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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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