How do markets work?

by admin in content marketing on October 15, 2020

How do you discover the market for what you plan to offer? How big will that market be? Which part of it should you go for? This section is written from the business-to-business (B2B) perspective, but for business-to-consumer (B2C) operations the principles are much the same.

Market strategy
What many people fail to appreciate is that real customers in the market will not usually care about the clever technology; they only care about what the product or service will do for them or their businesses. It is a good assumption that nobody will want to buy your product or service unless it solves a real problem in a way that is more effective (but not necessarily higher-tech) than the
available alternatives.
Therefore, a vital early step is to find out about the market, preferably by talking with potential customers (ie with relevant individuals from within potential customer companies). This process yields two benefits:
• You find out how the market works and what the real problems are, which enables you to develop not just a technology, but a solution for the marketplace.
• You begin the process of educating the market about your ideas/products, thus working towards early sales. (See Chapter 10 for the sales perspective.)
Founders of companies tend to be overly concerned about giving away their technological secrets. You don’t need to be. Remember that, at this point, you are mainly concerned with letting people know about your solution, not your technology.
As well as doing market research about your potential customers, both as companies and as individuals, it is wise to find out about the competition. You need to know who they are, what they do, how they make money, how good their products are, and why people buy them. Bear in mind that even if there are no direct competitors, you are still competing against anything that offers the customer an alternative solution or alternative use for their limited funds. Here are three types of indirect competition for your solution to a business customer’s problem:

Female financial analyst working on laptop at office, studying statistics graphs on computer screen, checking person’s business profile and drinking cofee at workplace, over shoulder view, collage

The customer can solve the problem by developing an in-house solution. For example, if the problem is manufacturing throughput, they may be able to hire extra staff instead of buying your automated processing system. If the problem is the integration of two databases, they could have their own IT people write the code instead of buying your software.
• The customer can adopt a different working practice that makes the problem irrelevant. For example, if the problem is electromagnetic radiation interfering with the signals on a communications network, the customer can decide to use optical fiber instead of copper wire, thereby removing the need for your interference-proofing solution for the copper wiring.
• The customer can decide to live with the problem because they have only limited money available and judge that they will get a better return on investment from spending the money on something else than from spending it on your product/service. For example, a company may decide to tolerate poor yield from a process and invest the cost of your process-improving solution in corporate entertainment instead.
The idea, then, is to identify those parts of the market where you will be able to offer a product/service which is clearly differentiated from the competition and offers customers a compelling reason to buy from you. Mainstream customers will be, on the whole, distrustful of your innovation.
Their purchase decision-making process will pay significant attention to the potential downside of the transaction and they will perceive risk. What if it doesn’t work? What if the young supplier (you) goes out of business? What if the industry standardizes on something else?
Customers will seek reassurance on all of these questions, not from you but from their peers and from the opinion-leaders in the marketplace.

Whom to target?
You need to identify the opinion leaders in the market segments that interest you, engage them, and get them on your side. If you can do this, your sales efforts with customers in the range of influence of each opinion leader will meet with better-than-average success. Because of the influence of opinion leaders in technology markets, it is often worth investigating whether you could actually
define your market segments in terms of them.
For example, an electronic design consultancy (ABC Engineering) was wondering how to develop its business. ABC had had previous success with clients in a number of different industries of different sizes and in different areas of the UK, but with no clear pattern as to which ‘segment’ they should try to expand into. When they looked at how their clients typically made their buying decisions,
they recognized that clients very often sought guidance about potential suppliers from well-connected individuals. Having previously tried various sales approaches with little systematic success, ABC made contact with a well-known local professor of engineering to make sure that he knew of their existence and recognized the value of what they were offering. The new business rapidly flowed
from the resulting introductions.

This also suggests a route for future business development for ABC Engineering, via similar professors in other universities rather than into specific industries. It is certainly not always the case that one could or should define segments in terms of opinion leaders. But it is often a possibility worth investigating because it can lead to automatic, free-of-charge business advantage, as it did for ABC.

To get from 1 to 2, you need to consider both of the indicated routes in parallel. The first one A is about how good your value proposition is, and the second one B is about how you should take into account the market networks in order to reduce customers’ perceived risks. Then at 3 you can use the networks to magnify your chances of sales success in your chosen market segment(s). Reminder: This is written from the business-to-business (B2B) perspective, but for business-to-consumer (B2C) operations the principles are much the same.