Is the market big enough?

Primarily, scaling a business depends on two factors converging: the availability of additional funds to sustain a positive cash flow, and the existence of a market for your product.

Products and services fall into two categories: those that are needed to sustain a specific quality of life, and those that are not. There is usually a market for those that are needed and so people will buy, but for those products and services, no matter how desirable they may appear to be, that are best described as wants, the market is both smaller and much less certain, and people are more reluctant to buy. The wise entrepreneur will, of course, have conducted extensive market research to determine into which category their product or service fits and will have extended that research into the saleability of the product in the geographical market in which they want to operate. After all, strategic planning, especially marketing strategy, is about deciding what product to sell, at what price and in which market.

Product service life cycle

Europe is, essentially, a consumer market with strong overtones of ‘materialism.’ In marketing terms, a ‘consumer’ is a person who buys a good (product or service) that they may not need, uses it, and disposes of it often before the end of its useful life, and then buys again. A classic example of such a product is the smartphone. Most people have one and the majority of them are on their fifth or sixth model, even though the early models still work. ‘Materialism’ exists where the individuals value themselves and others based on the goods (products, services and, particularly, brands) that they own. Think about that smartphone again: Apple iPhones are one of the world’s most sought-after goods because they are Apple, not because they are measurably ‘better’ than other smartphones.

Okay, you have a wonderful new product, you’ve done the marketing research and the data points to there being a market for it. Now the question is whether that market is big enough and sufficiently sustainable for you to sell enough units to make a return on investment.

All goods have a ‘product life-cycle’ which tracks the unit sales from introduction through the growth phase where increasing unit sales are experienced, into a mature market and finally to declining sales. And here’s the bad news: no good (product, or service) has ever managed to avoid this cycle. Even the great Apple has experienced this and at the end of April 2016 they reported a 16 % decline in unit sales of the iPhone, with most major news media reporting that the outlook was for further falls throughout the year. Even their chief executive, Tim Cook, said that the smartphone market “is not currently growing.” For the iPhone, in particular, and smartphones, in general, the market is now saturated and it ceases to be sustainable.

Unit sales, not the value of sales, is what has to be tracked in a product life-cycle, and a wise entrepreneur will also track sales revenue per product and ‘profit’ per product.

sales revenues and profits

Understanding the life-cycle provides clear guidance that the next product needs to be ‘introduced’ when the sales trend is slowing in terms of units sold, i.e. just before the ‘maturity’ part of the life-cycle. If there isn’t a new product ready to launch at that point, then both cash flow and profits will decline and the business will no longer be sustainable. The market for your wonderful new product may be enormous, but unless you build sustainability into your plan in the form of new products, then scaling up a business is likely to be the wrong strategy.

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