How much do you know about the market for your product or service?

The Secret Garden

The Secret Garden (Photo credit: @Doug88888)

I love peanut butter. But I have to be very careful eating the stuff because it is so fattening. I really can only eat it about once every two weeks or so. If I eat more, I’m going to balloon.

The peanut butter market has not grown to its estimated potential size if you look back at the forecasts and expectations twenty years ago. Walk into any supermarket and you’ll see that the shelf space occupied by peanut butter has shrunk.

Consumers are much more health conscious today. Moms are more aware of what can make their children fat. An obese child will soon suffer from all sorts of health problems.

The peanut butter category is long in the tooth in its product life cycle. No product innovation has come from the manufacturers. Only a few new entrants into the nut butter periphery with variants such as almond and macadamia butters. But the oil separation of these products is poor.

The success of a new product or service will depend on the market and the entrepreneur. It’s not just the idea. The new product or service could be brilliant but if there is no market or the entrepreneur doesn’t have the right qualities and skills set, they will fail.

Before you think of introducing your new product or service, you must be convinced that there is a market for what you want to sell. If you pass this test, then you need to determine if you have the skills set and qualities to make your new venture succeed.

There are two parts to market demand: preliminary customer research and estimating market size.

Let’s take it that you’ve established that prospective customers want your product or service. Then – it leaves you to establish the size of the demand.

For example, you are introducing a garden service. You estimate 10,000 households in your area. About 6,000 homes have gardens and 1,200 use a garden service. There are 3 competitors so you may secure, say, 200 gardens. Each home buys 10 garden cleans a year at R250 multiplied by 200 gardens gives total estimated sales of R500,000. You then need three estimates: Low, Medium, High. Medium may be 120 gardens x R250 x 10 cleans/year = R300,000.

If your net profit is 20%, it may not be worth your while to serve this market.

You must know whether your target market is attractive. Will it grow? Is it stagnant? Is it in decline? Market size and your estimated market share is a gate 1 test before you even think of introducing your product or service.

 

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By Chesney on September 2, 2013 · Posted in Main Content

2 Comments | Post Comment

Pheadra Farah says:

I think the work scarcity in South Africa has made people so desperate, they’re willing to try anything in the hope that they just might get ‘lucky’, regardless of what the research says.
I’m interested to know what the research stats indicate in terms of converting a prospective customer to a signed client. In other words, do you know how many homes the garden company would have to approach to secure a signed contract? Surely the possibility exists that one of the three companies could secure all or none of the gardens?

Posted on September 2nd, 2013

Chesney says:

Very good points you make. You’ve hit the nail on the head. The “hit rate” for sales can be anything from as low as 5% or less to a very optimistic 10% and more. You’re right, if you don’t do your homework you may very well end up with no market share. This is where innovation comes in. In a smaller market like this you would need to come up with a compelling selling proposition to capture enough gardens to make the market viable for you.

Posted on September 3rd, 2013