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Understand Your Industry
Before you invest a lot of time and money to develop a new product, you need to understand the industry in which it’s going to be sold. As inventor of the PowerSki Jetboard, Bob Montgomery had the advantage of being quite familiar with the industry that he proposed to enter. With more than twenty years’ experience in the water-sports and personal-watercraft industry, he felt at home in this business environment. He knew who his potential customers were, and he knew who his competitors were. He had experience in marketing similar products, and he was familiar with industry regulations.
Most people don’t have the same head start as Montgomery. So, how does the average would-be businessperson learn about an industry? What should you want to know about it? Let’s tackle the first question first.
Before you can study an industry, you need to know what industry to study. An industryindustryGroup of businesses that compete with one another to market products that are the same or similar. is a group of related businesses: they do similar things and they compete with each other. In the footwear industry, for example, firms make footwear, sell it, or both. Players in the industry include Nike and Adidas, both of which specialize in athletic footwear; but the industry is also sprinkled with companies like Candies (which sells young women’s fashion footwear) and Florsheim (quality men’s dress shoes).
Let’s say that you want to know something about the footwear industry because your potential purple cow is a line of jogging shoes designed specifically for older people (those over sixty-five) who live in the Southeast. You’d certainly need a broad understanding of the footwear industry, but would general knowledge be enough? Wouldn’t you feel more comfortable about pursuing your idea if you could focus on a smaller segment of the industry—namely, the segment that specializes in products similar to the one you plan to sell? Here’s a method that will help you narrow your focus.[360]
Begin with the overall industry—in this case, the footwear industry. Within this industry, there are several groups of customers, each of which is a marketmarketGroup of buyers or potential buyers who share a common need that can be met by a certain product.. You’re interested in the consumer market—retail customers. But this, too, is a fairly broad market; it includes everybody who buys shoes at retail. Your next step, then, is to subdivide this market into smaller market segmentsmarket segmentGroup of potential customers with common characteristics that influence their buying decisions.—groups of potential customers with common characteristics that influence their buying decisions. You can use a variety of standard characteristics, including demographics (age, sex, income), geography (region, climate, city size), and psychographics (lifestyle, activities, interests). The segment you’re interested in consists of older people (a demographic variable) living in the Southeast (a geographic variable) who jog (a psychographic variable). Within this market segment, you might want to subdivide further and find a nichenicheNarrowly defined group of potential customers with a fairly specific set of needs.—an unmet need. Your niche might turn out to be providing high-quality jogging shoes to active adults living in retirement communities in Florida.
The goal of this process is to identify progressively narrower sectors of a given industry. You need to become familiar with the whole industry—not only with the footwear industry but also with the retail market for jogging shoes designed for older people. You also need to understand your niche market, which consists of older people who live active lives in Florida.
Now that we know something about the process of focusing in on an industry, let’s look at another example. Suppose that your product idea is offering dedicated cruises for college students. You’d begin by looking at the recreational-activities industry. Your market would be people who travel for leisure, and within that market, you’d focus on the market segment consisting of people who take cruises. Your niche would be college students who want to take cruises.
Now that you’ve identified your industry and its various sectors, you’re ready to consider such questions as the following:[361]
Is the industry growing or contracting? Are sales revenues increasing or decreasing?
Who are your major competitors? How does your product differ from those of your competitors?
What opportunities exist in the industry? What threats?
Has the industry undergone recent changes? Where is it headed?
How important is technology to the industry? Has it brought about changes?
Is the industry mature, or are new companies successfully entering it?
Do companies in the industry make reasonable profits?
Where do you find answers to questions such as these? A good place to start is by studying your competitors: Who are their customers? What products do they sell? How do they price their products? How do they market them? How do they treat their customers? Do they seem to be operating successfully? Observe their operations and buy their goods and services. Search for published information on your competitors and the industry. For example, there’s a great deal of information about companies on the Internet, particularly in company Web sites. The Internet is also a good source of industry information. Look for the site posted by the industry trade association. Find out whether it publishes a magazine or other materials. Talk with people in the industry—business owners, managers, suppliers; these people are usually experts. And talk with customers. What do they like or dislike about the products that are currently available? What benefits are they looking for? What benefits are they getting?
Key Takeaways
Before developing a new product, you need to understand the industry in which it will be sold.
An industry is a group of related businesses that do similar things and compete with each other.
To research an industry, you begin by studying the overall industry and then progressively narrow your search by looking at smaller sectors of the industry, including markets (or groups of customers) and market segments (smaller groups of customers with common characteristics that influence their buying decisions).
Within a market segment, you might want to subdivide further to isolate a niche, or unmet need.
