Subdividing kinds of market research

In product management, the core of any solution begins with an in-depth understanding of the needs and problems that your customers are facing that you think you can solve with a product offering from your company. Initial understandings of any problem can be very vague; in fact, if you’re emphatic early on that you know exactly what the problem is, you should look again.

Looking for the right place to start

When starting in on a market research project, know that you’ll be reading a lot of material both quantitative and qualitative in nature in printed material and on the web just to get a few nuggets that are of real interest. Think of it as panning for gold. Finding a few flakes of valuable gold is a cold and wet business, but without the flakes, you can’t continue your work, and no one will join you on your journey to find even more gold.

Spelling out the market research process

Whenever you have a question and decide that conducting market research is the right solution, keep in mind that following an established process will lead you to better results:

1. Decide on your research objective.

   What are you trying to achieve with the research — assess whether the company should develop a specific product line? Change the direction of an existing product in development? Simply validate that a new feature will meet customer requirements? Your objectives also determine the scope and cost of the investigation. Deciding on whether to enter a $300 million market opportunity justifies more effort and spending than prioritizing a few features for a $99 product.

2. Determine what questions you need to answer to satisfy your research objective.

   Write down an initial set of questions and discuss them with your colleagues and peers to get input. They may point out that the questions are very broad, or they are too specific and won’t allow for you to potentially uncover any additional valuable information.

   Here’s an example:

   • Too broad: What kinds of exercise equipment do you use to stay healthy?
   • Too narrow: Do you use legs weights to stay healthy?

3. Choose the best research technique(s).

   As a rule of thumb, you move from secondary qualitative research through to primary quantitative research as shown in Figure 6-2. In reality, you may go through one of these categories pretty quickly and then spend a lot of time getting your primary qualitative research right. (See Table 6-2 later in the chapter for a list of the most commonly used market research methods.)

4. Design your research study.

   Designing a good research study requires a lot of expertise. Use the options in Table 6-2 to determine what type of research you need to conduct. If possible work with someone who has done it before, such as a peer in your company, your internal market research department, or an outside vendor. It is easy to accidentally design a study that has a lot of bias, so be careful to scrutinize your design accordingly. If you can’t find anyone to help you design your study or to critique it for you and provide feedback, we recommend you find a book on the topic that covers it in an in-depth fashion.

   Asking the right questions is a critical part of getting good answers. The following section has more specifics on this topic.

5. Conduct research.

   Conducting research may take you as far as across the world or as close as a car ride to a nearby town. It is highly dependent on what type of research you have decided to conduct. Customer interviews may be held in person or on the phone. Focus groups may be held in multiple cities or conducted virtually. Customer councils often involve having customers fly in to your location.

6. Collect and analyze data.

   Qualitative data is basically listening to people answer your questions with few boundaries. Decide how you want to record this information. In person, avoid taking notes on a computer; the presence of a screen creates a barrier between you and the customer. If the customer agrees, recording the conversation is always an option. A good technique for taking notes while recording is to make a note of the recording time when the customer says something interesting.

7. Present findings to take advantage of new knowledge.

   Going through all the trouble of getting data to support a point of view isn’t going to do you any good if other parts of your organization don’t understand it. Use the tips in Chapter 17 to make sure your message is heard. A convincing presentation and/or written report should be short with lots of clear graphics. For presentations aim for 10 slides and no more than 20. Have someone with good graphic skills review your materials, and you should practice before any presentation.

Asking the right questions

Asking questions. It seems like such a simple thing to do, and then you ask a question and get a response that isn’t at all what you asked for. Now imagine trying to get answers to specific questions that will guide product development. Yes, it’s hard.

Here are some things to keep in mind as you formulate your questions:

• Consider how specific you should be. A good gauge is knowing how specific you need the answer to be. At the beginning of the process, the questions are generally qualitative and very broad. Open-ended questions that start with why, what, how, where, and when are a great way to go. Then shift to quantitative questions. Quantitative questions have more specifics than qualitative questions, as you are seeking to get hard data to use.
• Ask how important something is, not just whether a customer desires it. If you ask a customer whether she wants a feature, the answer is almost always yes. For example, if you’re evaluating two specific features, you may want to ask the following questions and place the responses in a table such as the one in Figure 6-3.
  • On a scale of one to five, how much do you like features one and two?

  • On a scale of one to five, how would you rate feature one’s and feature two’s importance?

    In this case, you’d develop feature two before feature one because 15 is greater than 5.

• Ask follow-up questions. In qualitative research, continue the conversation that the customer has started. The topics raised may not be on your list of questions, but this is the time to find every nook and cranny of opportunity.
• Avoid bias. If you ask questions with enthusiasm for your preferences, you are more likely to get biased answers. If you can’t avoid asking a question with bias, get someone else to ask the questions while you take notes with a poker face. This applies to both the question content as well as the inflection with which it is delivered.

No matter how great a product manager you are, always have someone look over your questions. What seems crystal clear to you often won’t always make sense to someone else.

Examining market research methods

Table 6-2 covers most of the popular methods of market research. When you start a larger project, work with a market research specialist, either inside or outside your company, who can advise you on which type of research method will work best to achieve your research objective. If you contact an outside organization, make sure that it doesn’t specialize in only one type of market research. Those companies will inevitably want you to use only their method.

Figure 6-4 gives an overview of market research methods. On the left are high-context methods, meaning that you need to conduct them in person and often onsite. High-context methods give you a broader understanding of the world that your potential customer lives and works in. You use these methods mostly in early stages of decisions to provide a background to further research. On the right are low-context methods, which are very arm’s length and impersonal without much background information. Low-context methods are great for getting quantitative results — the numbers.

Identifying competitors

Here are some common ways to discover your competition:

• Reading product reviews and comparisons gives you an idea of who your customers and industry pundits believe your competition to be.
• Your own salespeople are a great early warning on newcomers or changes in what your existing competitors offer. Offer a (small) reward when sales comes up with a new competitor or feature that you should know about.
• Industry analysts create periodic reports that compare your company to other companies.

In stable markets, focus only on the top two or three competitors. If you can beat these competitors, you should be able to easily beat the smaller ones. In emerging markets where what customers really value is less clear, you want to keep track of a few more competitors until the customer value picture becomes clearer.

Collecting all the competitive intelligence possible

For a true 360-degree view of your competition, your research will encompass the areas in the following sections.

All this information creates a map of potential competitive moves. You need to synthesize the key indicators. If you find this synthesis challenging, explain what you’ve found to a few colleagues to uncover the likely next moves of your competition. Present any significant issues to your manager and decide what the next steps will be.

Basics

Consider these bigger-picture issues:

• External performance: Are your competitor’s sales increasing or decreasing? How about their profits? How many people work there, and what is the revenue per person? The trick is to look for changes in numbers from last year to this year — and even the years before that. If the company you’re tracking isn’t public, search press releases for whatever information you can find. Check the company’s annual report if it’s public, funding announcements if it’s private, and press releases (all available online).
• Funding and spending: Are competitors spending more or less money on sales, marketing, and research than they did before? You can compare their spending to your company spending. Beware that your competitor’s company could be structured differently from yours, so investigate large differences between companies. For private companies, you can sometimes find more data on the website of the venture capitalists about this. For public companies, the notes in the annual report as well as some analysis of the profit and loss statements can give you clues (particularly if a company breaks its profits and expenses down for each type of business it’s in).
• Management: What is the range of skills found in competitors’ management? Do the managers lack certain expertise? How diverse is their membership? How well are they connected to key influencers in their industry? You can often find this information on the “About the company management” page on their website, in the LinkedIn profiles of their executives, and in interviews that may have conducted with their management team by magazines and online news sources.
• Attitude: Are competitors aggressive? Complacent? Do they like risk or profoundly avoid risk? Which quadrant are they in on the performance and organizational health scale shown in Figure 6-5? Gathering this information can be done by having conversations with your salespeople about what they have seen the competitor do, from former employees of the competitor and from articles written about it.

Product comparison

Most competitive analysis that product managers do is typically a side-by-side product comparison chart that compares only features. Remember to add in aspects of service, warranties, finance, service, and reliability that may add more strength to the competitive argument. Figure 6-6 is a great way to organize your thoughts in a way that educates your customers and internal audiences at the same time.

Porter’s five forces

In 1979, Michael Porter wrote “How Competitive Forces Shape Strategy” in the Harvard Business Review. His concepts, shown in Figure 6-7, are as valid today as they’ve been throughout history. Consider each of these aspects when evaluating your competitors and your market overall. To use Porter’s five forces, answer the following questions for your product or market:

• What is the bargaining power of your suppliers when they negotiate with you?

• What is the bargaining power of your buyers when they negotiate with you?

  The fewer or more specialized your suppliers and buyers, the more power they have in controlling negotiations and determining pricing that is less favorable to you.

• What about potential new companies and services coming into your market? Can these entrants compete easily, or is it difficult for them to compete with you?
• What about substitute products? What kind of products could replace your products in solving a customer need?
• How strong is rivalry in your industry? Are your competitors aggressive in taking business from you?

A couple of handy acronyms

PESTEL and SWOT. No, we haven’t forgotten to use spell-check. These concepts are two pieces of the competitive analysis puzzle.

PESTEL stands for political, economic, social, technological, environmental, and legal. PESTEL analysis is used to understand the overall context within which you do business and within which your product is evaluated. To complete a PESTEL analysis, answer the following questions. What is the overall social and business environment that you operate in? What is changing? What are key trends in each of these areas? How these stresses impact your competition isn’t always the same as the way they impact you. List each factor and examine your situation closely to see where opportunities and threats lie.

SWOT is an acronym for strengths, weaknesses, opportunities, and threats. The first two terms, strengths and weaknesses, refer to the state of the competitive company that you are conducting a SWOT analysis for. The second two terms, opportunities and threats, refer to external impacts on your competition, their markets, and their products. By doing a SWOT analysis for each main competitor you can get a more accurate view of who you are actually competing with and where they are strong and weak. This forms the basis of your own strategy for beating them in the marketplace. Use Figure 6-8 to understand how the different information in each quadrant interacts to give you a synthesis of

• Strategies the company can exploit to take advantage of opportunities
• Strategies the company must deal with to take advantage of opportunities
• Strategies the company can use to defend itself from threats
• Strategies the company must deal with to defend itself from threats

Keeping track of the competition

Competitors aren’t standing still. To make sure you keep on top of their moves, allocate regular time to competitive evaluation — monthly or quarterly, depending on the industry. Consider these suggestions:

• Create a weekly Google Alert for whenever the competition is mentioned (search Google for the term “Google Alert” to learn how to create alerts). For example, if your company sells smoke detectors, create an alert for the phrase smoke detector. Then every time this phrase is mentioned in the news or on a website, Google will send you an alert letting you know where and when it appeared.
• Check your competitor’s website monthly for any announcements or updates to its product. This time frame should be enough that you pick up significant changes. Make written notes about your findings that you can refer to later if needed.
• For publicly traded companies, listen in on the analyst call quarterly. Download and read through the latest financial report. What has changed? What issues has the company listed as risks?
• Call channel partners monthly or quarterly for a chat on how business is going, whether you’ve lost or gained competitive ground, and, if so, to whom and why.
• Plan a full-blown annual review to present to your management. Preparation for the review will force you to pick up any details that you’ve missed along the way with your weekly, monthly, and quarterly work.

One fantastic benefit of all this tracking work is that doing it in small pieces takes less effort than having to whip it up suddenly on an annual basis. And your organization will have full confidence in your thinking in other areas if you’re current on your competitive analysis.

Using a simple validation process

You have a product idea that you think may work for certain customers. That’s wonderful. You now have two choices:

• Spend a lot of money developing it before you talk to a customer at all.
• Spend virtually nothing by creating a product concept and then asking target customers what they think about it.

Remember that you may want to test out quite a few potential products and the associated hypothesis. The wise course of action is to take the second option and see what customers say first.

Here’s a simple and relatively fast validation process:

1. Create a hypothesis about a potential product.

   For example, “Customers who use digital forms want to fill them out online and have them automatically routed from one person on to another for signature.”

2. Create a list of target customers.

   In this example, the target customers might be multinational companies that sign forms across the country and possibly across the world; small digital media houses that need sign off on final artwork for various projects; and small companies that need forms signed as part of their workflow inside and outside the company.

3. Create certain artifacts to prove to customers that this product is real.

   The artifacts are a datasheet, a price list, a short presentation on the features and benefits of the product, and a demo done in Microsoft PowerPoint or Word. Note that you create no actual product, but you create enough of the product concept to present it to customers so they get a realistic idea of what would be offered.

4. Hold individual meetings with several people from each target customer group and see what they say.

   Is the target group interested in the product? Which features does each group deem critical? How are they solving the problem today?

When you have a list of each of the target groups that is interested in the product, you can go back and research how big that target market is and then create a rough, back-of-the-envelope estimate of how much potential revenue and profit you could generate. With actual customer feedback, you can proceed to more in-depth planning with more confidence.

An example of product validation

Zappos, the online shoe distribution company, tested its concept by making arrangements with actual shoe stores. Rather than building out a warehouse and distribution system first, Zappos tested the concept by putting pictures and prices of shoes online and then filled orders from a physical shoe store. In this way, it avoided upfront costs of a warehouse until it had validated its concept.