What’s a market opportunity study?

When we talk about a market opportunity study, we mean research that assesses the opportunity a market offers, and informs decision-making about whether or not to enter that market.

A company may want to launch a new product or service within an existing market, or expand into a new market by building on its existing strengths. But either of these actions could require huge investment. Taking the step to launch or expand without a solid foundation could easily backfire. The company risks misjudged targeting, marketing that fails to reach the right people, or pushing products to people who just aren’t interested.

 

 

Market opportunity studies typically aim to provide a combination of insights, which might include:

  • Market sizing: the market value and/ or volume, or the current market share for existing markets
  • Measure of customer demand
  • Opportunities for the company to cross-sell or upsell
  • Decision-making dynamics within a market
  • Marketing approaches that could help win in a market

Ultimately, these kinds of insights are used to inform go/ no-go decisions. They’re particularly valuable where the stakes are high: for example, when the launch could involve investment in new production facilities, or recruitment of new staff. Entering a new market or launching a new product is an important strategic decision with far-reaching implications for your business.

For example, a materials manufacturer asked us to assess the market potential for a new line of sustainable products, designed to be used in manufacturing settings.  Excess capacity at one of their plants meant they were keen to identify profitable opportunities to sell additional output. The client had prepared proposals to start developing the new product, but needed evidence to determine whether there was a business case for investing in it.

We’ve carried out similar work sizing the market opportunity for a new adhesive product. This client had developed a paper-based alternative to the traditional plastic format. They hoped to disrupt a market that was ripe for innovation.

 

 

Using insight to enter new markets

 

The key questions

When an organisation wants to identify a market opportunity, they typically consider some fundamental questions:

  • Is there demand for an existing product in markets where it doesn’t currently sell? This might mean selling to new countries, different regions within existing countries, or different types of customer from the current base
  • Is there an opportunity to upsell or cross-sell within existing markets, or to our existing customer base?
  • Is there demand for a new product idea?
  • If we launch a new product, will it genuinely grow our business? Do we risk cannibalising existing sales?

 

 

Taking a broad view of the market

In our experience, clients often have one or more hypotheses about where the opportunity is. While they’re often right, we still recommend that they think expansively. We design research studies that cast the net widely, and that allow us to assess the full extent of the opportunity: there are often dimensions that neither our team nor the client’s team have thought of. With that in mind, we also tell them to measure demand for the new concept or product with everyone who might be interested in it: not just the people you think should be buying it.

On the other hand, clients whose target audiences aren’t interested in their product(s) need to know why that is. Is it because they’re already buying something else? It could be that the client offers a product that could meet their needs, if we identified some minor tweaks that made all the difference.

It’s also vital to understand the competition – and to understand the way that customers and prospects define the product category. Our clients often see their category in quite rigid, ‘textbook’ terms, while customers – especially consumers buying FMCG products – think much more fluidly. For example, they might not be choosing exclusively between savoury biscuit products, but between a packet of crackers and something from the morning goods aisle, sweet biscuits, or between buying something versus buying nothing!

We always find it useful to remember that demand for many products is driven by factors such delivery times, the extent to which a product can be modified, and the after-sales support on offer to the buyer.  This means that having a great product that appeals to your target audience might not in itself be enough to succeed.

We might also discuss market pricing, and perhaps recommend that the research establishes price elasticity. This will impact on the proposed methodology, so it’s good to make a decision on whether market pricing is an issue early in the process.

The most important thing, though, is to identify the key decision that the client’s planning to make. For example, “Is the business case strong enough for us to take action?”, or “Is the business prepared to invest in a new production facility?” We make sure our clients are transparent with stakeholders about the information they need, in order to make a decision, and when that decision has to be made. It’s also important that we’re all working with the latest information.

The vital questions might include:

  • Is there demand for product X in market Y?
  • What type of customers does the demand lie with?

It’s often not necessary to measure potential demand for a product completely accurately: the client business simply needs to know that there’s enough demand to justify entering the market, or launching the product.

No matter what stage a client is at, we help them to focus on the insights they need to make a decision – and to avoid asking for information ‘just in case it’s useful’ or ‘because we might need it in future’. Clients often ask us to measure their competitors’ market share as well as their own. While this might be interesting, it’s usually more information than is needed to make a go/ no-go decision. What the client needs more, is a broad understanding of the market’s size and its growth trend.

 

 

Assessing market opportunities: the basic steps

While every market opportunity study is different, some key phases make up the typical process:

  • We start by working with clients to identify the insight that’s really needed
  • Next, we take the appropriate steps to understand how potential customers feel and why
  • Finally, we carry out analysis to assess the opportunity’s size and value

 

 

Phase one: Identifying the insight that’s really needed

 

Deciding what a market opportunity study should cover

We make sure we’re aware of the key knowledge gaps before working with businesses to decide what a market opportunity study needs to cover.

  • Early on, we’ll map out what we already know between us, and highlight the gaps. We might all know, for example, that changes in legislation are likely to alter buying behaviour – but find it hard to judge how much the changes will affect demand
  • Sometimes, other people within a client organisation have an understanding of the market we’re exploring. They may have experience of the relevant market, or even have worked for competitors
  • Or, the business may be able to draw on existing internal information. This can be highly effective in helping to identify a market opportunity. For example, CRM data can indicate the size of the customer base, if a new product has been designed to be sold to existing customers
  • It’s often possible to combine information from multiple sources, and gain greater understanding than we’d get by looking at each one discretely. For example, customer data and publicly available data can be used together to produce insights that simply don’t emerge from individual sources in isolation

 

 

Starting with secondary data

This type of investigation is as much art as it is science. By the end of the process, the research team has drawn on a variety of sources and worked through numerous assumptions. The good news is that there are many tools that help paint as clear a picture as possible of the potential for a product or concept. The best way to start is usually to look at data, analysis and learnings that are already in the public domain, and to identify useful internal sources. Government statistics, trade association publications and competitor reports can all provide very valuable information to inform market analysis.

We’ve used existing data alongside primary research to guide client decisions about market entry many times. For example we helped a company operating in the casual dining arena to measure the size of the opportunity for a new concept and fine-tune their offer to maximise their chances of success, and a consumer tech specialist to expand from the US into Europe. We also recently helped a global materials manufacturer by sizing and exploring the market for a water filtration material, identifying the key vertical sectors they should prioritise.

 

 

Phase two: Understanding how potential customers feel and why

 

Talking to relevant customers and channel partners

The next stage in the process is often interviewing potential end customers and relevant people within the channel: depending on the sector and product, these could include retailers, supply chain partners, resellers, systems integrators, distributors and value-added consultants. One of the universal truths about market opportunity studies is that the best results come from bringing together information from several different sources. It’s particularly useful to compare the views of potential buyers with those from the channel.

In consumer markets, we typically work with clients to develop a phased approach to NPD and market entry. The research is likely to impact the process at several different stages.

  • Idea generation: brainstorming and coming up with innovative new ideas, if NPD is part of the strategy
  • Product development and testing: creating a prototype product or pilot service
  • Market testing: modifying the product or service according to the feedback we get from customers, manufacturers and support organisations

We took this approach when sizing the market for a new investment product. Our client had identified key segments to target their product to. We measured the size of those segments, and helped the client to understand their savings attitudes and behaviours. Our client used the model we built, and their greatly increased understanding, products in line with the needs of each segment.

When a global logistics operator wanted to reposition itself in the UK B2C parcel market, it needed to understand its target audience and identify where opportunities lay, to position itself as the market leader. Through qualitative and quantitative research, we gave the client a comprehensive picture of the UK marketplace, as well as an understanding of the brand’s strengths, of gaps in their service quality, and the implications for the business.

B2B market entry studies are typically less structured:

  • Sample sizes are often much smaller. If the potential product only has a target market of 50 buyers, a quantitative research approach such as a conjoint (trade-off) study won’t be viable 
  • In B2B markets the range of data collection methodologies available is more limited. With the exception of a few job titles, B2B web panels are not typically a useful sample source for customer interviews. It’s also unlikely that email addresses will be available for the targets. This means that even in today’s email-based world, online methods are ruled out, and that fieldwork needs to be by telephone or even face-to-face

As an example, extensive telephone interviews formed a key part of a study we undertook for a global oil company. As well as sizing the market, our findings challenged our client’s hypothesis of the channel mix, and enabled them to develop a growth strategy focused on the true market opportunities.

 

 

Translating demand into commercial success

In most cases it’s vital that our research doesn’t just investigate potential demand for a product, but identifies what’s needed to translate that into success. This might mean:

  • Finding out more about the delivery options customers want, and how that squares with the supply chain
  • Assessing the degree of customisation a product needs. This can range from reformulating an FMCG product to match local tastes, to customisation at individual buyer level in the B2B space
  • Research with the channel. Is it in the interest of the relevant channels to sell the product? Entering the market with a lower-priced product might appeal to the end user, but if a lower price means lower margins for the channel, they may not be willing to sell it.

Much or all of the questioning is likely to be qualitative in nature.  This enables a deep and thorough understanding of the issues involved, and can also uncover important areas which might not have been anticipated. When working with a leading high-performance materials manufacturer B2B research enabled us to distill and explain a complex customer journey.  As a result our client restructured their sales operations, and consequently reversed their performance in a key region from decline to unprecedented growth.

 

 

Phase three: Assessing the size and value of an opportunity

 

Going beyond a market size assessment

Our work always goes beyond a simple market size estimate.  For example, when we worked with a global tech brand launching a specialist printing device for the healthcare sector we used numerous data sources and developed a detailed strategy for market entry as well as measuring market size.

For a supplier of specialist chemicals we developed a detailed customer segmentation in a new region they wished to enter.  For a manufacturer of automotive packaging we highlighted the new products and services that the client would be able to develop, identifying market opportunities with greatest scope to drive business growth. We also helped the client to develop effective marketing messages.

With any model, we recommend calculating various potential outcomes from best case to worst case scenarios. Besides allowing stakeholders a range of inputs into their decision making, the gap between the best case and worst case scenarios is a useful diagnostic for the confidence the team has in the model.

Having too complex a model runs of the risk of producing misleading results. For example, it’s possible to model demand for two new products individually, whilst forgetting that for the customer they are alternatives so the sum of the demand is less than the parts.

 

 

Making market opportunity studies flexible and unique

Whatever decision the client makes, we lay the groundwork for an agile and flexible approach:

  • Each market opportunity study is unique. There’s no ‘one size fits all’ approach
  • The whole process of exploring a market opportunity is highly iterative – we learn as we go along. We will often have an idea of how the programme will be structured and who we will speak to, but often the course changes once we’re into the study and we can see the initial findings,
  • There’s always a need to pull in relevant primary and secondary data at the appropriate times. For example this can mean speaking to a different group of potential customers based on earlier learning, focusing on different stages of the value chain, or investing more into additional secondary research
  • Sometimes it can also mean pulling the plug on the whole project because we find out there is no economically viable opportunity – it’s much better to save your money and time and focus on something else!

Finally, it’s important to remember that success in exploiting opportunities depends as much on entrepreneurial flair and vision as on facts and figures. As we’ve said above, researching and accessing market opportunities is as much an art as it is a science!

 

 

Accessing opportunities in emerging markets

 

Why consider emerging markets?

 Our global clients ask for market insights into consumers and businesses in Africa, the Middle East and Latin America. In Asia clients are increasingly looking at researching a wider selection of markets including Indonesia, Malaysia, the Philippines and Vietnam. Put simply, this is where marketers spend more and more time and effort.

There’s massive growth potential as emerging markets become more mature, and as consumers and businesses start to buy online rather than through traditional channels.

Let’s take Brazil as an example. E-commerce accounts for less than 5% of retail sales in Brazil, but that is still enough to make it one of the ten largest e-commerce markets in the world. And it’s not the only emerging market in the top ten: it’s narrowly beaten by Russia, currently in ninth place.

At the top of the table, China has overtaken the USA and has been the world’s largest e-commerce market for some time now.  Nigeria has a population of 191 million and a GDP of nearly 400 million dollars. Compared with South Africa, which is usually thought of as Africa’s ‘developed’ market, Nigeria has three times the population and a slightly higher GDP. Indonesia has one of the world’s largest middle classes, forecast to reach around 20 million households by 2030.

Many people are unaware of the scale of the recent boom in technology in these so-called emerging markets. There’s a perception that emerging markets have poor-quality legacy phone systems, and very little awareness that a sea-change in connectivity has happened in the last few years. The penetration of mobile broadband demonstrates this, but is by no means exceptional: we see similar patterns of growth in smartphone penetration rates, internet usage and other personal technology products, from cameras to PCs.

We also see similar changes in the installed base of businesses in these regions: both B2B and B2C technology ecosystems are evolving rapidly. We recently conducted a study for Canon that confirms businesses in the Middle East and Africa are at least as developed technologically than those in Western Europe, and in some ways more advanced!  It’s a myth that it’s all low-end technology, and that consumers in these regions can’t afford premium devices. Apple has stores in Brazil, Turkey and Mexico.

Analysts talk a lot about the changing incomes in emerging markets. Typically, their focus is the proportion of the population that has been pulled out of absolute poverty. From a market research point of view, the most interesting trend is usually the parallel rise of the middle class as a significant demographic group. The World Bank estimates that 50 million people have worked their way up the social and income ladder in Latin America in the past decade to become members of the middle class. Almost one third of Latin American families are now considered to be firmly middle class; almost equal to the proportion considered ‘poor’.  It’s important to bear these factors in mind when considering whether some of these markets can be truly described as emerging.

The emergence of the middle class as a significant bloc in society is having some interesting effects. In the retail space, there’s a good case for regarding this growth as the driver behind the construction of new shopping malls. These spaces are often occupied by global brands, either retailing in their own right or via joint ventures. We’re seeing socio-demographic changes, too: there’s much more freedom in terms of governance and greater access to education. In combination, these factors mean it’s much easier to do business in these markets now than it was a few years ago.

 

 

Getting research right in emerging markets

The starting point is choosing which markets to include. A common obstacle we face with clients is budget and how to use it to cover a region. It’s not unusual for a client to tell us that they have budget for two Latin American markets, and that they want to research the two largest. However, averaging Brazil and Mexico does not give an accurate view of Latin America, even if those markets do account for over a half of the population. We explain the value in researching smaller markets, which can act as proxies for multiple countries.

Even within countries, there are major regional differences. We design studies that are based on a nationally representative sample, or a good mix of cities and regions.  Our starting point is to look at economic statistics such as GDP per capita, to get a feel for variations between countries and regions.

We also need to think about local conditions and regional variations when we recommend a fieldwork method. Face-to-face interviews are sill the norm in some countries, as they remain the most culturally appropriate method. There are areas where we don’t recommend face-to-face research: we work with a comprehensive network of local partners and specialists before committing to research in specific locations.

Although internet penetration is now significant and there are panels of a considerable size in most markets, these panels still hold important biases. By and large, panelists are younger, better educated, more metropolitan, and have higher income standards than the general population. We recommend quotas to get a properly balanced sample of potential customers, even if the client’s assumption is that they are concentrated in these groups.