Industry Analysis. Listen, research, analyze!
Industry analysis or listening to the voice of the customer?
- New businesses often face questions about the reaction of the market, competitors and customers, but most need a thorough analysis of the industry and customer preferences to reduce the risk of failure, especially with a limited budget.
- Industry analysis can uncover important information, e.g. legal restrictions, language barriers, that will affect the success or failure of a business.
- Examples such as the name of OSRAM in Poland or the name of PMS loudspeakers in English-speaking markets illustrate how failure to take into account cultural differences and language errors can negatively affect a company's reputation.
- When making strategic business decisions, developing an effective business model that focuses on creating a unique value proposition for customers is key.
- It is necessary to listen to the voice of customers and constantly monitor their satisfaction in order to keep the customer at the center of attention and adapt the company's business model to their needs and expectations.
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Thousands of companies launch new products and innovations every day in the global market. Each time they ask themselves similar questions: how will their good or service be received in the market, what actions will competitors take, how will consumers react?
There are times when products are so ingenious that they immediately gain popularity and consumer recognition, quickly making a profit (for example, disposable razors). However, according to observation, this is a very rare development. More often than not, the road from idea to first profits is very arduous.
According to statistics from the Central Statistical Office, 30 percent of companies in Poland fail in their first year of operation. The conclusion is simple - it is worth focusing on a thorough analysis of the industry and customer needs to maximize the risk of failure at the beginning, and thus misallocation of resources, not only financial.
A fledgling entrepreneur most often has a limited budget. He prefers simple, inexpensive solutions. He wants to research the market, determine consumer preferences, but doesn't always know what type of analysis to go for, how to study the attitudes of the audience, how to attract partners and, finally, which activities he should do himself and which he should outsource to a specialized company.
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First contact with the market
Conducting an industry analysis is undoubtedly extremely important when starting a business. However, it is also a challenging task. "Desk research", i.e. analysis of secondary data (scientific publications, databases), can yield many unprecedented and surprising conclusions. For example, legal restrictions or trade practices in a country that are not fully known can prove to be a significant barrier to doing your own business. As a result of conversations with potential buyers, for example, you can determine what they make cooperation contingent on, see what certifications will help you establish business contacts. This type of information can determine whether an idea will fail or succeed.
The language barrier is also worth mentioning. Often this is an overlooked issue, yet the product name, slogan, advertising slogan, content on the site are aspects to attract new customers. It is known that even a small mistake can destroy the reputation of a company. And it's not a matter of hiring a certified translator or running ad tests in a particular country. The problem lies in phrases and expressions used figuratively, in colloquial language and dialects. The example of a German company selling its light bulbs in Poland - OSRAM - comes to mind almost immediately. Inaccurate analysis makes the company's name still make us smile today.
Another example is the failed expansion of a Polish multimedia equipment manufacturer. The company planned to start selling speakers called PMS in English-speaking markets. PMS stands for "pre-menstrual stress," which, when translated, means premenstrual tension, which does not necessarily have a positive connotation. As is not hard to guess, PMS speakers have not been very popular.
For a change, the Polish fuel producer Orlen is worth praising. In the process of creating the name, linguistic and association studies were conducted in Polish, English and other selected language groups. It turns out that the juxtaposition of the letters "r" and "l" next to each other gives the most easily remembered name.
However, translation is not the only area where caution should be exercised. Failure to take cultural differences into account can also result in damage to a brand's reputation. In October, Swedish furniture company IKEA decided to remove female characters from a 2013 furniture magazine distributed in Saudi Arabia because of the kingdom's ban.
Development of a business model
Should we focus only on industry analysis when making such an important decision as, without a doubt, starting a business, expanding overseas or introducing a new product? Experts advise conducting market research, analyzing competitors' activities, industry trends and so on. Such an analysis will certainly help to dispel some of the doubts and make a decision: is it worth investing at all? After all, the cost of obtaining such data is disproportionately low compared to the resources lost as a result of erroneous business decisions. Data on market absorption, regulations, barriers to entry or customer preferences seem essential. Opinions are divided, however, regarding the analysis of competitors' product portfolios. Not infrequently such information can prove fatal.
We agree that it is important to be aware of how companies operating in the same industry operate. It is useful to know the business model, the outreach activities used, the policy of reaching out to customers and, of course, prices. However, excessive focus on these aspects can lead to a situation in which an entrepreneur tries to resemble a competitor in order to match it in every way. Shouldn't we strive to make our product unique, and the company as a whole distinctive and even unique? We should not try to win with a product that is easy to copy or counterfeit. What should differentiate a company from others is the business model. What does this mean?
The simplest definition is that it is "the way a company makes money." At the heart of the model is the value proposition, or product portfolio. However, it is understood by the unmet needs of potential customers that our company will be able to respond to. The value proposition means all the services/products offered for each target group. It is important to start building the business model precisely by identifying the customer segments, as they are the axis of the model. Also important will be the relationship the company will create with all stakeholder groups, starting with suppliers and ending with customers. Alex Osterwalder in one of the most popular business model concepts ("business model canvas") describes how organizations create and deliver value to their customers. According to the author, nine blocks should be considered, which represent different aspects of the company's operation. Below is what an example of Osterwalder's model might look like.
In addition to the aforementioned customer segmentation and value proposition, channels are also important - elements that describe how to reach and communicate with customers. The issue of business modeling is almost entirely outside the scope of industry analysis, but it should be a result of it or a starting point for conducting a market study. Lack of a well-thought-out business model is a common mistake of both novice and experienced entrepreneurs. The market verifies the mistakes made when creating a business model, and the falling revenue dynamics brutally points them out. Nevertheless, many businessmen are so wrapped up in their ideas and products that the analysis they carry out may turn out to be unreliable. Other times, entrepreneurs only consider optimistic indicators because they are so eager to get started. This causes the analysis to be out of touch with economic reality.
Voice of the customer an essential complement to industry analysis
Why is it important to start listening to the voice of consumers as you begin your industry analysis? As we mentioned above, there are products that gain a huge following almost from the moment they appear on the market. However, the cluster gains popularity only after several phases and attempts to develop communication in the company-customer relationship.
At the current rate of product innovation, there should be an exceptional focus on analyzing customer needs, as only this can ensure survival in the market. Is it possible to do business according to the famous blue ocean strategy (blue ocean strategy) of creating new, proud-sounding market spaces? How to create new demand and make competition irrelevant? The main thrust of this strategy is innovation, with the goal of producing new value for customers and one's own company. Innovation used to be equated with an amazing product that revolutionizes an industry. Nothing could be further from the truth.
Innovation can also take place at the level of customer relations, the way the product is delivered and at any other level related to the business model. An example is the publishing industry, where the standard approach to book publishing has been revolutionized. The lulu.com service gave all amateurs a chance to publish their own book, and allowed buyers to fully "castomize" the available items (cover, format, paper, illustrations, etc.). Of course, all for an appropriate fee. The final price of the selected book depends on the options chosen. An ordinary product - an extraordinary approach to sales. The company has created a thriving business in a difficult publishing market. The founders have developed a new "subversive" business model, which in a decade or so may turn out to be dominant in the industry.
We don't know what inspired the founders of lulu.com, but we can assume that it was not industry analysis itself. After all, industry analysis has its drawbacks. So does listening to customers. Henry Ford, founder of the Ford Motor Company, said: if I had asked customers at the beginning of my career as an entrepreneur what they wanted, they would have all agreed: we want faster horses. So I didn't ask them. Such situations are still encountered today. That's why it's especially important to be wary of miscommunications. Customers know what results they would like to achieve, but they don't necessarily know the best way to achieve them. An example? The manufacturer of a power saw may hear different, completely contradictory opinions about a problem with the equipment. One user would like the electric cable to be longer, because then it wouldn't get tangled underfoot. Another, on the other hand, will say that the cable should be shorter, because that would solve the problem. That's why it's not particularly worth focusing on customers' suggestions, but on the results they want to achieve. When conducting a standard customer satisfaction survey, focus on the proper formulation of questions. Referring to the example above: instead of asking "what would you like to change about the device," we should rather ask "what would you expect to change" or "what problems do you encounter during use." The rest is already up to the technology team, which should adjust the saw so that the cable does not interfere with the work. Most likely, the technologists would design a wireless version, which would satisfy both customers.
It is one thing to listen to customers when entering the market, and another to constantly monitor their satisfaction. There are many methods of doing this, and one of them is the analysis of the Net Promoter Score (NPS).
Interestingly, the customer satisfaction survey by this method can be done by the entrepreneur himself. It is based on asking one question: Please rate on a scale of 1-10 the likelihood that you would recommend company X to your friend. Respondents who gave a rating of 1-6 are considered critics of the brand, respondents who gave a rating of 7-8 are considered indifferent, and respondents who gave a response of 9-10 are considered promoters of the brand. NPS is calculated as the difference between the percentage of promoters and critics. The advantage of the NPS indicator is the ease with which we can use it and the ability to make comparisons over time in a simple way. This type of continuous communication with customers can allow us to respond to problems that arise, maintain appropriate customer relations, and increase profitability.
We don't want to settle the argument about the validity of conducting industry analysis. Entrepreneurial pressure to generate profits as quickly as possible dissuades many from data collection and quantitative analysis. From the point of view of a small entrepreneur who decides to research an industry, it is crucial to choose methods that allow you to do the research yourself. In doing so, we want to point out that the voice of the customer is the link between the customer and the company. The customer should be at the center of any analysis and research in order to further become the heart of the company's business model.
Before any analysis, let's ask ourselves who our customers are and who they might be, and what they need, and revisit that question. Let's revise the answer from time to time, without letting the market do it for us. If you feel that changes are needed in your company then customer voice analysis can be a tool to make those changes. Translating customer expectations and needs into measurable metrics makes it easier to make new investments and implement product and organizational innovations. Why? Because innovation in a company is linked to a change in its business model. And a prerequisite for the success of any changes made to the model is putting the customer first, including at the analysis stage.