Getting to Know Your Market: Market Research and Competitor Analysis
September 10, 2020
A few years ago, a client of mine hired me to help them develop a cutting-edge new toilet. They were a well-funded engineering firm and had invested over a million dollars into redefining waste management.
When I started working with them, their current prototype was the Tesla of toilets. It was energy-efficient, used next-to-no waater and even composted your poop so you could use it as fertilizer.
The only thing it didn’t have…was a market.
All of the high-end engineering and tech they had crammed into their toilet came at a price. To make ends meet, they would need to charge $10,000 a toilet. That’s a lot of money to pay for the privilege of fertilizing your lawn with your own feces.
Now, don’t get me wrong. The toilet was a marvel of engineering…but it had been designed without a specific market in mind. The CEO had assumed that people would buy simply because his team had created a cool product.
Unfortunately, that just isn’t how things work. History is littered with cool product ideas that never went anywhere because they never found a market. Even if you have a market for your product or service, if you don’t understand that market, what drives your customers and the competitive landscape, you can still struggle to keep your business afloat.
So, how do you identify the right market for your business? How do you analyze the competition and find new market opportunities? In this article, I’m going to share some of the insights I’ve acquired helping numerous businesses find their markets and sell millions of dollars of products and services.
Sound like a plan? Let’s get started!
Why Market Research is So Important
In my opinion, every new product, service and business should start with market research. As mentioned above, it doesn’t matter if you have the greatest toilet ever created if no one will buy it.
Good market research tells you who you will be selling to, why they will buy, what problems you are solving for them, what objections they will have, what price points they are willing to consider and what other options they currently have.
Whether your business has been around for decades or you’re a new entrepreneur, these are all critical insights. If you don’t understand how your business fits into the world your customers live in, you won’t be able to find the right audience or market to your audience in an effective way.
For example, one of my clients is in the process of developing a new tool for treating back pain. Their audience is huge—almost everyone will suffer from back pain at one point or another—but because it’s such a big audience, we’ve spent a lot of time trying to figure out how they fit into the current competitive landscape.
By looking at the strengths and limitations of current products, selling points of their new product and the needs of their audience, we’ve been able to define their customer journey and marketing strategy in a way that will be interesting and compelling for their audience.
Here are a few questions to consider as you think about your target market?
- How big is my target market?
- What percentage of that market will I need to capture to be viable? Do I think I can reasonably achieve that level of success?
- How motivated are my customers? Are they already desperate for a solution? Or are they unaware of their problem?
- What other products or services will I be competing with?
- How are those products or services priced?
- How and why do people buy my competitors’ products?
- What are the key selling points of those products or services?
- How can I differentiate myself?
- Are my differentiations significant enough to win over my customers?
- How does the perceived value of my products or services compare to the products or services of my competitors?
- What do people hate or love about the currently available options? How do my products or services compare?
Answering these questions should help you get you on the right track with your market research, but these are just the beginning. Each market is very different, so your research journey will inevitably take you in unexpected directions.
Putting Your Market Research to Work
As you can probably imagine, good market research is instrumental at every step in the product development, marketing and sales process. The better you know your target market, the better your product or service will fit the needs of your market and the easier it will be to market or sell.
For example, with the high-end toilet project I mentioned earlier, it quickly became clear that the version of the toilet the client wanted to sell simply didn’t have a market. However, that didn’t mean that modernizing the toilet was a bad idea in and of itself.
After doing quite a bit of market research, we eventually decided to start developing a “smart” toilet that could analyze various health attributes through your urine every time you used the restroom. By tracking these attributes over time, we would be able to provide an unprecedented level of health monitoring data that could be used to track and predict health conditions.
That was a much more compelling selling point for a $10,000 toilet than fertilizing your lawn.
However, even that change in direction still wasn’t enough to really get people excited. Most people view their toilets as a household fixture—not an easily replaceable piece of furniture.
So, we started looking for alternative ways to provide the same value. In the end, we settled on a removable toilet insert that could provide the same health tracking features for less than $500…and without requiring people to replace their toilet.
People loved this idea. The toilet insert wasn’t as seamless or unobtrusive as our “smart” toilet design, but it gave people a way to get the benefits of the concept without the headache of replacing their toilet.
Thanks to our market research, we were able to identify a product that met an actual market need and an effective way to enter that market. In addition, although the product has yet to receive FDA approval, by figuring out exactly what our target market wanted, we gain key insights into how to market the product.
Doing Market Research
Now that we’ve discussed why market research is so important and how it fits into your overall business strategy, let’s talk about a few different ways to approach market research.
In essence, there are two basic ways to do market research. Both of these approaches provide value in different ways, and it’s generally a good idea to use both whenever possible.
The first way to do market research is to pull data from a variety of sources. If you’re already selling products or services, look at your customer data. Who is buying your product? What sorts of marketing messages are they responding to? What trends has your sales team noticed?
Online platforms like Google Analytics, Facebook Insights, ad campaigns or research databases are other good sources of information. Your own market data can give you a lot of insight into your market. If you can find them, market reports, studies, online reviews or even online forums can also be a great place to learn about your market and how they feel about you and your competition.
The second way to do market research is to directly talk to your target audience. Many large business use focus groups and survey responses to get a feel for what their audience wants. Those are great, but there’s a lot of power in simply giving your customers a call.
This type of research is an invaluable way to get inside the heads of your customers, but it’s important to remember that your sample size will be small, so your data can be easily skewed by a few opinionated people. That’s why it’s always best to use both approaches. That way, your up-close-and-personal insights are counterbalanced by big-picture data, and vice versa.
Personally, I like to take a back and forth approach. I’ll talk to customers, come up with market hypotheses and then look at aggregate data to validate those hypotheses. Then, using the context of what I’ve heard from customers, I’ll try to use my broad data to come up with hypotheses about customer motivation and go back to my customers to verify my hypotheses and so forth.
It can take a few rounds, but this approach usually yields a fairly well-balanced and accurate market assessment. The practicality of this approach will depend on your business, but as long as you are taking in data from a variety of sources, you should be on the right track.
Conducting a Competitor Analysis
In addition to direct market research, it’s also important to take the competition into account. There a couple of reasons for this: 1) you need to understand what you’re up against and 2) you can learn from what your competitors are already doing.
The great thing about your competitors is that they are a successful model for you to follow. If their business is thriving, they’re doing something right.
But, assuming that you’re not simply trying to copy your competitors (which I see happen all of the time), you should also be able to find holes and opportunities. No business bats a thousand and even a business that is dominating the market has potential customers whose needs they aren’t addressing.
The better you get to know your competitors, the better you get to know your market. Look at their ads on Facebook, Instagram and Google. Check out their websites. Visit their physical locations. Buy their products or try their services. Read their reviews.
As you go through all of that, here are a few things you should take note of:
- How much overlap is there between your audience and your competitor’s audience?
- How directly are they marketing to the need that your product or service addresses?
- How do they approach their customer base? What is the general tone or feel of their business, ads, website, etc?
- What are their core selling points? What does their core selling points teach you about what your audience values?
- Are there any core selling points that you’ve identified that they aren’t addressing? Is that a missed opportunity or a warning sign?
- How are their products or services priced?
- How do their products or services compare to yours?
- What sorts of sales, discounts or incentives do they offer?
- What sorts of proof statements, guarantees or disclaimers do they use?
- How well does their marketing match what you know about your target audience?
- What complaints do their customers have about their products or services? What do they love?
If you take the time to get to know your competition, you can get all sorts of insights and ideas to try. Even if your product or service is fairly unique, if a competitor’s product addresses a similar need or problem, you can often learn from their products, services or marketing strategies.
Good or bad, your competitors have a lot to teach you about your target audience and how to motivate them to buy from you. It may not all be directly relevant to your business, but your competitors are part of the world your customers live in.
To put it simply, no matter how well you understand your target market, if you don’t understand the competitive landscape surrounding you, it will be hard to market your business. Good marketing takes every aspect of your customer experience into account and your competitors are part of that experience, so it would be foolish not to keep close tabs on what they are doing.
No matter what industry you’re in or what you’re selling, your market is the lifeblood of your business. Without customers, your business can’t survive. If your customer base isn’t a key part of every decision you make, it won’t be long before you won’t have to worry about making business decisions.
So, whether you’re in the product development phase or trying to figure out how to improve your marketing, make sure you make time to take a step back and think about your target market first. Otherwise, you just might end up with a great product or service…and no one to sell it to.
By the way, if you’d like help with your marketing research and strategy, let us know here or in the comments. We’d love to help!
How do you approach market research? Have any helpful tips to share? Leave your thoughts in the comments below.