Defining a Market
“Users spend most of their time on other sites. This means that users prefer your site to work the same way as all the other sites they already know.”
— Jakob’s Law, Laws of UX
Before a product can even begin to be conceptualized, there should be a need for it’s existence. By researching the market for similar solutions, designers can hone in on solving problems people are actually experiencing. Abraham Lincoln, the popular 16th President of the United States, is famously quoted in saying that if he had six hours to chop a tree, he’d spend four sharpening the axe. While I don’t think two hours is enough time to chop a tree, it probably depends on the diameter of said tree and is entirely besides the point. When we perform a market analysis we are finding information that will better prepare our design of a product; so the more we delve, the closer we come to solving the original problem.
Getting Started
Stop blindly searching! Before we can go on a googling spree, we need to define why we are researching. Is it to find similar solutions to a problem, or to find a novel way people have tried to solve your problem? Are we looking for good front-end design or a well thought out back-end? While many sites will display more than one area of proficiency, it is important to not get distracted by going too far. This is easy when we know what we’re looking for before we find it! So, how do we know what we’re looking for?
Alright, I’ll be honest, the best way to solve problems is not to search for them. This means that at a minimum, we should already have a problem that may or may not have solutions readily available. Unlike this case, it wouldn’t be beneficial to provide some imagined problem to research, due to the volatile nature of creative problem solving. Instead let’s discuss a few strategies that will apply to your general problem.
Gathering Competition: A Survival Strategy
Humans are instinctively competitive with their fellow person. To better understand our products in development, we must understand how they compare to products currently in the market. Our problem can be placed in one of the following industries which are loosely based off different economic sectors. Financials, from bitcoin to banks; Utilities, like gas and water; Consumer, which consists of retail and media; Healthcare, a self-explanatory category; Staples, including food; Energy, more of a business to business section; Industrial is all things construction and manufacturing; Technology is probably the most familiar, containing software and electronic products; Telecom consists of wireless and cable services; Materials deal in the production and distribution of raw materials; Real-Estate is the final category, which needs just as much explanation as Healthcare. From this distinction, a simple google search will find any similar products! It’s best to find at least five competitors, but ideally the number analyzed will be more than ten.
Note Down the Numbers: Strategizing with Data
Now that we have our competition, we need to find out a lot about them, but exactly what is relevant? Starting with the basics, we want to know how much money they make. This means we’ll be looking for net profit, not gross profit expenses, which is what the company makes after paying upkeep charges(here’s how to calculate it). We needs to take any competition we found in the last section, and calculate their net profit margins. There’s a vast amount of information we can sift from this data. If we compare the top earner to the lowest profit margin, we can find marketing strategies that work/don’t work. By considering the median of the set, we can see the average expected return on assets, which can help us realize the potential earnings this product market has. All the companies that have positive net profit margins can be considered successful because they make money, and the opposite is true for negative margins. This data can become quite lengthy and complex, however the main point is to find companies that work well in the industry our problem is located in.
SWOT: Hammering Down Successful Strategies
Strengths, weaknesses, opportunities and threats. Using this common business strategy, we can take a few companies from the last section to make an in-depth analysis. At a minimum, we should examine the businesses with the highest, middle, and lowest net profit. The best way to brainstorm this part is to draw a window shape where the four categories can reside.
Strengths: What does the company do well? What separates them from their competition? Do they have a strong company culture/team? What are untapped resources that would help the product/business?
Weaknesses: What can the business do better? Where are they failing? Are there external factors that influence the supply chain of the product? Is there a high level of debt? What does the company lack in?
Opportunities: Do they have a competitive advantage? Are there external factors that help the business perform? Are there upcoming technologies that will make the production of this product easier?
Threats: What would shut this business down? How much profit do they need to break even? Are there any variable costs? Are the current fixed costs sustainable? Will new technology make this product obsolete? Are there other cash-flow problems?
PEST: Strategies for the External World
Kind of like the opposite of SWOT, PEST analysis focuses on the business environment. The acronym stands for political, economic, social, and technological, and represents the major external factors a company must contend with. It’s proposed that this analysis is only effective at bigger corporations that have the power to influence these categories. I think that a basic understanding of where a product fits into the market is mandatory to keep a design team on track. Since we now have a swath of information about our competition, this research should be more confirmation driven, as opposed to acquiring new data. If there’s information that doesn’t make sense in the grander context of this research, it should be examined thoroughly to remove inconsistency.
In Conclusion
All the data collection we’ve done will ultimately help answer a myriad of questions revolving around ‘how’ and ‘when’ to produce a product. The ‘why’ of production may be solidified during this process, but the problem should definitely exist before any research is conducted. By defining an economic sector, then finding competition, one can maximize their efficiency while analyzing markets. SWOT and PEST are business analysis practices that can help further delve into the relevant design traits of other company’s works. Without this research, it would be impossible to create commercially successful designs.
As always, thank you for reading and enjoy your day!
