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Marketing research is the first step of creating any thorough marketing plan. Without market research, you are opening yourself up to running ads that are focused on the wrong customers. If you are selling cookware and you are marketing to teenagers, you are probably marketing to the wrong audience and wasting your ad spend!
Market Knowledge is Essential to Sales
There is no business on earth that wants to make money slowly. Being able to do market research and analysis can make it possible to create earning opportunities related to trends, as well as products that are popular over the long haul.
New product ideas are not able to promote themselves and you will need to make sure that your idea for a new item to sell is worth your time and energy before you waste effort and funds on something that will never get off the ground. What is one man’s trash is another man’s treasure, but some items are just not marketable to enough people to be worth developing.
· Is this product viable?
· Can I market this product successfully?
You now need to use your research skills to find out the answers to these two questions.
What is Market and Product Viability?
Market viability is the business potential of a specific market. This is an important variable to isolate because you will need to know what the market space for an item actually is before you try to decide if you should develop this item fully. This process also applies to the larger question of starting a business in a given market.
There are three major factors that go into determining market and product viability:
1. Size of Market
Is this marketing space large enough that it can accommodate new sellers? Is there room for growth of either this business or this product?
2. Target Audience
Do the potential clients for this business or product have the income to be able to buy it? Can you market this item or define this business as a luxury brand?
Who are the important retailers in the market space that you will be competing against? What are the strengths and weaknesses of their products and services? Can you brand yourself in such a way that you can compete with them or create a new space for yourself within their niche?
The goal of this step of the process is to remove any markets or product ideas from your list that will not be able to sustain themselves or grow into something larger. Market spaces that are too competitive are a losing proposition from the jump, and you will not be likely to carve out a niche for yourself in these kinds of spaces even with lots of effort and lots of money spent on ads and other outreach.
What is Product Viability?
We already discussed this a bit in the section above, but even if you have the right market space sorted out for your product, you will need to be sure that you can sell your product to targeted buyers. There is no sense in developing a product that does not have enough of a following or generate enough interest to be sold in large quantities. The only exception to this rule of quantity is if you are intending to sell a high-dollar item (associated with high-demand luxury markets).
When you are determining if a product is marketable, consider these two things:
Is there sufficient interest in this product to be able to build a business around it and sell it for longer than a short duration of time?
2. Profit Margin
Can you sell this product at a high enough price point to be sure that you will be competitive in your marketing space while also making money for your company? Make sure that you have run the numbers on your Return on Sale (ROS) in figuring out the profit margin.
You might want to choose products that are low in demand or high enough profit margin to be worth investing effort in them.
Why You Must do Product and Market Viability Analysis
The ecommerce world is broken up into niches, some of which are large and some of which are small. Product or business ideas will need to serve at least one niche with authority. However, if your product or business does not serve the needs of any other niche besides one of the smallest and more specific ones, you are probably barking up the wrong tree.
Remember that you will need to be able to brand your product and make it visible for it to sell. You might struggle to create hype around a super nice product or might have a product that lacks In originality to stand out from the crowd to generate sales.
Lack of business & product analysis can have an impact on your finances when starting out an online business. Here are a few key pointers that might save you from that. These items are:
1. Inventory Management
This is a key factor because you will need to pay out for new inventory and pay to store it. You may also have to pay a fulfillment company to ship it. If you are not making enough sales of this product, it is only going to cost you money to sell it to others.
This is the bane of the incorrectly analyzed product that is not selling. Deadstock is the product that needs to be designed, sourced, or manufactured in order to sell. This is the biggest upfront cost of any ecommerce store. You will have the largest investment in this step of the process if you are dropshipping to your customers.
Ads are not cheap. Paying to advertise a product that is not right for any niche is just a waste of money. You can have the best ads in the business, but if your product is a dud, no one will want to buy it anyway.
There are some other expenses that can eat away at your profits that should be considered as part of your market analysis on your new business idea as well.
· Domain Name
This can be one of your biggest expenses. Because people want a clever one that sticks with people and makes it easy for them to search for your products, it can be hard to find a domain name that has not been taken these days. Gone are the days of buying basic domain names, and you will need to consider the cost of your domain name before you create your new business.
· Web Hosting
Not all web hosting sites are created equal, and some kinds of businesses need to be run on specific hosting platforms. Always make sure that you know what the costs will be related to your hosting site before you jump in with both feet.
· Ecommerce Site
This is another important point that sometimes slips through the cracks when budgeting and doing market analysis. Use the right ecommerce platform for your business model. While most of them are affordable, customizing your site and hiring help to get things up and running can easily add up.
· Web Design
As mentioned above, web design can be spendy and if you are not tech-savvy, you may need a lot of help to get your site up and running. Be sure that you consider this before you start developing a product that has a limited audience.
If you love to write blogs and you are great at it, you might be able to save yourself some money at first. But added value offerings like tutorial videos, relevant industry blog posts, and all kinds of other additional outreach to customers can add time and money to your budget. Consider also that any product that you want to create will need to be connected to enough other added-value topics to create this necessary added content for your site.
· Email Marketing
There are cheap or free solutions to email marketing, but they are rarely worth your energy. You will need to consider the cost of your email marketing outreach as part of your overall budget.
While each of these expenses alone does not contribute much to your overall budget, the sum total can be quite steep. You should consider the cost of these items over the long haul too and look at a year of spending on these items and not just a couple of months.
The more upfront capital that your business idea requires, the better the projected market viability needs to be. You cannot spend all your life savings on setting up a business that was doomed to fail from the start, and you should be wary of starting any business that does not have the right metrics to support its viability.
Important Things to Consider When Doing a Product Viability Analysis
This is the important part of the analysis when you start to look at all of the facts together as a sum total. You cannot get a good picture of what you are trying to accomplish without this necessary evaluation.
Part 1: Do the Research
The easiest way to do this is to look at the depth of the market and how competitive it is. The best way to get a good grasp on this data is to do a SWOT analysis. This analysis looks at the Strengths, Weaknesses, Opportunities, and Threats of your given business idea.
For ecommerce, the best way to do a SWOT is as follows:
Look at the strengths that your idea enjoys. Maybe the supply chain is robust, or maybe your pricing will be very affordable. All of these items need to add up to a sum total that will negate the weaknesses and threats. Make sure you list them all but be objective about them.
Be critical here. No pie in the sky analysis. You will want to identify things that cannot be improved upon like a lack of connections in your niche, high startup costs, issues with your supply chain and etc. These weaknesses are going to undermine the strengths that you have already identified and you need to be sure that the balance is still going in the favor of the strengths.
List the things that your business model will have going for it as you scale. Can you work with a discount site to get products at cost or maybe you can work with Amazon FBA? If you are in the luxury niche, maybe you can turn your product into a subscription service. This is a place to be creative and think up all of the ways that you can improve your business in the future with additional opportunities.
This is sometimes a difficult space to predict, so you will need to really think about this part of your viability analysis. Can you foresee other competitors creating a better version of your product quickly? If you are selling in a difficult niche that is in the process of evolving or your niche is very small, this is also a threat. Make sure to think with some paranoia about this topic because preparation prevents you from being disappointed or harmed down the road.
The work that you have just done can now be condensed into two major ideas:
· Internal- Strengths and Weaknesses
· External- Opportunities and Threats
This is the reduction of all the stuff that you have been brainstorming to do with your SWOT, and you need to make sure that you can balance these items at this step. Brutal honesty is a must here. You will need to be sure that your business is worth the investment, and this is where you can tell if it is or is not.
Some factors to consider when you are examining the strengths and weaknesses of your SWOT:
· Market trends-is the market stable or is it changing?
· Are there new trends in play that could affect your strategies?
· Are there new big players coming into the space?
Use tools that analyze this kind of data to help you see the risk factors associated with the market growing or shrinking as they evolve. There are many tools on the market and they are all helpful if you want to get a high-level view of the entire niche you are trying to enter. Google Trends can give you this data and it can compile enough information to help you look at the volume of keyword searches related to your product.
This kind of analysis can reveal products with long-term viability that do not have a lot of competitors in them. This means that something that you have not been sure would be marketable due to it being a common item, could be a really good investment for you to make. The data will tell you the story that you need to be able to identify the right markets and niches to focus on.
The same is true of trending items. You will see these quite clearly when you look at keyword searches and you can evaluate if there are too many people all trying to hone in on this trending item, or if there is room in this space for you to make your own version of the product and enjoy success.
Part 2: Complete a Competitive Market Analysis
This is essential and there is really only one right way to do this part of your viability analysis. A good market analysis will include:
1. Identifying Your competition
Who are the big players in your niche and are there going to be any newcomers coming on the scene?
2. Examine Competitor Websites
Look at homepages, product pages, and descriptions. Can you improve on their model and create a better mousetrap?
3. Look at Sales Funnels
How are competitors connecting with their customers?
4. Break Down Competitor Strategy
Check out the social media pages and other online outlets related to your competition. Use SEO tools and other optimization tools to learn more about their paid advertising strategies.
5. Reverse Engineer the Competition
How are they delivering items to customers? Are they dropshipping? Are they using wholesale connections? Figure out how your competition is sourcing and selling. Then make sure that you can make a better business model.
Your goals here are as follows:
· Learn What is Working
You will not want to copy anything from anyone that is not working. Make sure that anything that you are going to do like your competitors is already working for them.
· Do Better
You need to capitalize on the weaknesses of your competition as much as their strengths. Where can you improve on their models? What can you do to replace them inside of their niche?
· Look for Opportunity
If you understand your competition, you can now look at better ways to do what they are doing. You will be able to identify things that can be changed for more optimal customer outreach, better customer service, and advertising.
Part 3: Find Your Target Audience
This is an essential step in your viability modeling that you have covered this part of the process with attention to detail. The two many factors that you need to look at here are:
This is the gender, age, ethnicity, occupation, location, and a whole host of other factors about your target customer audience.
This is the beliefs, values, and possible desires of the group that you are targeting.
Now that you know who your customers are, begin figuring out if they are actually the right customers for your product.
· Does your product solve your target audience’s problems? Is the problem large enough to warrant your solution?
· Can your target audience afford to spend the necessary dollars to remedy their issue with your product?
· Does your target audience have a history of buying items like your product?
Part 4: Product Criteria That Will Make Your Product Marketable
Before you decide that your product idea is a go, look at the details of the product itself. You will want your product to be the perfect fit for your niche and to target the looks and styling they are going to expect.
· Product Weight and Size
Bulky items are just harder to sell. Shipping is spendy on these items and it can be difficult to get dropshipping set up for them. Free shipping is rarely a good route to go with large items but you may lose a lot of customers because of shipping costs and fees.
· Product Fragility
Is your product easy to break? You might lose lots of money having to send out replacement items or you might lose brand reputation if your product is too fragile to ship reliably.
· Product Pricing
Can you find a balance between making a profit off your product and appealing to a large enough audience of consumers?
· Consider Markup
How much can you mark up the item from its cost to you? Is there enough room to make it profitable to sell this item?
· Consider SKU Numbers
How many SKUs do you want to have to keep track of? Products with too many variations can be hard to keep in stock and you might have a full-time job just managing your inventory.
· Is Your Product Seasonal?
Can you sell this product all year or is it only available during certain parts of the year?
· Is it Perishable?
Do you need to figure out how to ship frozen foods or items that need to be sold by a certain date? This can affect your inventory structure and also add costs to your shipping model.
· Does Your Product Have a Short Shelf-Life?
Can you store this product for a long time or does it need to be sold within set timeframes? Products that do not keep for a long time can be a hassle to stock and to ship.
Market Research and Analysis Work
Entrepreneurial undertakings can be well worth the time and effort that are required to develop them and get them successfully out onto the market. Always remember that you tend to hear more about the success stories than the tales of failure from those who develop business ideas. You can prevent heartache and financial hardship by doing a thorough market analysis before you develop a product and try to sell it.
Proper market research and analysis is the best way to make sure that your product is going to succeed and be worth the time and effort that it will take to make it a reality. You could be developing the next best thing, or you might be throwing money down an empty well with no chance of it coming back to you.
What to do Next
Market research and analysis is the way to prevent mistakes and help ensure business success. If you have isolated the perfect business or product idea, it’s time to move on to the next step. Read “How to do Competitive Analysis Effectively” and learn more about developing your competitive analysis model.