DeepDive — Secondary Market Research
Hopefully if you are reading this, it means that you have committed to this venture. If you made it to this point, you should have already done a significant amount of brainstorming and at the very least believe that there is a true problem that you are solving. If that is the case, and you have started to conduct real research, then this should be the second step, after researching the industry as a whole.
When doing this research it is a constant cycle and you will certainly need to stay informed as long as you want to be successful, but the approach for this will change with the life of the company. In the very early stages, it is best to go as broad as we can before zooming in. This means that you should have started with the entire industry, so you can confidently explain how it functions, the factors that affect it, and which markets it is made up of. That is what we are getting into now.
You cannot take on an entire industry, at least not in the beginning, and not in the U.S. (That is called a monopoly and it is supposed to be illegal). What you can do however, is take on a whole market within an industry. Even that is a very lofty and preposterous goal. Not only is that unrealistic, but it is also arrogant.
Instead, it is recommended that you break down the market into a specific area that would be reasonable to capture. This specific subset of the market is what we call a niche. Finding a niche market, highly increases the feasibility of the business. The more feasible, or reasonable it is to enter a market, the better. Now this doesn’t mean to narrow in on a market so small that you can easily come in and dominate. If that is the case, then it probably isn’t big enough, and will likely lack the opportunity needed to be profitable, or scalable.
There are many ways that you can start defining and breaking down the market in order to identify and understand the specific portion you plan to target. To keep things simple, we will focus on the main characteristics, or what we refer to as segments.
There is one segment that can be applied to every market, and that is the geographic segment. Geographic Segmentation is focused on the physical location that you plan to do business. This can be a number of things, but here are some if the most important to know:
- Location — Where it is on the map. Are you focusing on the whole globe or on one neighborhood?
- Population Density — how many people are in the area(s) that you are focusing on? You could be focusing on the entire nation of Liechtenstein with a population of less than 40,000 people, or you could be focusing on Lalbagh Thana, in Bangladesh with close to 170,000 people per square km. (Yes, I had to google both of those places).
- Environment — Is it urban or rural, a business mall or a sea port? What type of area it is, along with any other geographically relevant details. Such as languages spoken, climate, animals, anything unique to that place that can impact the business.
As you can see, we can quickly start to paint a picture of what the physical place(s) where you plan to conduct business look like, and therefore start to identify the people within that place. Which is the next big segmentation that you can research.
The next main segmentation that you can look at is the demographic segmentation. Demographic Segmentation focuses on the traits of the customers in the market. You probably want to start with the type of people that you think would be most likely to suffer from the problem you are solving. Then there are many ways to break up the population, such as:
- Gender
- Ethnicity
- Religion
- Age
- Income
- Education Level
- Family Style
Understanding which of these characteristics are relevant and narrowing down the market, as much as you can. Try not to be naive and think that your product/service is for everyone. Unless you are selling water (and even water has diverse market segments), there will be specific customers that will be your target customers.
Another common segmentation to dive into is psychographic segmentation. Psychographic Segmentation shows how the customer’s mind works, and what their tendencies are. It includes personality traits, patterns, how they make decisions and more. These characteristics are much harder to understand, but can be extremely valuable insights if you can accurately uncover them. You can identify their key personalities by deciding where you think they would lie on the CANOE spectrums:
- Conscientious: Disorganized and impulsive — or— organized and careful
- Agreeableness: Suspicious and uncooperative — or — trusting and helpful
- Neuroticism: Calm and confident — or — anxious and pessimistic
- Openness to Experiences: Routine and practical — or — imaginative and spontaneous
- Extrovertedness: Reserved and thoughtful — or — sociable and fun-seeking
Along with their personality, we can also understand things like their Values, their Opinions and Beliefs, their Interests and Lifestyles. These types of things will often show in their decisions and align with the types of purchases they make.
Also their Purchasing Patterns. Do they try to buy in bulk and less frequently? Do they buy these sorts of things on impulse, is it something they would need to research and compare before purchasing? What does it look like when they make similar purchases?
Lastly, their Buying Sensitivity. Would they stay loyal to the brand, do their decisions change with prices, or bad customer service? Would they stop buying if it was less convenient? How easily do they switch this type of product and what are the factors that impact their switch?
As you may have been thinking, some of these segmentation techniques don’t exactly apply to you if you are selling to businesses instead of directly to the consumer. If that is the case, there is a more relevant segmentation called firmographic segmentation. Firmographic Segmentation uncovers the traits and characteristics of the firms (businesses) that you plan to sell to. The details that you want to find out are:
- Industries — What industry/ies are they in? Most likely the same industry as you, but maybe not, or maybe others too. Are they in a certain sector of the industry?
- Business Structure — how those businesses are legally structured. Are they sole proprietors, or big corporations? Do they function as a nonprofit? Is it government run?
- Business Size — How many employees do they have? How many customers do they serve? Do they have multiple locations? How much revenue do they take in?
- Maturity Stage — How long have they been in business? Are they well established, or new to the market? How competitive are they?
- Innovative — Do they make efforts to come up with creative new ideas? Or do they stick to the old ways?
Regardless of who you are selling to (Consumers or Businesses), you should create a description of the customer persona when you have all of the information on the exact type of customers you think would be best suited to buy from you. A Customer Persona Description is done to exemplify your ideal customer. Exactly who they are and what they are like, so you can start to focus on people who match this description.
Finally, with all of the information you have gathered, you need to be able to show 3 critical numbers:
- Total Addressable Market (TAM) — The size of the entire market you are going after, this is usually the whole global opportunity, before you start to narrow it down by location.
- Serviceable Addressable Market (SAM) — How much of the market is your business going after? This is where you highlight the geographic areas that your business can actually service.
- Serviceable Obtainable Market (SOM) — What portion of the SAM can you realistically capture? There is going to be competition, and alternatives, so you have to determine which portion of the market you think you can convince to choose you.
Doing all of this research can be done by simply using the internet, and you will learn a tremendous amount of information in a relatively short time. That being said, all of this could be terribly wrong, you are just making assumptions here, and then you will be testing these assumptions in the next step, when you conduct the primary market research. So now that you have taken drivers ed, buckle up because researching is driving business. To get your permit, you need to do the Primary Market Research.
