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Discovery

One of the important questions that starts a market discovery is, “How big is your market?” Market discovery is a continuous process. As customers change, markets change, and as new markets in the global world enter your vision, you have to reevaluate the size of the market.

Market size and growth are key elements to determining your company’s investment strategy. Although some markets might be ready for rapid growth, they might also start from a small base of interest. Growing that market can require a significant investment in awareness activities to help build the market overall and the presence in the market. Be prepared for competitors who enter the market as well; they will attempt to capitalize on your market development efforts. Determining the best time to enter a market is a critical decision for success. Even with the new 2.0 world, this is required to target your markets correctly.

How do you get the insight you need for these market dynamics? As shown in Table 1.1, depending on the maturity of the market—Nascent, Emerging, or Established—the methods will vary. For instance, if you are in a mature market, there are usually several industry reports on size and growth trends. However, if it is a beginning or Nascent market, you have to be more creative in your sizing and look at things like comparable market segments and your prospect base. In analyzing growth, you might need to look at other substitute products.

Table 1.1. Estimating Market Size and Growth

Market Size

Suggestions

Comparable market segments

Nascent

Prospect base

Pricing models for substitute products

Average transaction sizes

Emerging

Size of customer segments

Adoption rates

Comparison with complementary markets

Vendor revenues

Established/Mature

Analyst reports

Customer spend data

Equally important is the capability of the market to warrant sustained investment. By evaluating market size and market growth, you can access the factors that determine overall attractiveness. Before entering any new marketplace, always size the market, growth, and concentration of competitors in the space. Also important is studying the industry concentration and profitability. Markets are not good opportunities just because they are big. Some large, mature markets have one or two strong competitors with the overwhelming majority of the market share. For instance, in computer chips, Intel® and AMD are formidable competitors. Although these markets might appear attractive due to their shear size, it is critical to figure out how to establish a niche to enable future growth instead of going directly after a behemoth.

In addition, the profitability of an area is important to note. For instance, what are the typical margins for someone in the business? If they are low, and you do not have a new business model, it is better to reevaluate the opportunity. In some developing countries, to enter, you need to invest in the national interest or in its partner ecosystem. The cost might be prohibitive to your business model.

Now, why does this matter in a global, local world? There are many factors that go into deciding where to focus. Size and growth are factors, but others depend on local competitors and government stabilities as you investigate the BRIC countries (Brazil, Russia, India, and China).

The analysis in Figure 1.2 is always part of my decision making.

Figure 1.2

Figure 1.2 Critical elements for sizing a new or current market.

Insight is not just about size and opportunity but about people. Whether you are in business to consumer (B2C) or business to business (B2B), you are marketing to customers—people. Customers around the world are changing, and new customers are coming into play. Purchasing power is increasing in rapidly developing economies, and prosperity is increasing in Western economies. China and India will add one billion customers to the global economy in 5–10 years (new economy), and retiring baby boomers will spend their accumulated wealth and will pass it on to the “inherited” generation X (old economy). In addition, with the speed at which the world is changing, to not get left behind, you must look ahead. This means to do this analysis successfully, a combination of traditional and Marketing 2.0 techniques are required.

The Traditional Methodology

Traditional research is still valuable today. Use of traditional market research methods (such as quantitative survey research) or qualitative methods (such as direct observation, ethnography, focus groups, and others) helps you to make better decisions based on facts, opinions, and perceptions from the market place. How do you leverage traditional methodologies? You start by engaging a traditional market research firm to identify customer needs, wants, requirements, expectations, and perceptions to ascertain your most attractive market segments. Depending on the nature of your business, this is done with a representative sample from either the market segments that you already know exist or from a global, national, or regional sample of buyers and influencers.

For example, a research engagement typically begins with a qualitative research to determine key issues from a market perspective and to establish clear terminology for a quantitative survey instrument. To accomplish this task, a firm conducts a few focus groups. Alternatively, if for an advanced understanding of latent needs; ethnography can also be considered. In an ethnographic study, one person, or a small group of people, is observed interacting with the environment.

Peter Kowalski, director of Research Strategy at KDPaine & Partners (located in New Hampshire), explains it as, “...so, for example, if your company was a grocery store, and your goal was to determine how people are shopping for groceries, we would start with one or two people. We would go over to their house. We would have them walk us around their kitchen, show us their grocery list, and then we would go to the grocery store and follow them around. To understand how they interact, we would ask them some different questions while they’re making different decisions and observe them in their kind of native environment. That sounds a lot more like anthropology than business, but it has its application because definitely people are more comfortable in their environment and we can see how they’re interacting with different people, different things, and where they are making certain decisions.” This is a 2.0 trend within the traditional methodology. Not just asking customers what they think but observing what they do. This is a critical insight in the new world.

Research findings are then used to evaluate your company’s current understanding of its target market segments. A gap analysis, done by your company or the market research company would ensue. This step is valuable because it can show you major types of gaps in your customer insight. The gaps include

  • Gaps in what your customer says they want and what they express would be ideal given their current workplace situation and what they would be willing to purchase. For example, at IBM, we did a research project where more than 80 percent of customers said they wanted a function, but when we delivered it, purchases were low. We missed the key question: “Would you be willing to pay for it?”
  • Gaps between what your product and company offer and what your consumers want. This one is straightforward.
  • Gaps in terms of what your customers or potential customers think about your company from a brand-equity perspective—reputation, image, and value—and customers’ willingness to do business with your firm. These intangible attributes are important because they underpin most tangible decision drivers in a purchase situation.

An end-to-end example is the one we did for IBM’s service oriented architecture (SOA) movie, a tactic to get our message out to the market in a fun way. (See Figure 1.3.)

Figure 1.3

Figure 1.3 SOA movie example.

In this example, we identified our own market segment and did focus groups with key customers to share our first movie production. Then we did mini ethnographies, where we watched people go to our “theater” (which was a room in a hotel!), and how they decided to go to a movie and why. Then we did a small survey of one segment (loyal customers) and some further research to determine how that segment behaves. We tested movie trailers to precisely determine what this segment likes and dislikes and observed how they responded and their reactions—not just asked them about them. This enabled us to review the responses and the surveys to precisely determine how the segment would respond in terms of numbers and research. This approach doesn’t have to be expensive. We used our own existing brand user groups and client board of advisors.

If you take the traditional approach and supplement it with some of the emerging research methodologies that leverage social media, you can further refine your research. The human mind is a complicated animal. As Michael Sagalyn, manager of IBM Market Intelligence, explains, “So, to be able to say that all of these things—both traditional and new methods—yielded the same or close to the same result, that becomes compelling in terms of making a business decision, especially if it’s a large business decision.” In other words, when old and new methods yield the same results, your level of confidence in the data rises.

What’s the timeframe for a qualitative ethnographic research to be completed? You can do a Web-based quantitative national survey in an afternoon or dive deeper in a matter of months. Thus, a typical survey utilizing both qualitative and quantitative methods to identify and validate a market segmentation takes about four to five months. Adding an ethnography takes longer (an additional two or three months) because you actually have to use highly trained surveyors for that methodology. It can always be done in less time with more researchers and more budget.

In summary, we are witnessing an inflection point in the evolution of market research. In my talks with Brad Bortner, a principal analyst at Forrester, observed that when new technologies drive change in how we conduct research, conventional wisdom about “what works” is often set aside. “The transition to using social media as a resource for market research is the third of the major changes to have hit the market research industry,” Brad says. He goes on to explain that “...in the ‘70s, it was the move from face-to-face interviewing to the phone. The feeling at the time was that the phone would never replace the face-to-face experience. And then it happened again in the ‘90s with the advent of online panels and with the concomitant concern about sample quality. Now, almost 50 percent of surveys use online panels. Qualitative research had not been affected much by previous major changes in the industry until now.”

New Trends in Research

  • Web 2.0 has transformed market research, giving companies access to the voice of their customer in a way never before possible.
  • Diane Hessan, CEO, Communispace

Let’s discuss ways to augment traditional research through a couple of gold mines for this new research:

  • Online communities
  • Online reviews
  • Blogs

Online Communities for Insight

In my conversation with Diane Hessan, CEO of Communispace, she neatly sums up the potential of online communities to directly impact your business—often in real time. “Online communities eliminate the need to find new customers each time you have a set of new questions that require you to set up discrete research projects,” she explains. “They have fundamentally changed the way companies listen to their customers. These communities can be run like a utility—when you come to work in the morning, you turn on the heat, the lights, and the voice of the customer. It’s always there for you, whenever you need it.”

The development of online communities have afforded us an opportunity to observe people interacting with one another, expressing their own opinions, forming relationships, and breaking relationships. These relationships are with other consumers, with just friends, and with companies, products, or logos. People today form relationships with anything. We can now directly observe this within the rules of online communities. It is not exactly the same as the real world because if someone asks you to be his friend on Facebook, you are more likely to agree than if someone in the real world said, “Can I call you my friend?”

As Diane Hessan explains it, “Setting up online communities for customer insight does not have to be a daunting exercise. There are firms that specialize in that work. One of the reasons clients outsource to set up and manage the communities is that clients are swamped and don’t have the time to pay attention to it. We recruit based on criteria established by client companies. Our B2B clients typically have names of customers from which to recruit, but in 70 percent of situations, clients don’t have the names. Hence there is a fairly structured recruitment process to get customers into the community and to keep them participating. We keep the communities small and intimate. This ensures that members’ voices are really heard.”

So, we can leverage these online communities—how the constituents express their opinions and how they behave. We can also now observe how they form interconnected relationships. For example, did you post it to your MySpace page, did you put something on your blog, or did you link to a particular person? Research teams can now observe these actions, and they can analyze all of the text, speech, and video interactions. Pete Blackshaw, executive vice president of Nielsen Online Digital Strategic Services, conveys the importance of conducting market research through the multiple forms of online expression: “The migration from consumer expression from text to multimedia has enormous anthropological value; customers are bringing front and center their behavior in full rich media right to our laps. The Web is becoming an unprecedented looking glass into human behavior.”

Supplementing in-person focus groups and ethnographies, a great research company can analyze the data and determine what the “customers” think. With the nature of the online community to express their own opinions, what research is able to do is to absorb conversation that previously was held behind closed doors or at the proverbial water cooler. It also avoids issues of potential biases in traditional research, as respondents sometimes provide answers they believe their interviewer prefers. “Observations in online communities have this added benefit where we aren’t concerned that someone might be changing their behavior because they feel they are being watched,” said Peter Kowalski of KDPaine & Partners. “But there are privacy concerns. We strongly believe that each of our clients who work with us to gain insight from social media-based research programs should have a clear privacy policy that lists appropriate and inappropriate research methods and uses so that we can be sure stakeholders are heard when they want to be. As an example, in the offline world, it is a great practice to attend town hall meetings and take note of concerns that might affect your organization, but it would be frowned upon to use microphones to listen to conversations that people are having in their living rooms. The same goes with online.”

With the advent of all of this content that’s constantly updated 24x7 online, we can segment online communities and use traditional and online observations to triangulate each other. If you know your market segment, you can find those same market segments online and see precisely what they save about your company and what recommendations they might make. For instance, on one of the online communities for the IBM WebSphere product line, we found information about what would make our product better than another product, and structured review sites helped us understand precisely how to make better products. Even for new segments, such as Web 2.0 products that IBM sells, we leveraged the online community to determine when and if a product would result from something we called Project Zero.

These overheard conversations are just as compelling as having a focus group. I love to learn from reviews where my customers say, “This product is great except for this.” It provides me insight and a way to have constant analysis without potential bias that’s being brought in by the researchers, not to mention the opinions of introverts who don’t openly express their opinions and leave them open for public interpretation. People are more truthful when they are in those communities than when they are face-to-face with a researcher whose presence is going to impact what that person says that brings about validity concerns.

Online communities enable you to find and interact with that “smart consumer,” the one who is progressive about technology use while still being pragmatic. (An equivalent to this is the market research firm that identifies style and trend setters in major cities, such as the kid in Tokyo who is the first to hang charms on his cell phone or the girl on the lower east side who is the first to bring Puma sneakers back.) One of the keys to market research is finding that progressive consumer so that your vision is not watered down by the masses. This is aspiration versus status quo reflection, and online communities can assist in this area.

Last but not least, community-based research can be an efficient. As Brad Bortner of Forrester writes, “Online communities for research have a short ROI. One traditional focus group can cost $8,000 to $15,000. A five-to-eight city qualitative project can cost upward of $100,000. If you replace only three physical world qualitative projects with your online community, it has paid for itself.” Bortner reaffirms such efficiencies: “Putting much of your qualitative research into that community has a large capacity. You could be running five or six activities in the one community. Essentially, utilizing online communities for market research changes the whole economics, whereby you are moving qualitative research variable costs into a fixed cost asset.”

Blogs for Insight

Blogs are similar to online communities. Tracking and understanding what influential bloggers are writing is invaluable, but you first have to know which ones matter to your business and which ones have the biggest set of followers.

Pete Blackshaw, executive vice president of Nielsen Online Digital Strategic Services, describes how to get started in monitoring blogs: “The best way to start out to do that is to do blog searches using key terms that define your market. These can be the same terms that are used for search marketing in your organization. After you’ve done that, you can start identifying the blogs that are the dominant ones by using one of the search engines (for example, Google or Technorati). You can review the people who pop up; then, after you have the feel for that, you have to measure the conversation. Measuring conversation is more sophisticated, and unless you have in-house capabilities, you should engage with a vendor who has the text-mining tools to do that. After you have ascertained where people are talking about your brand, start to engage in a conversation with them and begin to track your impact. Is the buzz or sentiment about your brand changing? Is it more positive than negative? We try to comprehensively look at all the social media that would matter to our set of clients. We monitor the gist of the conversation of the zeitgeists of their industries or of a product area. We pull out the concepts they are talking about and watch as the concepts shift over time.”

In addition, your own blog can provide insight. I have one of the top blogs at IBM on SOA. I receive comments from customers asking questions about products or offerings, and it provides me insight on what is working and where people are going for information.

Blackshaw gave a great example from one of the companies he works with: “Our client had undergone a major brand shift. They had changed the nature of their business in a very substantial way. They had engaged us to track in print media and in blogs how they are being described (again, a combination of new and old media). So, company XYZ wanted to keep track of how that brand shift was taking place, and what we found was actually that the brand shift took place a lot faster in traditional media because the journalists were referencing corporate materials and were in contact with corporate public relations professionals. They were able to say, ‘Okay, this is what the company is calling itself now.’ But, what we observed in the blogosphere was much slower and that they were a little more skeptical about the new positioning of the company. So, in terms of an actionable result, for them, it showed that although XYZ did a great job communicating to the traditional media, they didn’t reach all the critical influencers to completely move the needle on their brand position. It took a lot longer in terms of actual people who are engaged with the company on a consumer level.”

Our advice is to start with the basics—are you being referenced by blogs? Twitter feeds? Are you relevant to the discussion? Are you more relevant today than before? Are you conversational? Then start to drill down—are they making positive or negative comments? This is important because a small volume of negative comments can sneak into other media that might influence consumer opinion. How are these opinions trending?

Some consumers are more important than others. Learning to focus on this community, which communities to place your time with and how to interpret the information, takes time to learn, but it is worth the effort. According to Tim Wolters, CTO of Collective Intellect, “An automaker wanted to test a campaign for one of its vehicles. They conducted a test marketing campaign aimed at the online gaming demographic. They informally produced a video showing the vehicle with the context of a popular online multiplayer game. We first identified the top 50 bloggers and sources of YouTube gaming videos. Our client chose to promote its vehicles in a game to the top 20 bloggers—and YouTube videographers. Twelve of the 20 wrote about the automakers campaign, which in drove three million views of the placement in just a few days. This was so successful that the automaker ran a campaign based on this approach during a major sporting event.” Collective intelligence is part of a trend toward comprehensive monitoring of brand performance on the Web; the firm conducts real-time text mining and presents its findings through a dynamic dashboard.

Online Product Reviews

In terms of reviews, what’s most compelling is what aspects of products are discussed. One needs to determine what is negatively or positively discussed, and whether this is something that will stop customers from making a purchase decision. As Blackshaw points out, “So, what we found there in terms of a predictor for sales and in terms of what has a really good relationship with sales is that reviews, especially reviews on the structured review sites, have a good relationship in terms of [deciding] if it eventually becomes the popular product.”

For example, the insight and discovery of our online products reviews (see Figure 1.4) for WebSphere are invaluable in our requirements process. In this example, the areas of positives and the areas of concerns provide us with a new form of listening.

Figure 1.4

Figure 1.4 WebSphere product reviews.

The conclusion here is that traditional forms of research are not going away, but marketers’ jobs are now harder because they cannot control the user-generated content prevalent on the Web. Therefore, they must evaluate and triangulate all the market insight provided from both types of information. That is, marketers correlate online and offline data to see if these data mutually confirm a point of view on the market.

Matt Collins, vice president of Software Group Market Intelligence at IBM, has seen the value of social computing in his work. He says, “To adequately support the market intelligence requirements of business, it’s essential that we leverage the dynamic, accessible wisdom that the social computing environment can provide. If we use the Internet to monitor the ‘heartbeat’ of our clients and prospects, companies can more closely match the responsiveness of smaller competitors while retaining our advantages of scale. Not leveraging this medium would be like tying one hand behind our back.”

This is very similar to what we used to do in the old world. We’d have someone clip all the press reports and news happening to try to decipher market trends. Now this is much easier, but need to be managed by watching and learning each day.

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