Pick your target

In my last blog I identified 4 factors which are critical for the success of any innovation project. This week, I’m going to look in more detail at the first of those – picking your target.

If your new product or service idea is going to succeed, it has to be a more appealing proposition than the alternatives your customer might buy. Your marketing challenge is therefore to create a product or service that answers your customers’ needs better than the competitors. This is complex and interesting because peoples’ needs are not all the same. For instance in mobile phones, much of the market wants a simple device that can make calls, surf the internet, take photos and connect with social media. Android devices can do this cost effectively, and consequently have 83% of the market . Nonetheless, Iphone retain 15% of the market, despite a large price premium. Iphone succeeds in appealing to its segment of the market because it appeals to consumers who want a combination of style, convenience, and ‘aspirational creativity’. I’ve yet to figure out how Imovie or garageband work on my iphone 6s, but I’m flattered that they’ve given me the opportunity to create songs and movies as I’m roaming the high street.  

This demonstrates how you can define your target customer by identifying both their functional and emotional needs. Innocent smoothies were launched back in 1998 by a group of hard working, hard socialising young professionals who wanted a convenient way to make their lifestyles healthier, and believed that this need was shared by many of their generation. In addition to these functional benefits, I’ve always believed that both the founders of innocent and their target market were influenced by the TV comedy they grew up with - viz The Mary Whitehouse Experience which specialised in putting infantile jokes into apparently serious situations. This segment of the population – defined both by functional needs and preferred communication styles – were always going to find innocent a more attractive brand than the other juices and smoothies on the market in 1998.

Some brands appear to break this rule by appealing to everyone – for instance Amazon.com. However it’s worth remembering it that at launch in 1994, Amazon was a niche proposition, appealing to the then small group of people who were happy to buy products on line. Amazon has grown along with that segment, and have continued to use technology to innovate against the needs of that group. Businesses like Walmart and Tesco, whose innovation efforts have attempted to cover the needs of both bricks and mortar and online customers such as Walmart and Tesco have been less focussed, and have not been able to lead the online market in the same way.

If you’re going to focus on one segment for growth, it’s important to identify whether the target market you’ve defined will be large enough to succeed. Firstly you need to understand how big the market is.  Are there enough potential buyers of the product? And like Amazon’s online shopper target, is it likely to grow? If you’re launching a physical product that appeals to a small number of people, the stock will not turn fast enough to get wide distribution in physical stores, or to get to the top of rankings online stores, and both the penetration of the product and frequency of purchase will suffer, increasing the chances of a failed product launch.

You also need to ensure your customers have money to pay for the products you want to sell them. When innocent launched the veg pot in 2008 they created a product with very strong appeal to its target market. Unfortunately, few of the target market consumers were happy to pay £3.50 for their regular lunch. The product sold extremely well when promotions pushed its price below £2.99 (our consumer panel provider told us that it was one of the most elastic products they had ever seen). This product was ultimately discontinued, despite a group of passionate fans, because the segment it targeted was too small.

Finally, studying your competitors will give you the clues you need to dimensionalise success. Every market has a ‘breakthrough’ point – a level of sales at which a product retains wide distribution. If you can identify a competitor at that level, you can observe how many customers they are reaching, and the levels of marketing investment required to reach those customers, you can use this to calculate the level of investment required to succeed.

Read more from Joe Goyder here.