In today’s business world, companies are not guaranteed continued growth and profitability. Technological advancements decrease the life cycles of goods and services, business standards change and new competitors appear from outside the industry. This constant instability requires the search for new business opportunities. Aaron Rodriguez, an expert in business optimization, explains how to identify market opportunities through operations analysis.
First of all, a framework must be defined that is capable of guiding the search for opportunities. It is necessary to understand the direction of the company and to know its resources, strengths, and capabilities. Once the company’s objectives and main strengths are understood, the next step is to analyze the market, assessing consumer needs and how they are being met today.
“To distinguish new market possibilities, the entire business model must be assessed in order to identify consumers, companies and other factors, including the value proposition of each brand, direct and indirect competitors, the distribution chain, existing regulations and the environment, in general,” Rodriguez explains.
First, there is consumer segmentation. To understand the potential demand that exists for our products, we must identify consumer segments that share common characteristics. These characteristics can be “hard” variables such as age, gender, place of residence, educational level, occupation, and income level, or “soft” variables such as lifestyle, attitude, values, and purchase motivations. Hard variables can help estimate the number of potential customers a company might have.
Analysis of the buying situation is also necessary. To uncover opportunities for expansion, buying situations must also be analyzed. Analysis of distribution channels, payment methods, and circumstances related to the purchase decision and action will tell us how consumers buy today and what opportunities exist for our product or service. Offering alternatives at the time of purchase can bring new customers.
“In addition to analyzing the consumer and the purchasing situation, it is important to analyze the current supply. Knowing the existing players in the market in which we compete or will compete is important when evaluating opportunities,” says Rodriguez. For example, the airline SKY, competing in the Chilean market against a strongly positioned brand like LAN, found that there was an opportunity to differentiate itself with a low-cost model, which until then did not exist in Chile. SKY reduced its costs by eliminating free food and beverages for all passengers during flights and lowered ticket prices.
Analyzing other companies’ products and services that are complementary to one’s own can also help identify market opportunities. For example, a company producing packaging should analyze sales of products that could potentially be packaged with its packaging, while a company producing electric coffee makers should analyze the evolution of sales of different types of coffee.
Some market opportunities can also be identified by analyzing changes in the environment in terms of technological and scientific development. For example, the growth of Internet and smartphone penetration has allowed the arrival of companies with new business models such as Airbnb and Uber. According to Rodriguez. the share of mobile internet subscriptions among cell phone users in the world was 20% in 2011 and reached 53% in 2016.
“Once opportunities are identified, companies must move quickly to create a plan,” Rodriguez suggests. “You need to develop a value proposition, plan the go-to-market chain, and estimate costs, revenues, cash flows, and financing needs. Not every market opportunity identified will be successful, but experimentation will provide answers about the potential of each.”
To minimize the costs of failed opportunities, new products, services or business models can be pilot tested in controlled territories. The risk of pilot testing is to alert the competition about one’s own plans. This risk should be compared to the risk and cost of launching a new product on a large scale and failing. In pilot testing, many experiments will fail, but some will succeed and develop on a large scale.