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For any effective innovation process, there are things you should do before you ask the question 'What's the Market for It".
It was clear to the company that their device would have great benefits over existing alternatives. With limited resources, they had to carefully choose their first market. Should they go after environmental testing, clinical applications, acute treatment opportunities? What diseases or active agents should they focus on first? Should the product be portable? How much should it cost?
Like many other companies in this position, they turned to the only thing they had heard of to answer their questions – market research. They commissioned several market research studies and hired several consultants (and spent a lot of money). This took several months during which they accumulated a lot of data and information. But perversely it also led to more questions and uncertainty and didn’t provide the insight they were looking for – who will buy, what will they buy, and, most importantly, why will they buy?
Why does this situation happen more often than not – in both large companies and small? Why is ‘market research’ for new-to-world products and services so difficult and unilluminating?
Asking to define the ‘market for it’ in the early stages of the front end, and relying on market research to tell you, is like trying to pick the drapes for a new house before you’ve even decided what city you’re going to move to. It’s asking for a level of precision that is impossible to determine when you should be trying to figure out what the product should be. Yet it is a question that we ask over and over again – and get the wrong answers time after time.
To illustrate the problem, one need only look at the litany of opportunities ‘missed’ by market research (that is, ignored or actively discouraged). This list reads like a compendium of the top companies and products of the new millennium.
With this many missed opportunities, is it any wonder that companies are looking for better ways to understand new markets? Thinking about newly emerging technologies, does market research tell us which are going to be successful and which are not? Here is a list of new and emerging technologies, some of which have been ‘predicted’ will be runaway successes, some of which have been predicted will be abject failures. Can you tell the difference?
Market research, industry data, focus groups and surveys, can’t give us the answer. We need something better and many companies are coming to realize this.
To understand why market research alone has such difficulty in telling us what is and is not going to be a successful new product or service, it is important to understand just what market research, and all of its various methods and tools, can and can’t do.
The first thing to realize is that the name itself ‘Market Research’ indicates part of the problem. To do market research, you need to know what the market is to do research on it. When we are trying to innovate, however, we are, by definition, at least extending the boundaries of a market if not totally creating a new market. How do you do research on something that does not yet exist?
At the front end, the contexts are unknown, the situations are unexperienced, people have a hard time placing themselves in an unknown future. They are much better at responding to something presented to them as opposed to making something up. Market Research has responded to this with tools and techniques that try and present new things in terms of past or existing experiences. What happens is that the result is artificial contexts.
Market Research has traditionally had two distinct paradigms
The problem with the question ‘What’s the Market for It?’ arises out of the natural interplay between possibility and opportunity. Many companies with a high-tech, engineering oriented culture, start with a technology idea – a possibility, and use that to create opportunities. The tendency in this situation is to become too precise too soon. To define an idea to a point where market research can be done, using surveys, focus groups or other standard tools of market research.
Alternatively, or in addition, there is often a desire to ‘see if the market is big enough’. This means essentially counting heads using data on industries and demographics.
Specifically, to answer the question ’What’s the market for it’, two things must occur:
By asking the question this way, you are, to a large extent, already presuming the answer. Because of this, this question has probably stopped or misguided more innovation than any other question in history.
‘What’s the market for it?’ forces us to define what ‘it’ is way too early. The fact is that for virtually all ideas, technologies, opportunities, challenges etc. there is a universe of possible ‘it’s. As engineers and logical thinkers, we like to focus on the conceived solution and then determine how to get there. We too often jump to the end and then our effort becomes one of creative problem solving instead of finding out what is the problem in the first place. We like to see the solution and then find the path to it.
Paradoxically, this question asked early in the innovation process forces you to be both too precise and too abstract!
This question requires precision when what you need are options. To answer this question you need to know a) what the ‘it’ is and b) the definition of the target market.
Asking ‘What’s the Market for it?’ paradoxically leads to both being too specific and too general at the wrong stage of the process. An example is with our company.
Looking at a traditional segmentation, you can get extremely detailed information about a group of people. In the 48104 zip code, there is a group of people that have traveled to Asia in the last three years, drive a Mitsubishi Eclipse, and read Maxim Magazine.[1] So what has this really told us about this segment? Do they like sports or travel? The question that leads to true understanding is not what they like to do, but WHY they like what they like. But yet top business schools teach students that figuring out what consumer and product segments to address is all about markets, pricing, segmentation, and targeting. People like Christensen, Ulwick, Zaltman and others have been advocating for a different view of the potential customer – one that is centered on what the customer wants to accomplish or experience. In today’s world, there is a growing and significant gap between Market Research and truly understanding the customer.
To further complicate the situation, for new to the world products and services and disruptive technologies, starting with market research can often be worse than a waste of money – it can actually mislead you. Current customers can mislead innovators as they can and will sound like experts, especially if you put them into situations, such as focus groups, surveys or ‘Voice Of The Customer’ sessions where they are compelled to respond. In these situations they are often speculating and voicing opinions that may not be valid even for themselves! They truly do not understand their own minds.
Another story serves to illustrate. A company with a successful business selling inspection and metrology equipment to the automotive industry was starting to ask ‘Where should we go next to grow?” The CEO, after thinking a while said “What about the Aerospace industry – is there a market for our technology there?”. Two things immediately happened, i) the world immediately narrowed down to the Aerospace industry to the exclusion of all else and ii) the company purchased a $3,000 market research report on the industry and retained an aerospace expert to answer the question ‘How big is the market?’. Now, the intentions were good, but the actions were misguided. The people in the company exhibited what Thomas Kida, author of ‘Don’t Believe Everything You Think’, has identified as one of the 6 mistakes humans make that get in the way of true understanding – we seek to confirm not question, our ideas. In addition, during this expensive and lengthy process, the company didn’t once ask the question that really determines if there is an opportunity “What do the makers of airplanes and engines really desire? What are they struggling with that they would really like to change?” In point of fact, the question they thought they needed to answer “How big is the market?” is the easiest one to answer – it’s big enough. The fact that there exist $3,000 research reports on the industry (actually many multi-thousand dollar reports) is primae-facie evidence of the market’s size. They didn’t need a report and a consultant to tell them this.
The point of this story is that most companies get it backwards. They ask the important questions about what is the true opportunity that comes from what people want second (or in some cases not at all).
A Story
Towards the end of 2005, the R&D department of a small medical devices company was completing the development of an exciting new technology. They had created several prototypes to test and demonstrate an extremely sensitive and fast way to detect biologically active agents – bacteria, viruses, enzymes, hormones, etc.It was clear to the company that their device would have great benefits over existing alternatives. With limited resources, they had to carefully choose their first market. Should they go after environmental testing, clinical applications, acute treatment opportunities? What diseases or active agents should they focus on first? Should the product be portable? How much should it cost?
Like many other companies in this position, they turned to the only thing they had heard of to answer their questions – market research. They commissioned several market research studies and hired several consultants (and spent a lot of money). This took several months during which they accumulated a lot of data and information. But perversely it also led to more questions and uncertainty and didn’t provide the insight they were looking for – who will buy, what will they buy, and, most importantly, why will they buy?
Why does this situation happen more often than not – in both large companies and small? Why is ‘market research’ for new-to-world products and services so difficult and unilluminating?
What’s the Market for It?
How many times have you heard this question asked when a concept for a new product or service is mentioned? This is often the first question asked, but in the early stages of defining new to the world products and services, in the front end of the innovation process, it is exactly the wrong question to ask!Asking to define the ‘market for it’ in the early stages of the front end, and relying on market research to tell you, is like trying to pick the drapes for a new house before you’ve even decided what city you’re going to move to. It’s asking for a level of precision that is impossible to determine when you should be trying to figure out what the product should be. Yet it is a question that we ask over and over again – and get the wrong answers time after time.
To illustrate the problem, one need only look at the litany of opportunities ‘missed’ by market research (that is, ignored or actively discouraged). This list reads like a compendium of the top companies and products of the new millennium.
| Personal computers | eBay |
| Cell phones | |
| The minivan | Dyson vacuum |
| The walkman | iPod & iTunes |
| Container shipping | MySpace |
| The Internet | Fantasy Football |
| Digital cameras | et., etc. |
With this many missed opportunities, is it any wonder that companies are looking for better ways to understand new markets? Thinking about newly emerging technologies, does market research tell us which are going to be successful and which are not? Here is a list of new and emerging technologies, some of which have been ‘predicted’ will be runaway successes, some of which have been predicted will be abject failures. Can you tell the difference?
| Satellite Radio | Flat Panel Displays |
| Fiber to the Premise | RFID |
| Media PC | WiMax |
| Business Intelligence Software | Podcasts |
Market research, industry data, focus groups and surveys, can’t give us the answer. We need something better and many companies are coming to realize this.
Why Can't Market Research Do This?
To understand why market research alone has such difficulty in telling us what is and is not going to be a successful new product or service, it is important to understand just what market research, and all of its various methods and tools, can and can’t do.
The first thing to realize is that the name itself ‘Market Research’ indicates part of the problem. To do market research, you need to know what the market is to do research on it. When we are trying to innovate, however, we are, by definition, at least extending the boundaries of a market if not totally creating a new market. How do you do research on something that does not yet exist?
At the front end, the contexts are unknown, the situations are unexperienced, people have a hard time placing themselves in an unknown future. They are much better at responding to something presented to them as opposed to making something up. Market Research has responded to this with tools and techniques that try and present new things in terms of past or existing experiences. What happens is that the result is artificial contexts.
Market Research has traditionally had two distinct paradigms
- Industry/Market data and statistics – the world of
- Customer/Segment data and statistics – the world of
The problem with the question ‘What’s the Market for It?’ arises out of the natural interplay between possibility and opportunity. Many companies with a high-tech, engineering oriented culture, start with a technology idea – a possibility, and use that to create opportunities. The tendency in this situation is to become too precise too soon. To define an idea to a point where market research can be done, using surveys, focus groups or other standard tools of market research.
Alternatively, or in addition, there is often a desire to ‘see if the market is big enough’. This means essentially counting heads using data on industries and demographics.
Specifically, to answer the question ’What’s the market for it’, two things must occur:
- Have a good definition of what the ‘it’ is – too precise
- Define the area within which the market research will be performed.- too general
By asking the question this way, you are, to a large extent, already presuming the answer. Because of this, this question has probably stopped or misguided more innovation than any other question in history.
‘What’s the market for it?’ forces us to define what ‘it’ is way too early. The fact is that for virtually all ideas, technologies, opportunities, challenges etc. there is a universe of possible ‘it’s. As engineers and logical thinkers, we like to focus on the conceived solution and then determine how to get there. We too often jump to the end and then our effort becomes one of creative problem solving instead of finding out what is the problem in the first place. We like to see the solution and then find the path to it.
Paradoxically, this question asked early in the innovation process forces you to be both too precise and too abstract!
This question requires precision when what you need are options. To answer this question you need to know a) what the ‘it’ is and b) the definition of the target market.
Asking ‘What’s the Market for it?’ paradoxically leads to both being too specific and too general at the wrong stage of the process. An example is with our company.
Too Specific
Too specific: Needing to figure out the market for ‘it’ forced them to define ‘it’. This is the world of surveys and focus groups that need something to react to. This is the world of prototypes that need to be specific enough to get responses.Looking at a traditional segmentation, you can get extremely detailed information about a group of people. In the 48104 zip code, there is a group of people that have traveled to Asia in the last three years, drive a Mitsubishi Eclipse, and read Maxim Magazine.[1] So what has this really told us about this segment? Do they like sports or travel? The question that leads to true understanding is not what they like to do, but WHY they like what they like. But yet top business schools teach students that figuring out what consumer and product segments to address is all about markets, pricing, segmentation, and targeting. People like Christensen, Ulwick, Zaltman and others have been advocating for a different view of the potential customer – one that is centered on what the customer wants to accomplish or experience. In today’s world, there is a growing and significant gap between Market Research and truly understanding the customer.
To further complicate the situation, for new to the world products and services and disruptive technologies, starting with market research can often be worse than a waste of money – it can actually mislead you. Current customers can mislead innovators as they can and will sound like experts, especially if you put them into situations, such as focus groups, surveys or ‘Voice Of The Customer’ sessions where they are compelled to respond. In these situations they are often speculating and voicing opinions that may not be valid even for themselves! They truly do not understand their own minds.
Too General
The need to figure out the ‘market’ for it forced them to define the ‘market’. This is the world of market research reports that is data rich and knowledge poor. The data says little about what will be a compelling product. The technology can be applied to 10 different ‘markets’ or segments within a market – or it could cross traditional market segments or extend boundaries. This is not captured in any market research report. What do you do – buy 10 research reports and try and analyze them together?Another story serves to illustrate. A company with a successful business selling inspection and metrology equipment to the automotive industry was starting to ask ‘Where should we go next to grow?” The CEO, after thinking a while said “What about the Aerospace industry – is there a market for our technology there?”. Two things immediately happened, i) the world immediately narrowed down to the Aerospace industry to the exclusion of all else and ii) the company purchased a $3,000 market research report on the industry and retained an aerospace expert to answer the question ‘How big is the market?’. Now, the intentions were good, but the actions were misguided. The people in the company exhibited what Thomas Kida, author of ‘Don’t Believe Everything You Think’, has identified as one of the 6 mistakes humans make that get in the way of true understanding – we seek to confirm not question, our ideas. In addition, during this expensive and lengthy process, the company didn’t once ask the question that really determines if there is an opportunity “What do the makers of airplanes and engines really desire? What are they struggling with that they would really like to change?” In point of fact, the question they thought they needed to answer “How big is the market?” is the easiest one to answer – it’s big enough. The fact that there exist $3,000 research reports on the industry (actually many multi-thousand dollar reports) is primae-facie evidence of the market’s size. They didn’t need a report and a consultant to tell them this.
The point of this story is that most companies get it backwards. They ask the important questions about what is the true opportunity that comes from what people want second (or in some cases not at all).
Correlation is not causality.
[1] www.claritas.com
