tools such as in-person interviews and focus groups are chosen for their expediency and live feedback.

Essentially, prospective customers are given an early viewing of an offering to assess their reactions before the provider invests more money in the new offering. It forces the entrepreneur to expose the offering to the customer base to solicit real feedback. The test verifies that the benefits of the offering are recognized and valued by the customer. This feedback is essential but sometimes difficult for the entrepreneur to accept, particularly if the feedback is negative.

Sometimes, the test identifies problems such as possible confusion about how the product is positioned with competing products. Often the marketing messages are still in draft form, so this concept test also assists in refining the basic messaging. In fact, concept tests are frequently performed for advertising campaigns to verify that the target customer can understand the benefits of the products.

However, concept testing may not be a good indicator of purchasing behavior. Just because someone understands the benefits of a new product and even admits to liking the product, it does not mean that they will buy it. Additionally, concept testing may identify product attributes that are significant but this type of research can struggle to assess which attribute is more important.

Concept tests typically try to answer the following questions:

1. What is unique about this new product or service concept?
2. How does it compare to competitive offerings?
3. How might it benefit the customer?
4. What are the relative strengths and weaknesses of the new product or service concept?
5. Would the customer buy the product (admittedly not a reliable vehicle to get this answer),

Ironically, many startups and entrepreneurs go to market without conducting a concept test; instead, because of their strong belief in the product or service concept they often elect to skip this step. The ramifications are many including failure.

John Bradley Jackson
© Copyright 2006 All rights reserved.

James Surowiecki wrote “Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations” back in 2004. The book reinforced the now ubiquitous term called the “wisdom of crowds”. Used by academics and marketing gurus alike, the cliché tells us to listen to the needs, or better said, the rants of the crowd rather than the reason of a single member of a group.

Crowds can be great at determining a consensus view where the right wing cancels out the left wing and we are left with the middle ground occupied by the statistical mean, or the “silent majority” as former US President Nixon called it. In politics and other venues this type of group thinking can be powerful and correct.

Surowiecki actually argued that crowds are often wrong, but that message seems to have been lost on most readers (remember the average North American buys only one book a year and seldom finishes it). He suggests that crowds can get it wrong by listening to gossip or innuendo, instead of objectively looking at the facts. Sometimes a pretty face or a charismatic leader can sway the crowd and lead them to a disastrous conclusion such as riots, Nazi Germany, and conclusions from market research studies (OK, I guess you saw that one coming).

Crowds and market research sample groups are wrong for the same reasons:
- They are too much alike and lack the diversity of the population; the sample was not random or representative.
- There is regional bias such as only doing focus groups in Manhattan; the people in Chicago and LA may feel very differently than the folks in the Big Apple.
- The respondents don’t tell the truth; instead they say what they think the researcher wants to hear.
- Respondents can be like sheep in that they follow the flock; they can be heavily influenced by others. They read it in People Magazine so it has to be true.
- Focus group participants can be overpowered by a biased moderator (they are not supposed to be biased of course).
- Their decisions are selfish or fear based rather than what is good for the group. They are not like Star Trek’s Mr. Spock who said “The needs of the many outweigh the needs of the few or the one”.

So, when doing market research, pick the crowd carefully to insure that it is representative of the total population. Ask the questions without bias or influence. Probe deeply to understand why people answer as they do. Avoid biases in the sample.

Listen to the crowd, but beware of the mob.

John Bradley Jackson
© Copyright 2006 All rights reserved

“It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.”
-Steve Job, Apple CEO in Business Week, May 25 1998

Innovation is the mainstay of niche marketing, yet your customer may not be able tell you what products they will need in the future. And this makes sense if you think about it. Invariably your customers are focused on the here and now. Future needs make great cocktail conversations, but invariably they get put on the backburner. Making payroll and shipping product are just higher priorities.

This is the dilemma of market research and product development. As Steve Jobs infers, customers don’t always know what new products that they will need in two years. Most market research methods, such as focus groups, rely heavily on customers’ opinions about future products. With many industries having product development cycles that require the providers to think two and three years ahead, the challenge becomes even more complex.

So how do you develop future products? According to “Creating a Killer Product” by Clayton M. Christensen and Michael E. Raynor, “To create products that customers want to buy–ones that become so successful they “disrupt” the market? It’s not easy. Three in five new-product-development efforts are scuttled before they ever reach the market. Of the ones that do see the light of day, 40% never become profitable and simply disappear”.

So, on top of everything else, it is easy for new products to fail. The authors additionally said, “Managers need to segment their markets to mirror the way their customers experience life–and not base decisions on irrelevant data that focus on customer attributes. Managers need to realize that customers, in effect, “hire” products to do specific “jobs.” That’s one reason why retail formats like Home Depot and Lowe’s have become so successful: Their stores are literally organized around jobs to be done”.

The lesson is to not build products that are cool or easy to make; instead you need to look for jobs that need to get done tomorrow.

John Bradley Jackson
© Copyright 2006 All rights reserved.
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