Sizing Markets for Offerings that Don’t Exist
Have you ever invested untold hours and dollars developing something that, unfortunately, the market didn’t want?
Perhaps the offering didn’t address customers’ needs well, or the market wasn’t as large as was believed. It’s not unusual for companies to nail a particular problem their customers have only to find out later that the market is too small to generate the kind of revenue they had hoped for.
Whether you run a startup, a small-business, or a Fortune 500 innovation program, it’s critical to understand what a market really is and how to size it in order to avoid this unnecessary waste of time and money. I huge part of creating growth strategies that work is picking the right markets to target.
Philip Kotler, the S.C. Johnson Distinguished Professor of International Marketing at the Kellogg School of Management and the author of the textbook Marketing Management (and many other books), defines a market as “the set of actual and potential buyers of a product.” Note that this is a product-based definition.
To size a market, for example, we have been taught to multiply the number of products sold by the unit price. Thus, to size the toothpaste market, we would multiply the number of tubes of toothpaste sold over the past year (let’s say 5 billion) times the average unit price (let’s say $2) to determine that the size of the market is $10 billion.
Looking ahead
If you’re trying to create something new, then this type of market definition is meaningless because there is no historical record of sales. This makes it very difficult to analyze a market, size it, or know if you’re picking the right market to target for growth.
The traditional definition of a market is fine for accounting purposes, but not for the purpose of innovation and growth strategy; it’s backwards-looking. For innovation, we need a forward-looking definition of markets.
To help overcome these problems, we define markets based on what tasks customers are trying to accomplish because people buy products and services to get jobs done. The jobs customers are executing define the market, not the products they use.
A better definition of a market for innovation is “a group of people who want to get the same job done.” By defining the market according to the job people want to get done, we can determine the size of the market for a future offering. We can also capture the customers’ needs in a format that is ideal for driving innovation and growth even when offerings don’t exist yet.
For example, many people want to whiten their teeth. But rather than talk about the toothpaste market, a better market definition is “people who want to whiten their teeth.” This defines the market in terms of the customers’ real need (the task they want to get done) rather than by any specific product or solution.
Products in certain categories don’t just compete with other products in that category. They compete with anything the customer uses or does to get the job done. So a focus on the customer job enables us to discover innovation opportunities that appeal to a broader set of potential customers – including non-customers – all who want to get the same job done.
Loyalty to getting the task done
It’s important to realize that products and services are just point-in-time solutions that come and go, while the job to be done (the underlying need) remains constant year after year. Usually, it’s not customer underlying needs that change rapidly, but the solutions and technologies that they use to get their needs met.
Solutions are constantly evolving and improving to help us accomplish the jobs we want to get done. Customers are loyal to getting their tasks done well, not to products or services. They will switch brands when a new product or service helps them get their job done better.
This forward-looking definition of a market enables us to size markets for something that doesn’t exist yet because it’s not tied to current solutions. An attractive market is one in which:
- There are many people executing the job frequently
- They are dissatisfied with current solutions
- They will pay handsomely to get the job done perfectly
If you can help customers get a job done better than current solutions, then you can be confident that customer will value your solution.
(A version of this article first appeared in Columbus Business First, September 23, 2011)
