Do you ever feel like you are leaving money on the table with one or all of your target markets? This situation is like bad breath. If you think it may be a problem it usually is. Failing to get all you can out of your markets has a myriad of causes. Two of the most common ones are chasing too many markets at once and not knowing enough about them.
Aside from developing, building and selling your product, market research will very likely be one of the costliest activities in your company. That is why you want to get every last drop of sales you can from each dollar invested in your market research. Just like with your product development, doing it half-way will not yield the best results.
If you are a start-up, it usually means you won’t have the resources to go after more than one or two market segments at once. You will need to do exploratory research with all your potential segments at first to see which ones have the best potential. Once you have zoomed in on the most promising segment you then need to learn everything you can about it. I know, it is very tempting to go after the low hanging fruit in different segments. It can definitely be a short term strategy to get revenues up quickly. Making it your permanent strategy will, however, only lead you to missing sales opportunities in all segments. Not getting to a deep enough level of understanding of your main market segment will also lead you to overlook new product opportunities. This all translates into leaving a lot of money on the table, and in the worst cases, running out of runway to allow your business to take off.
If you are an established company it’s ok to go after multiple market segments at once. Allocating enough resources to get to know each segment in depth, and not going too far in the trade off game is what will allow you to pull it off. The game I am referring to is the trade off between functionalities or aspects of your product/service that are appreciated by one segment in order to please another. Knowing each of your segments intimately, as well as their present and future revenue potential, will enable you to understand how many sales will be lost/gained with the product compromises in each segment and decide which modifications are profitable overall and which aren’t.
Here is an example of what can go wrong when you try to please too many segments at once and cut corners on your market research budget. A real estate promoter had a project to build an upscale shopping mall in the suburb of a large Canadian city. It did a location study which takes into consideration all the available published data on surrounding populations. The promoters didn’t do any terrain interviews because it would have been too long and costly to do so with all segments they had chosen to address. The research identified eight different target markets in the area. Two of the largest markets identified in the study were the urban segment, consumers living in the nearby city, and a local wealthy Chinese immigrant segment. After a year of operation the shops noticed that they had very few urban or Chinese customers. Hence business wasn’t very good. What happened? Only after doing interviews with their two main segments did the promoters discover the following. They had not considered road congestion in the time if took the urban consumers to reach the suburban mall. The cost in time, given only a few shops specifically addressed this segment’s needs was greater than the benefits derived from shopping in that mall. Interviews also allowed them to understand that the behaviour and preferences of the wealthy local Chinese segment were completely different than the ones from the data they had. They hadn’t picked up on the differences in the household composition of wealthy Chinese consumers (mostly families with children) in their segment vs. the one of wealthy Chinese consumers in their generic data (single men or couples).
The promoters lose rent revenues (tied to shop sales in the first two years) and possible mall expansion money by targeting too many segments and not understanding them well enough. They also left on the table all the money from the opportunities that specialising in building suburban malls in a multi-ethnic context could have brought them.
In-depth knowledge of your market segment entails collecting, interpreting and managing massive amounts of data. It is, however you look at it, a costly proposition. Ensuring that you get everything you can out of a strong market segment is not only the best way to recuperate your market research investment it’s also the road to a profitable company.