Determining Market Feasibility for New Products
Critical Steps for Market Feasibility Analysis
Conducting a Market Feasibility Analysis for new products is a critical step in the product development process, sizing the potential market, and ultimately determining market feasibility. There are typically five components to a Feasibility Analysis: Technical, Economic, Legal, Operational, and Scheduling. This is often abbreviated TELOS. We focus on the marketing and economic components of feasibility to inform the “go” or “no-go” decision using customer insights.
You might not wake up every day and think, “I wonder what I will create today?” However, I do and so do many other entrepreneurs. At Mindspot we work with start-up companies and organizations that have been in business for many decades. They count on us to understand the market feasibility of a new product.
Mindspot Research Clients often contact us about marketing research involving a new product. It’s because this new concept is at some stage in the innovation process. It could be an idea or a concept that may benefit from concept testing to better understand the market.
Consider that Marketing Research is a way to get the answers you need that you don’t have…yet
Marketing Research also reduces in-market risk and increases your chance of success. Whether it is a line extension of an existing brand or a completely new product. There are some key milestones in a project development process, where your project will benefit from customer insights. These insights can be gathered from focus groups, surveys, or collected as part of a feasibility study.
Often entrepreneurs invent, develop, or make products because they want something and can’t find it
They have a need and it’s not being met. For those of you who don’t know me, I am a road biker; I have a carbon Cannondale. As an example of a potential new product, let’s consider developing a line of cycling jerseys for women who are road bikers. This is an actual product I have been considering developing just for fun. Sure there are a lot of cycling jerseys out there for women right now. However, there are not very many cycling jerseys that I consider to be “my style”.
This is how a new concept emerges. I am not finding the product that I want. From this point, I could prototype the product (the cycling jersey) or write the specifications. Then decide if I am going to make one or two for myself or develop this particular new product and bring it to more of a mass market. If I am considering more of a mass market approach, this is the point where it is a good idea to conduct a market feasibility analysis.
If you are going to invest a significant amount of time in developing a product it’s important to make an informed decision. Find the information that you need to decide if it is the best and highest use of your time.
Elements of a Feasibility Analysis: Ask yourself: If I do this, is it worth it?
There are many elements in a market feasibility analysis including defining your target market by demographic and/or lifestyle characteristics known as psychographic attributes. If you understand who is going to buy your product, then you can start to determine if the market is large enough for you to undertake the project.
Market Analysis: Size the Market
In the cycling jersey case, we looked at how many bicyclists are in the United States and then determined how many of them ride road bikes. There are many other factors that go into a purchase decision, particularly when you are dealing with something personal, such as fashion and style. This requires some initial assumptions or a hypothesis to model the size of the potential market. This particular product would be what I consider “edgy” apparel. And, it is likely that only riders who ride 25 or more times a year would have a need for this product. In particular, women who bike more than 110 times a year may be even more likely to purchase.
We completed the research; gathering information like the frequency of bike riding, determine how many people in the U.S. population are female bike riders. If secondary research did not already exist, primary research would need to be conducted among a large enough sample of the population to be representative of the female cycling population (Mindspot can tell you the number of people required in your sample for it to be representative at various margins of error). This will allow you to project the numbers across the population, in this case, that would be the population of the United States.
Next you define your market feasibility research objectives, otherwise known as, “What I need to know to understand if this is worth my time.”
There are a few things that we still need to research in order to make a decision:
•Frequency: How often do women purchase cycling jerseys?
•Price: What are women willing to pay?
•Technical Requirements: What would the product requirements be for women to purchase this type of jersey (technical fabric, fit, look, style)?
If only a certain segment of the population would purchase this type of jersey, then determining the incidence in the defined population who would purchase this product is important. This will help you get an accurate idea of the potential market size.
What Marketing Research can help you understand
This is where research can help you to understand the potential size of the market, purchase intent, the customer profile (i.e. who the purchasing customer segment(s) are and how to reach them), and potential distribution channels. Once the market feasibility analysis and any other concept testing and product testing have been completed, you are at a critical juncture. This is when the size of the potential market and proforma sales projections should be reviewed to determine if it is financially viable. For example, what is the break-even point, future sales forecast, success requirement, and Key Drivers.
Next steps in your product development will be informed by consumer insights and the market feasibility analysis. Then, other factors such as competition in the market, and distribution channels can be included or researched to further develop the business and marketing plan for the new product.
There are key steps along the way where research can measure your progress
Product awareness, purchase consideration, trial, and purchase intent can all be measured. We can measure the demand for another jersey and learn what type of jersey the customer would like most and if it’s likely to sell.
Research is an investment, and the more expensive the product and cost of development, the more I encourage you not to skip the research. Invest in reducing risk or eliminate a bad decision before spending significantly more time and money on a product launch.
Positive research results may help in obtaining additional funding, getting your product to market faster, and better product launch communication. If you have questions, we’ll find the answers.
By Lynnette Leathers, CEO of Mindspot Research, and Chief Mindless Babble Blogger