The business and marketing news during the past many months hasn't exactly been pleasure reading. Revenue shortfalls, negative profits, layoffs, bankruptcies—you could be excused for focusing your attention on some mind-numbing reality TV.
Maybe it's me, but for some strange reason I see some interesting "stories behind the stories." And it is there that marketers could revisit some fundamentals about one of the most important elements of marketing strategy: defining market opportunity.
At its core, market opportunity is your sizing forecast for a specific product or service, now and over the next several years. At a minimum, you should know that information in terms of sales dollars.
For example, "The market opportunity for netbooks is $x billion and is expected to grow at y% per year for the next z years." Ideally, you would also have a quantitative handle on your projected market share and profitability when defining your opportunity.
As I skimmed the news over the past year, I often wondered whether businesspeople were thinking about the market in that context. Let's look at some examples.
When the government reported retail sales data for last February, the stock market swooned. Wall Street, as you know, is priced on expectation, and when reality doesn't match, share prices adjust accordingly.
Economists, who don't ever seem to be right (and are never fired for it), thought retail would be flat in February. They ended up missing widely, like the 6% decline in appliance sales.
What drives appliance purchases? Among other things: new home sales, new renters, movers, and replacement of old appliances, etc. All those drivers were down significantly, of course. How could smart economists have misjudged the "opportunity" for the appliance market?
Here is another headline item: eBay placed StumbleUpon back into independent, private ownership.
Most readers might have seen that story as just another social-media/technology headline. But it made me wonder: What opportunity had eBay defined when it purchased the company just two years earlier for $75 million?
Did someone at eBay actually size the market opportunity for content-recommendation sites—by number of users, visitors, advertising revenue, etc.? Did it forecast a growing share for StumbleUpon? And, if so, what marketing strategy did eBay cobble together to seize its projected opportunity?
Here's another—a press release that "Sprint is teaming with Microsoft's MSN and WPP Group's Mindshare to create an online space where small-business owners can network, gain information from business experts, and promote their businesses."
I wondered: Do Sprint, MSN, and Mindshare know that their site will not be the first community-oriented site of its kind for small businesses? Or the 10th? What is their forecast for the level of participation across all those sites for all small and midsize businesses? What share do they possibly think they will garner that will sustain any meaningful type of return on investment? Are there well-thought-out marketing strategies to build—and sustain—user involvement?
Another news item, this one going back to the start of last year: That bastion of yesteryear, the trusted Montgomery Ward catalog, was resurrected last spring. No doubt there is a big market for the catalog's products. But what share and growth does Montgomery Ward believe it'll possibly get for the small market slice it will pursue?
There are many more stories like those, and my intent is to use real-world situations to stimulate thinking about why defining market opportunity is so important, as well as to provide some ways to get at it.
Importance of Defining Market Opportunity
It could very well be that an exercise in market sizing would stop many a "wild and crazy" marketing idea, including those pet projects that often come from the corner office.
By knowing market size and growth, you will have an excellent basis for understanding the investment dollars and manpower required before you take the plunge into the land of "sunk cost."
New markets are often targeted by businesses that have matured and believe they can simply and easily slide into the most-adjacent segment. Such an "inside out" method is a holdover from the 1970s—hardly the customer-centric focus required today.
Ways to Define Market Opportunity
Pay for it
There is a third-party "sizer" for just about every market out there. Yes, the reports can cost hundreds, more likely thousands, of dollars. But it doesn't pay to be penny-wise and pound-foolish if you are about to invest hundreds of thousands, or millions, of dollars.
If you want to do it yourself (and perhaps, as an option, validate the third-party research referenced above), think of a market in terms of the number of customers who can and will actually purchase.
Think "served" versus "available" market. Carve up the census data. Too many forecasting models, for example, overestimate the number of business customers (B2B) or accessible consumers (B2C).
And avoid "straight lines to infinity." Last spring, the New York Times Magazine's "Green Issue" featured a forecast that commercial plane travel would increase 60% by 2025.
Forget for a moment that the economy blew that one out of the sky. How is that even possible, when we physically can't have 60% more airports and runways, 60% more planes in the sky, or 60% more Federal Aviation Administration controller capacity?
Similarly, be wary of straight lines in the down direction, such as all the pundits who are now saying we will spend like paupers for two generations or so.
Separate new from replacement
Want to stump a businessperson? Ask how much of the annual revenue of that person's company comes from new customers and how much comes from current customers.
It is critical to understand the drivers that distinguish new from replacement purchases (as well as their frequencies). Create as big a spreadsheet as necessary to model your market appropriately.
Don't be a hog
Yes, the CEO might say, "All our businesses must double market share in three years," but that is a horrible way to define market opportunity.
Look at your track record. Look at your competitors' history. Run reasonable numbers in your spreadsheet.
The market share should be an outcome, not a goal. (And, as mentioned earlier, that might give you the chance to drop out of an opportunity now, if the market-share projection doesn't suit the CEO's "go/no-go" threshold.)
Like anything else we want to do right in marketing, market opportunity definition takes hard work. It requires many sources to check, drivers to consider, and scenarios to simulate. And it must be re-evaluated constantly.
A solid understanding of opportunity will guide you to the best markets and warn you off the bad ones. It will frame your investments and serve in part as your scorecard to mark progress.
Of course, there are other methods. For example, you can try to succeed by "stumbling upon" good market opportunities, which is probably more fun than what I've proposed—sort of like looking for four-leaf clovers.
Continue reading "Defining Market Opportunity—You Be the Judge" ... Read the full article
MarketingProfs provides thousands of marketing resources, entirely free!
Simply subscribe to our newsletter and get instant access to how-to articles, guides, webinars and more for nada, nothing, zip, zilch, on the house...delivered right to your inbox! MarketingProfs is the largest marketing community in the world, and we are here to help you be a better marketer.
You may like these other MarketingProfs articles related to Marketing Strategy: