How to undertake a Market Assessment for your next breakthrough product or service - Article II
"I want to expand my business, which markets can I tap? / I want to start something on my own. I know the products can work, but how can I practically gauge that?"
We, as consultants, hear this a lot more often than one can imagine. The next step to ideating or even finalizing to expand is to undertake a market assessment.
A market assessment is infact one of the first and most important steps in the business planning process. At this stage, you evaluate the risk, identify potential clients, evaluate the economic and political conditions, and, accordingly, modify your product / service to meet the expectations and needs of the prospective clientele.
Market assessment is the stage where the business owner is required to answer a certain set of questions (The stage was briefly mentioned in Article 1 of the Business Planning Series: Debunking Myth. To revisit the article, click here)
What is your target geographical market?
Who is your target consumer base (including characteristics such as age-group, gender, cultures etc.)?
How is your competition placed and how do you differentiate against them (SWOT analysis)?
How do you intend to reach your target consumers?
Let us circle back to the main question - how is ‘Market Assessment’ undertaken?
It is broadly a four step process. The steps along with excerpts of the market assessment undertaken for one of our clients is provided below to aid the understanding of the concepts.
The example considered is of a startup idea for which a business planning exercise was undertaken. The start up idea conceptualized by the client was as follows:
Name - PETBOOK
Idea - To create a new age social media application, that allows one to find fellow pet owners in the USA and an aggregated marketplace for pet products
Note: The numbers mentioned in the article are fictional and do not resemble the actual figures of the company or the exercise.
Step#1 - Industry landscape and future outlook
An industry landscape provides an insight into the important metrics such as the industry size, historic growth and projected growth, and trends. In order to get these insights, one must first undertake an industry classification exercise. This is the initial phase where an industry for the proposed product/ services is identified at a macro level.
There are various online sources (free and paid) which provide these reports. You can specifically tap into government sources, reports issued by consulting firms, institutional reports etc.
Two industries i.e. Social media industry and Pet industry were identified for the startup idea. Accordingly, two industry overviews were undertaken.
(Having the entire industry overview would make this article lengthy, hence the useful statistics from that overview are considered in the following steps and also in the ensuing articles).
Step#2 - Target market and market sizing
The target market for a proposed product/ service cannot be the entire country. Accordingly, the geography has to be dissected to identify particular markets. The marketing expenditure can also be specifically directed towards acquiring customers in those markets. In order to be able to slice the geography, the following consumer demographic and psychographic factors can be identified for the use of products/ services
Once the above factors are identified, undertake a numerical analysis on this target market to ascertain the potential market size.
PETBOOK’s target audience is the urban population who are pet owners in the USA. An online platform has a different revenue model as compared to a shop which sells products. Online platforms earn from advertising revenues.
As per the industry overview undertaken, the following factors were collated
As per a survey conducted on 25,000 households by Businesswire, 50% of households surveyed have at least one pet. We will be conservative and still assume 25% of households in the urban population own a pet.
An average American spends a little over $1000 per year on their pets.
Approximately 10% of the revenue is spent on advertising for pet products.
20% of the advertisement expenditure is budgeted to spend on social media platforms.
Basis the above factors, the market size available to PETBOOK is calculated in the below table.
Step#3 - Competitive analysis
After undertaking the industry overview, identifying the target market, and performing a market sizing analysis, the next step is to identify potential competitors. These competitors are vying to get a piece or a larger share of the market available to them. The competitive landscape can help with product positioning to gain an edge over the competitors. The competitive analysis should evaluate direct and indirect competition, strengths and weaknesses of the product/ services that you intend to offer and evaluate the opportunities and threats faced from competition (SWOT analysis)
The direct competition would be pet pages on social media platforms like facebook and instagram and a platform called Cuteness Inc. The indirect competition would be advertisement expenses undertaken by pet product manufacturers on television, radio, newspapers, hoardings and other digital platforms.
Excerpts from SWOT analysis for PETBOOK is reproduced below:
A one of a kind social media platform integrated with Facebook and Instagram to drive traffic
An all in one marketplace providing food, toys and even healthcare services for pets on a singular platform
Lack of reputation and awareness amongst the potential users
Core activity divided between a social media platform and an online marketplace
Partnering with current influencer on the social media pages like Instagram and facebook to drive traffic
The platform has the potential to be scaled globally
The website Cuteness.inc is a social media platform, having its presence since 2008 having a similar concept
Coordinating with big pet manufacturers including top food manufacturers like Blue buffalo, Colgate Palmolive, Mars Petcare etc; top toy manufacturers like The OurPet's Co, ZippyPaws., Fluff & Tuff Inc. etc and creating a network of healthcare professionals
Step#4 - Economic and Political factors
Every business is affected by economic and political factors, and these can be best explained by the current global events.
From an economic standpoint, Covid-19 has disrupted the world economy and forced it into a global recession. And the example for the political scenario would be the US Presidential election results, the US-China cold war, and the political instability witnessed globally.
Now the question is how to factor these two highly subjective factors in the market assessment exercise. The answer is you can not factor these in its entirety, as they are highly subjective, but there are ways to include an approximation of its effect.
The following economic and political factors were considered for PETBOOK:
As per the studies available online, the market of pet food, toys and health products is likely to remain steady
The engagement on the social platform may rise as a result of lockdown where users may share each other’s experiences and so will the online purchases
As the engagement levels increase, the PETBOOK may be able to charge a higher premium to advertise on the platform, consequently also raising the value.
There have been petitions to make pet food animal cruelty free by various animal welfare organizations
This is not likely to have any impact on the pet industry or the platform.
In conclusion, currently the forecasts will remain unaffected. However, we can change the forecasts by adjusting our advertisement premiums when we witness a surge in engagement levels due to the economic factors.
The entire process of market assessment gives a broader perspective on the market that the startup or the business owner is entering into. The process can also be viewed as a risk mitigation tool, to evaluate and identify risks and opportunities.
In our case, the client who conceived the idea of ‘PETBOOK’ was able to understand the markets available, the competitors and what is required to make PETBOOK standout and drive new user sign-ups. The market assessment report also helped make informed decisions on the target audience and how to approach them.
We at Snowcrest Consulting believe in minimizing risks and maximizing opportunities. If you have read this far, it is again important for us to emphasize that the above example was an excerpt from one of our client’s business planning exercises.
If you have any additional questions, feel free to reach us out at firstname.lastname@example.org.