How smart businesses invest in product development market research now and reap the rewards later
How often do you ask friends or family for a referral to a plumber, electrician, gardener, whatever, so you can skip the part where they disappoint you and waste your time and money? There is a whole industry around matching you with the “right” contractor for your needs. Millennials use Yelp like the neighborhood in the past. Would you ever make an expensive decision without reading their reviews and speaking with referrals?
Then why would you send your new product or idea to the market without knowing if people would actually buy it? There are real costs associated with a new product or service: design, development, manufacturing, marketing, sales, support. Considering all this, it makes sense to pay it forward – spend some money at the beginning to validate hypotheses, refine your product, or set optimal pricing before you spend all that money on a product that might not be market ready yet or is not priced appropriately. Or, worst case, will not be adopted by your market in large enough quantities to make it a viable, profitable product or service.
Testing your hypotheses
You know your business, but there is always a measure of guessing when creating a new product or service. Will customers purchase it? What features are most important? What features need to be changed or added? How should I market it? What price should I charge? Does my new product warrant a premium, or will purchase likelihood drop off too far to increase the pricing?
The likelihood that you have made decisions that will resonate with current or prospective customers is higher if you are adding to your products or creating a line extension, but there are still decisions to be made that require validation. If you are expanding into a new industry or into a new product area, it’s even more important to test your hypotheses.
You can’t properly test your choices without asking current and prospective customers for their opinion. Challenge your assumptions – it’s the best way to keep from making an expensive, poor choice.
Don’t rely on anecdotal information
Many companies make expensive decisions based on the feedback of a few people. If you have an advisory council or you’ve heard from a few key customers, those are valuable pieces of information that could lead to hypotheses. Keep in mind, however, that you should be testing your hypotheses with larger audiences no matter where the hypotheses come from. Unless you only intend to market the product to this small group, you’ll need feedback from a representative audience to ensure you are doing the right thing.
For more established, larger businesses, this applies to anecdotes gathered by your sales staff. They want to make your customers happy – that’s their job – but the same rule applies. Feedback from a small group only applies to that small group. Integrate their feedback, create hypotheses, and test, test test!
Pricing is one of the most important features of a product
Pricing decisions can be difficult but is essential to explore. Making the wrong pricing decision is the difference between an “okay” product and one that excels. You don’t want to leave money on the table, and you don’t want to price yourself out of the market. Yet many companies make educated guesses when it comes to pricing by using their existing product as a starting point and add 15% – 25% for the “next” version.
How do you know if your new product is so much better it can command a higher price? Do your customers even want a “better” product that would command higher prices? Where is the dividing line that is most likely to drive purchase of a new entrant to the market? When can you increase the price when your product has gained traction?
Make the choice now to be a research-focused organization
The key is that this is not a one-off decision. Using this framework, customized for each product type or audience, throughout the product lifecycle is key to being properly informed. Testing your hypotheses among a representative group is key to limiting expensive product mistakes and maximizing your revenue. Companies that conduct proper market research are the most successful, minimize their risk stratification, and have the best reputations.
Brief Case Study: Professional Mobile App
I recently conducted a study for a professional in the healthcare industry. He has been a practicing entrepreneur in his field for some time and has a strong reputation as a practitioner. He noticed a gap in industry-specific software and created a framework for an idea that he thought would meet that need for himself and other professionals.
Because he was early in his development process and this would be a novel product, we created an interview guide, recruited professionals, and conducted telephone interviews that explored the features of the new app, gathered their candid feedback, and created a targeted report for his internal use. The end result: the app was well received by most, but a key professional segment expressed significant pushback, allowing my client to focus marketing on only one segment rather than focusing on everyone. We also learned that, of the 8 secondary features, 3 of them were not important enough to include in the Minimum Viable Product. Resources can be targeted at the top 5 features, leaving the others for discretionary resources or exclusion. Lastly, primary messages were identified that varied slightly from the main message of the app, creating marketing messages that will apply to the most people.
Product development research does not have to be prohibitively expensive
Market research firms, including my former employer, does not want me to mention this: these activities do not have to cost a lot of money. The ROI can be very high if you choose a freelancer or consultant with product development research experience. They need to be experienced in testing hypotheses and making sampling decisions to ensure you are focusing on the right audience.
A word about sampling: It makes sense to limit your respondents to main groups that are likely to be interested (for example, if you make men’s razors, by all means focus on men), but if you want to understand your maximum available audience you need to dedicate at least part of your sample to address other groups. Only then can you fully understand who will buy your product, and how to garner as much of the market as you can.
The things we’ve discussed today add up to understanding the product features that will drive purchase, finding the optimal price and identifying marketing messages that will resonate best with your audience. Knowing these things can save you TONS of money and make you a lot more from your successful product launch. Find a market research freelancer or consultant to help you get these answers. Good luck!
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Jeff Reynolds is principal of Reynolds Consulting LLC.