If you build it, will they come?
If you build it, will they come?
How to figure out if your big idea will be profitable
Had any good moneymaking ideas lately? Planning to offer one through your private duty home care agency? Well, shield yourself from nasty surprises before you take that step by doing your research — market research, that is.
Market research is too costly, you say? Not doing this necessary product-introduction step can cost you big bucks. You may think your idea is the neatest thing since sliced bread, but unless you test it beforehand you could be in for a big disappointment and probably some financial loss, as well.
What do you need to know?
You can find a way to query your market without mortgaging the farm. Robert Agoglia, vice president and partner of Northampton, MA-based Fazzi Associates, a management consulting firm that focuses on providing services to the health care and human services market, has some suggestions. With a solid background in quality measurement services, marketing studies, planning, and focus groups, he has found some ways to cut costs while getting the information you need.
"When you own a private duty home care agency and are considering fee-for-service diversification," says Agoglia, "you must first know who makes up your target market. What are its demographics, its lifestyle trends? Does it have high socioeconomic status? You’ve got to first know who your potential buyers are, then go out and ask them if they want to buy what you want to offer."
There are ways of doing this market research that are neither onerous nor overly expensive. Agoglia cites some good sources of information that are free. "If you’re looking for demographic data, you can go to local, state, and federal trade associations, chambers of commerce, banks, city or regional planning agencies. Try the Small Business Association."
Know your market
Agoglia says an excellent source is the government printing office. One report he says is of particular value is County Business Patterns, which includes data on employment payrolls, number of businesses, and employees by class. Another is the County and City Data Book, which includes information on housing, population, income, and health.
"Let’s say you’re targeting a service at the population of 60 years of age and over with an income level above $30,000," Agoglia says. "You could use these publications to find out a bit about that potential market for the new service you’re considering. Then, when you’ve looked at the potential market, you need to communicate about what you want to sell."
To get a good handle on your communications, Agoglia advises analyzing what is different about your proposed private duty offering. "Look at what you think makes you different from the next guy," he says. "What’s unique about your idea? We suggest describing it in a way that helps your market positioning. It’s also very important to know who your competitors are and what they’re offering, because you want to describe your services as unique, different, or better than theirs."
Agoglia says all market-successful ideas have some basic shared components:
• Quality: You’ve got to do it better than your competitors.
• Promotion: You have to reach people and motivate them to purchase your services.
• Pricing: Do it cheaper or provide better value.
• Access: Make your services easy to get.
"How your business idea is different needs to be expressed very concisely. You can use that description when you’re asking people about your service during your market research phase, then use it again in your idea’s promotional phase."
Test your potential buyers
OK, you’ve defined what your service idea is. You’ve done your best to understand what’s out there, who’s offering that service now, and who the potential buyers for that service are. You’ve positioned your service so that it stands out as different, unique, and better than what is already available in quality, price, and access.
"Now, you need to test this idea on the potential buyer," says Agoglia. "What we try to make sure folks understand is that they need to choose how they’re going to do this very carefully. One example we use in teaching how to choosing a test market is pollsters who are trying to project how people are going to vote. They don’t question the entire population. They don’t question everyone who is old enough to vote because not all of them are registered. They don’t even just question all the registered voters because fewer than half of all registered voters show up at the polls on Election Day."
So, whom do they question? "They question the people who actually voted in the last election," Agoglia answers. "And when we’re looking at our potential buyers in market research, we really need to follow the political pollsters’ example and hone our target group just that closely."
Focus groups may be the ticket
Agoglia points out that there are many ways to do market research, not all of which involve a big financial outlay. Focus group research is a good example of a cost-effective research technique with good feedback
"Focus groups are often used on a preliminary basis because they help to sharpen a quantitative research approach, but they can also be used as an end in themselves. They’re a very popular and relatively inexpensive way to get the answers you need," he says.
Focus groups are a really good way of getting some feedback on your ideas quickly. They can be expensive or inexpensive to run, depending on the facilitator and equipment services you choose. For a focus group, Agoglia suggests that you recruit 10 to 15 people from the potential buyer group and hope that eight to 12 of them attend. "Offer some kind of little thank-you gift for people for taking the time to answer your questions and give you their opinions," he says. "A focus group is really a group interview. Get people warmed up a bit at the beginning so they get used to talking with each other."
Then, he says, you want to get them to talk about your proposed services. "For example, you could be thinking about offering rate packages for selected services. You need to get reactions to every part of that, beginning with the name you want to give it."
Agoglia says that most focus group sessions are recorded on audiotape, sometimes on video. "If you’re really pulling out the stops," he says, "you can observe the focus group from behind a one-way mirror. If you’re using high-priced professionals, you can actually be talking into the facilitator’s ear, asking for more specifics on a particular segment."
Work with what you’ve got
Another money-saving technique Agoglia recommends is harvesting the customers you already have. "Don’t neglect to use your internal resources for market research," he counsels. "Let’s say you’re running a private pay home care agency now and are considering expanding it to include grocery shopping for your clients. You already have some data in your own business files about potential users for your new shopping service. You could use your staff as pollsters. Have them question your clients in the course of their caregiving duties."
He points out that when thinking about your potential market you need to analyze everyone who might make the buying decision. "Grocery shopping is already here and it’s going to get bigger. We think about that now for the very busy professionals who work long hours and are trying to balance all their family’s needs, but it’s also an issue for the older population. One target market I think of for such a service is grown children who order the service for their parents. Mom and Dad may not be able to get out and do their shopping anymore, so I’m doing it for them. But what if somebody came to me and offered to do it for me? The end-user is the parent, but a key decision maker in that buy is a family member."
Field testing is another time-tested market research method. In a field test strategy, Agoglia explains, you actually provide the service to a limited number of people at a discounted cost. In exchange, those people provide you with feedback. They become a sort of partner in helping you refine your idea. After this, you can go forward with some modifications based on the feedback you get or you can decide not to proceed at all. You can use your own clients for this, too. In addition to offering them the service for a limited time at a discount, you can also offer them the right to continue at a smaller discount for a longer period of time in exchange for participation.
"Their part of the deal is talking to you, spending time giving you feedback," Agoglia says. "Field testing is an especially good strategy if what you are offering is complex."
Fine-tuning your research
According to Agoglia, informal quantitative research is a good tool for companies that lack big market research budgets. "You develop a quantitative survey about your service, again looking for feedback on likelihood of use, pricing, etc.," he says. "You’re asking the same questions as you would in a focus group, but now they’re in a survey that will give you a much larger market sample and you can quantify the results."
He advises using as many close-ended questions as possible, ones people can answer with a "yes" or "no," or ones in which they have to choose one of several responses you’ve provided. "Close-ended questions are more readily quantifiable than open-ended ones, and many times people aren’t as willing to participate in a survey they have to spend time and think about answering an open-ended question."
A quantitative survey requires field testing prior to using it on the entire market sample you want to query. "We suggest upwards of 25 people," Agoglia says. "You want to know if the questions are clear, if people understand them, and if are they redundant. You need to be sure your survey is user-friendly. Then decide on your sample survey. The size of your sample affects both your cost and your margin for error. A smaller sample means a lower cost and a larger potential for error. If your proposed service includes risking capital, you’ll probably want to go a little bigger so you get a smaller error rate. With 100 to 300 completed surveys, your findings might have a 5% error rate."
The other factor to consider when conducting surveys is administration. Are you going to mail your survey to your chosen respondents? "If so," says Agoglia, "you can expect a very low return rate."
Taking your survey by phone or in person at malls are other options. Agoglia cautions that the market sample used with surveys needs to be random within the group of target users. "No matter what technique you use, use random sampling or you’ll get really biased results."
Why you may want to go formal
Finally, you can choose to test your market using formal quantitative research. This involves hiring a research firm to conduct a professionally developed survey, though you can use your own people to administer it. "If you really want to go all the way, you hire a market research firm to work with you and do the sampling," Agoglia says. "It’s the most expensive method, but it gives you the most confidence in the findings."
And it may pay for itself in the long run. "If you’re putting together a business plan to take to your bank, you may choose to have formal market research behind you, because your banker will give it more credence than research conducted less formally. You can limit your costs, even here," Agoglia says. "You can hire professional consultants to help define what you’re trying to do, to develop your survey, and to help you choose the random sample and the right sample size. Then, you can use your own staff to actually perform the research."
The bottom line, Agoglia says, is that if you’re going to expand your business offerings, you’ve got some market research choices to make. One is, "Hey, I got this great idea. I think in our community, people really would love it if we offered to pick up their cleaning, so let’s just do it," he says. "Another approach says, Hmm, interesting idea. Let’s find out who the potential buyers of such a service are, and what do they think of it.’ If your idea is very low risk, maybe you can go with the first approach. But if you’re looking at putting some capital out there, then you do need a business plan, and part of that plan is understanding your market so that you can make the best possible choices."
• Robert Agoglia, Partner/Vice President, Fazzi Associates, 243 King St., Northampton, MA 01060. Telephone: (413) 584-5300. Fax: (413) 584-0220. Web site: www.fazzi.com.
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