2006 Q3 Critical Steps in Market Feasibility Studies
We are often approached by entrepreneurs that have a patent on a product or are considering building a facility for a specific purpose. In order to determine the feasibility of a product or service, the entrepreneur needs to assess the marketplace to determine the likelihood of success. Likewise, before outside investors will consider an investment opportunity, most want to have an independent assessment of the estimated demand for the product or service conducted by a qualified independent third party.
Once we understand the entrepreneurs’ objectives, we gauge interest in the product or service by surveying prospective customers. During this phase it is critical that a realistic assessment of the market potential is made. Typically, there are three critical components to the market feasibility analysis
- Demographics of prospective customers
- Feedback from prospective customers
- Competitive analysis
The demographics are typically available through various databases, several of which require subscriptions. For example, lifestyle databases exist for specific counties and zip codes throughout the U.S. Information about the demographic makeup of a specific county can be determined including household income, education levels, number of people in the household, home ownership percentage, hobbies and interests, interest in various sports, fitness and health activities, interest in high tech activities, etc. By developing a profile of your target market you can match those characteristics to specific market areas to assess potential demand.
Feedback from prospective users is usually done either by telephone or on line surveys. Occasionally, personal interviews are conducted, however, that can be very expensive. By asking the right questions without bias, the survey can provide a wealth of information that will provide insight regarding the marketability of the product or facility project. Feedback from potential customers usually includes information on pricing, frequency of use, etc.
One very important part of the feedback received from prospects, typically not gathered, is an open-ended question dealing with potential objections, obstacles or concerns preventing the use of the product or facility. Overcoming perceived objections BEFORE entering the market can eliminate unnecessary impediments to success. Understanding the needs of your target audience is useful in sending out the right message to prospects that appeals to their interests.
The third part of the feasibility study is the competitive analysis. Are there other competitors in your market area? Are competitors offering a similar product? Determining the strengths and weakness of competitors can be extremely useful in determining areas of vulnerability and provide insight on how you should position your product or service.
Once you have completed the market feasibility study you are left with a GO / NO GO decision. Often times the decision to move forward is an easy one based on sound knowledge and analysis of the marketplace. Armed with the market feasibility study you will be in a much better position to attract the investment capital needed to launch the product or service.