Make Sure You Know Your Market

Market Research

October / November 2008 By: Betsy Gillette Volume 6 Number 5

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Technical entrepreneurs who make components for consumer or service markets often misidentify or inaccurately articulate their markets. Understanding their true markets can make huge differences in market research and planning efforts, as well as in total marketing expenditures.

Let's look at some examples to illustrate the point. The first example is an entrepreneur with an optical lens for digital cameras, which are mostly consumer products. The latest market numbers, shown in a quick Google search, show sales of 115 million units with total revenues of $30 billion worldwide.

The next example might be solar cells or modules. Another quick Google search shows that the overall photovoltaic market is about $10 billion.

Maybe the next product is an excimer laser with the shortest wavelength on the market, and might best be used for ophthalmic surgery such as LASIK. The LASIK market appears to be about $4.5 billion. But are these the correct markets and sizing? And do they translate into good marketing strategies?

Identifying the market opportunity

A short search into the camera market shows that camera manufacturers might buy the lenses directly or they might buy from distributors. This tells us that potential customers are not the buyers of digital cameras; it's the manufacturers or distributors. (Remember, a customer is the one who buys your product.) So, unless you plan to manufacture the actual cameras, your market is not $30 billion. Keeping the analysis simple, the type of lens you have—€”perhaps size, focal length, quality—€”can help you narrow down your actual potential market to a portion of the 115 million camera units sold.

The next example might be solar cells or modules. Research shows that most solar cells and modules are integrated in total systems, which are then sold to residences and businesses. Your market size is therefore not the overall $10 billion photovoltaic market; rather, it would be a subset of that market, or the amount of similar goods that are sold to solar systems integrators. Knowing this will help you do a focused search to get the right size of the correct market opportunity.

The excimer laser cannot be sold directly to the consumer who pays for LASIK surgery. So, who buys such lasers? From your research, you determine that the answer is medical device manufacturers. With a better focus on these instead of the larger LASIK market, you can define the handful of potential manufacturers who might buy your laser.

Defining go-to-market strategies

Now that you have a better idea of your market potential and have identified categories of customers, you can more easily start thinking about how you will approach the market.

Go-to-market strategies include such items as promotions, public relations, distribution channels and sales. What happens if you do not define your market correctly? If you do not define the correct customer, and your strategies follow your incorrect customer target, you'll develop the wrong marketing plans for your product. This is fairly common in many technical entrepreneurs' business plans, and seems especially prevalent in alternative energy plans, so let's look at the solar example.

Who will buy your product?

Solar energy entrepreneurs often think of their customers as those who will use the end products, not just their solar cells or modules. The business plans may contain many paragraphs addressing the needs of residences on the grid and off, and the solar costs and energy savings. While important in understanding the overall market, they do not address the actual systems integrators who will buy the cells and modules. Extending the concept of the incorrect customer further, the business plans' marketing strategies deal with reaching residences. Many technical entrepreneurs detail mass marketing plans, including TV, radio and newspapers. These tactics can cost tens of millions of dollars and are often understated in the business plans.

Do these mass marketing tactics reach the systems integrators? Perhaps a few will see the ads, but even if 100 systems integrators see those ads, consider the cost per target: hundreds of thousands of dollars. Thankfully, marketing solar cells and modules to a hundred or so systems integrators involves a lot less work and money. Tactics might include joining trade associations, attending trade shows, doing a few well-placed press releases, and doing direct sales to the systems integrators. These are much more targeted efforts, are much more likely to be noticed by systems integrators, and are more reasonably priced. Entrepreneurs just starting out, especially those seeking funding, should take special care in articulating their true markets, their true customers, and the marketing strategies that fit with and follow those customers to maximize their initial success.

Betsy Gillette is director of market research and planning for Technology Ventures Corporation.