Jan 24, 2023
9 mins read
One of the best things prospective entrepreneurs can do, throughout the feasibility analysis process, is get out and talk to prospective customers about their product ideas. Surveys, designed properly, can be an effective way of gathering information.
Product/service feasibility analysis is an assessment of the overall appeal of the product or service being proposed. Although there are many important things to consider when launching a new venture, nothing else matters if the product or service itself doesn’t sell. There are two components to product/service feasibility analysis: product/service desirability and product/ service demand.
1. Product/Service Desirability
The first component of product/service feasibility is to affirm that the proposed product or service is desirable and serves a need in the marketplace. You should ask the following questions to determine the basic appeal of the product or service:
• Does it make sense? Is it reasonable? Is it something consumers will get excited about?
• Does it take advantage of an environmental trend, solve a problem, or fill a gap in the marketplace?
• Is this a good time to introduce the product or service to the market?
• Are there any fatal flaws in the product or service’s basic design or concept?
The proper mind-set at the feasibility analysis stage is to get a general sense of the answers to these and similar questions, rather than to try to reach final conclusions. One way to achieve this objective is to administer a concept test.
Concept Test: A concept test involves showing a preliminary description of a product or service idea, called a concept statement, to industry experts and prospective customers to solicit their feedback. It is a one-page document that normally includes the following:
• A description of the product or service. This section details the features of the product or service; many include a sketch of it as well.
• The intended target market. This section lists the consumers or businesses who are expected to buy the product or service.
•The benefits of the product or service. This section describes the benefits of the product or service and includes an account of how the product or service adds value and/or solves a problem.
• A description of how the product or service will be positioned relative to competitors. A company’s position describes how its product or service is situated relative to its rivals.
• A brief description of the company’s management team.
After the concept statement is developed, it should be shown to at least 10 people who are familiar with the industry that the firm plans to enter and who can provide informed feedback. The temptation to show it to family members and friends should be avoided because these people are predisposed to give positive feedback. Instead, it should be distributed to people who will provide candid and informed feedback and advice. A short survey should be attached to the statement. The information gleaned from the survey should be tabulated and carefully read. If time permits, the statement can be used in an iterative manner to strengthen the product or service idea. For example, you might show the statement to a group of prospective customers, receive their feedback, tweak the idea, show it to a second group of prospective customers, tweak the idea some more, and so on.
Rather than developing a formal concept statement, some entrepreneurs conduct their initial product/service feasibility analysis by simply talking through their ideas with people or conducting focus groups to solicit feedback. While not a complete approach, there is merit to the give-and-take that entrepreneurs experience by talking with prospective customers rather than just handing them a concept statement and asking them to complete a questionnaire. The ideal combination is to do both—distribute a concept statement to 10 or more people who can provide informed feedback and engage in verbal give-and-take with as many industry experts and prospective customers as possible.
2. Product/Service Demand
The second component of product/service feasibility analysis is to determine if there is demand for the product or service. There are two techniques for making this determination: administering a buying intentions survey and conducting library, Internet, and gumshoe research.
• Buying Intentions Survey:
A buying intentions survey is an instrument that is used to gauge customer interest in a product or service. It consists of a concept statement or a similar description of a product or service with a short survey attached. The statement and survey should be distributed to 20 to 30 potential customers (people who completed the concept statement test should not be asked to complete this survey). Each participant should be asked to read the statement and complete the survey. The format for the survey is shown in Table below.
To gauge customer interest, the number of people who indicate they definitely would buy is typically combined with the number of people who indicate they probably would buy. It’s getting increasingly easy to administer buying intentions surveys. For example, Internet sites like SurveyMonkey and SurveyGizmo allow you to set up small-scale surveys for free or for a modest fee.
One caveat is that people who say that they intend to purchase a product or service don’t always follow through; as a result, the numbers resulting from this activity are almost always optimistic. The survey also doesn’t normally tap a scientifically random sample. Still, the results give a potential entrepreneur a general sense of the degree of customer interest in the product or service idea.
TABLE: BUYING INTENTIONS SURVEY
Distributed to a different group of people than those who completed the initial concept statement test
How likely would you be to buy the product or service described above, if we make it?
____ Definitely would buy
____ Probably would buy
____ Might or might not buy
____ Probably would not buy
____ Definitely would not buy
Additional questions that are sometimes included in the survey:
How much would you be willing to pay for the product or service? Where would you expect to find this product or service for sale?
One approach to finding qualified people to talk to about a product or service idea or to react to a concept statement is to contact trade associations and/or attend industry trade shows. If your product idea is in the digital media space, for example, you may be able to call the Digital Media Association (which is a national trade association devoted primarily to the online audio and video industries) and get a list of members who live in your area. Attending trade shows in the industry you’re interested in will place you in direct contact with numerous people who might be of assistance.
• Library, Internet, and Gumshoe Research
The second way to assess demand for a product or service idea is by conducting library, Internet, and gumshoe research. While administrating a buying intentions survey is important, more data is needed. Think of yourself as a lawyer preparing to defend a client in court. You can’t just tell the jury that you “think” your client is innocent or that 25 out of 30 people you surveyed think that acquitting him is a good idea. The jury will want more evidence. So you have to dig it up. In a feasibility analysis context, you have a similar task. Evidence that there will be healthy demand for your product or service must be accumulated. Three important ways to do this are via library, Internet, and gumshoe research.
librarians can often point you toward resources to help investigate a business idea, such as industry-specific magazines, trade journals, and industry reports. For example, Sprig Toys makes super-safe, environmentally friendly, educational toys for children. Sounds like a good idea. But “sounds like a good idea” isn’t enough—we need facts to discern whether there is a demand for products Sprig Toys plans to sell. What’s the trajectory of the toy industry? What do industry experts say are the most important factors that parents consider when they buy their children toys? Has this idea been tried before? If so, what were the results? Is there an “educational toy” segment within the larger toy industry? If so, is this segment growing or shrinking? Is there a trade association for the makers of education toys that already has statistics about market demand for educational toys?
The overarching point is that for your particular product or service idea you need to accumulate evidence about likely demand. Your university or college library is a good place to start, and the Internet is a marvelous resource. By simply typing “market demand for education toys” into the Google search box, we quickly found two articles that bode well for Sprig Toys:
"Statistics show that the sales of toys and games have declined over the years. However, educational toys have been on the rise, as more parents opt to purchase products that would give them the most value for their money, as compared to, say, buying Bratz dolls and Hot Wheels."
This article, which appeared in a computer and technology blog, is affirmed by an article that was found commenting on trends observed at the 2011 International Toy Fair in New York City. According to the article,
"After combing through 100,000+ products now on display at the Jacob K. Javits Convention Center in New York City, TIA’s (Toy Industry Association) trend experts report that this year’s top trends target every type of child—from those who like to learn through games and creative craft, to those who have a “need for speed” and enjoy active play—and they truly reflect the advancements being made across other industries, like technology and science. The top trends for 2011 also met the increasing demands of parents, the government and healthcare officials who are striving to amp up educational and active play to ensure a brighter, healthier future for today’s kids."
These two quotes tell us a lot about the likely demand for Sprig Toys’ products, and it’s just a start. It also gives us some important insights. Apparently parent groups, governmental officials, and health care officials are actively advocating educational toys. The second article also gives us the name of a trade association, the Toy Industry Association, which we can contact for more information.
Simple gumshoe research is also important for gaining a sense of the likely demand for a product or service idea. A gumshoe is a detective or an investigator that scrounges around for information or clues wherever they can be found. Don’t be bashful. Ask people what they think about your product or service idea. If your idea is to sell educational toys, spend a week volunteering at a day care center and watch how children interact with toys. Take the owner of a toy store to lunch and discuss your ideas. Spend some time browsing through toy stores and observe the types of toys that get the most attention. If you actually launch a business, there is simply too much at stake to rely on gut instincts and cursory information to assure you that your product or service will sell. Collect as much information as you can within reasonable time constraints.
To supplement the techniques discussed previously, there is a growing number of tools that are available online for all facets of feasibility analysis. These tools range from open-ended Q&A sites, like Quora, where an entrepreneur can pose questions pertaining to business ideas and get informed feedback, to sites that will conduct usability tests of Web sites and applications. These services are becoming increasingly affordable and should be utilized where appropriate.
Reference: Entrepreneurship, Successfully Launching New Ventures