How to Define a Potential Market for a New Product
Many entrepreneurs have difficulty estimating the size of the potential market for a new product they are preparing to introduce. They may define their market too narrowly and miss out on a potentially large customer segment. They may also overestimate the market because they don't do adequate market research -- talking to potential customers to find out whether they really need the product and are willing to spend money on it.
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Instructions
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Assess the benefits the product provides. Products provide a substantial number of different benefits. They save consumers time, money, help them be more organized, help them have fun or enjoy life more, improve their health -- and many other benefits. List all of the benefits that apply to your product.
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Determine who needs your product -- the customers who are seeking the benefits the product provides. This is your market in the broadest sense. For a manufacturer of a new home exercise device, the absolute total market would be everyone who wants to lose weight or get in better shape. A starting point would be to obtain industry data about how many exercise products were purchased nationally in the previous year.
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Define the target markets for your marketing program -- those groups of customers who are most likely to purchase your product. Defining these groups -- also called market segmentation -- means classifying them by demographic factors such as age, location, income level, education level and ethnicity. An exercise product designed to improve athletic performance and endurance would likely to be purchased by younger rather than older consumers for example.
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Take into account the price point of your product. A manufacturer of relatively expensive game-improvement golf clubs would be incorrect to assume that all golfers want to improve their golf scores and are therefore part of the total market. Not all golfers have the financial ability to afford the higher end golf equipment.
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Consider your marketing resources. Your company may not have the financial resources and distribution channels in place to market your product nationally. Put together a marketing budget that presents a realistic picture of your capabilities and allocate the available resources to your most important target markets. If you can't reach a certain portion of the total market, don't include that in your estimate of the potential market.
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Project the growth of your most important target markets. You may find that one or more of your targeted market segments are projected to grow much more quickly than the others. The fast-growing segments offer a better opportunity because you can target new customers rather than having to draw customers away from your competitors. Finalize your estimated total market by adding together the total number of potential customers in the most important target groups that fit within your marketing budget.
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Tips & Warnings
If you are considering selling your product internationally in countries such as Mexico because of the large population of consumers, make sure you study the market carefully before you plunge in. Not all products are equally popular in all countries. You need to understand how to tailor your marketing message to the culture of that country. Shipping costs may impact your profit margins.
It is critical that your projected customer base shares your enthusiasm for your new product. Think like a shopper, a consumer doing her household budget. How high a priority for her would your product be? If the benefits your product offers to customers aren't strong enough to elevate the product to the category of "must have" from the consumer's point of view, it may not succeed in the marketplace.
