A consumer-centric marketing framework, explained in real work terms – Part 5: Consumers decide business potential
This series is an attempt at reexamining general marketing frameworks by linking them with consumer outlooks and behavior. Marketing frameworks like STP and 4P are relatively simple, and not that much about them is that hard to understand, although they are often found hard to leverage in real work. Understanding consumer outlooks and behavior is the role of marketing research. We hope that linking marketing frameworks and marketing research in a consumer-centric way will increase the effectiveness of readers’ marketing activities, and thereby deliver greater value to consumers.
In Part 4 of this series, we introduced how businesses and developers can take an interest in consumers and gain insights which can act as the starting point for new ideas based on an “Iceberg Model”. In Part 5, we’ll take another look at the framework introduced in Part 1, “Moment of Truth”, this time from a business building instead of branding perspective.
1. Ideas consumers would be “willing to pay money for” have potential
In Part 1 of this series, I wrote that consumers’ act of “paying money” forms a value-based market, and that the act of “using products” forms a quantity-based market.
Following this line of thought, the business potential of new enterprises and products should also be strongly influenced by consumers’ envisaged behavior. If an already quantified market scale is the reflection of consumers past behavior – having “paid money” and “used products” – the business potential of enterprises and products can be thought of as a reflection of consumers’ thoughts and intentions, such as “wanting to pay money” and “wanting to use the products”. While consumers’ thoughts and intentions are not necessarily put into action 100% of the time, they definitely won’t take action unless driven by such thoughts and intentions.
When we consider the business potential of new enterprises or products, what consumers are “willing to pay money for” or “want to try using” are “ideas that do not yet exist, but that are striving to be realized”.
Fig.1
2. Invest in ideas with potential
In Part 4, we introduced a method for generating ideas through behavioural observation. In real work, when you engage in ideation, you generally generate a lot of ideas. Since not all the ideas can be commercialized, you next need to narrow down the ideas somehow.
When narrowing down ideas, it’s extremely important to listen to the opinions of consumers, who decide business potential. Some people appear to think they should first produce a prototype based on an idea, and then ask consumers’ opinions. Others go to ask consumers’ opinions once they are ready for mass production. They may even release a product without asking consumers’ opinions at all. These can be seen as taking unnecessarily high risks with development investment.
When consumers make a purchase decision, especially with daily consumer goods, they rarely make decisions to purchase after using the product. When a new chocolate is released, people don’t typically purchase it after trying it, with virtually everyone deciding to purchase based solely on information on the new chocolate.
In this way, if you provide consumers with information on the idea, even without the actual product, consumers will have the will and intention to “want to pay for it” and “want to use the product”. Doing so enables you to commercialize ideas they will “want to pay for” and “want to use” and stop commercializing ideas that do not do so, thus reducing risks with development investment.
3. Derive business potential from product concepts
The factor breakdown of purchase value from a consumer purchase behavior perspective is as follows:
Purchase value= no. of purchasers x no. of purchase frequency per purchaser x purchase value per frequency
Purchase value per frequency can be broken down as follows:
Purchase value per frequency=no. of items purchased per frequency x purchase price per item
Fig.2
That is, business potential can be derived if the no. of purchasers, no. of purchase frequency per purchaser, and purchase value per frequency can be logically set.
The number of purchasers can be set by conducting a concept survey. In order for a non-awarer of a certain product to become a purchaser, they are deemed to go through the process in Fig.3. ・In order to purchase a product, they have to know that product exists (Awareness) ・Even if they are aware the product exists, they won’t buy it unless they know what it is (Understanding) ・If they are aware the product exists and understand its characteristics, they can decide whether they want to buy it or not (Purchase intention) However, even if they decide they want to buy it, they won’t necessarily take action to buy the product. Even if they go shopping at a store, they won’t be able to buy it if it isn’t available there, and if competing products are presented alongside it in store, it is quite possible they will choose the competitor if they want to buy it more.
Fig.3
Based on this outlook, the results of a concept survey can be viewed as depicted in Fig.4. In a concept survey, all respondents read the concept, with everything we want to convey to them in the concept, meaning A% (the awareness rate) and B% (extent of those who understand among the awarers) are both at 100% in Fig.4. In the actual purchase behavior process, consumers choose several products from a group of products they would be prepared to purchase, but this isn’t the case in concept tests, so the number of purchase intenders in concept tests can be interpreted as the number of purchasers when D%=100%.
Fig.4
However, in the real world, it is almost impossible for A%, B%, and D% to all be 100%, so the number of purchase intenders obtained from concept surveys is virtually never the number of consumers that will actually probably purchase when the product is released on market. Looking at this from a different perspective, if we can logically set A%, B%, D%, the E times, and F yen as in Fig.5, this will enable us to calculate the business potential.
Fig.5
The details with the calculation of business potential need to be considered individually for each product, and while this isn’t simply applying past data, A% and B% can be guessed from past benchmark surveys and U&A surveys, D% from product class weighted distribution rates (its state of distribution to stores) and brand preference. It is also possible to set expected values for the number of purchase frequency per purchaser (the E times) and purchase value per frequency (the F yen) using consumer panel data.
In actual business, A%, B%, D%, the E times, and F yen fluctuate for various reasons, making it difficult to calculate sales amounts to a high degree of accuracy via concept surveys alone, but it is possible to determine whether or not an idea is good using an indicator called business potential.
4. Summary
Since it is consumers who decide whether to buy a product or not, their behavior has a sizable influence on the business potential of new enterprises and products. Data such as the purchase intention rates obtained via concept surveys is useful for evaluating business potential. Asking consumers’ opinions before developing products makes it possible to reduce the risk of development investment.
*) Survey results are sizably influenced by survey design and analysis methodology. If you are interested in the business potential calculation introduced in this article, please contact us through our website, or via your sales representative.
Author profile
Kouichi Hirai Principal Consultant, Customer Business Drive Headquarters, INTAGE Inc.
Kouichi Hirai graduated from the Graduate School of Engineering at Osaka
Prefecture University, and joined P&G in 1995. He engaged in product
development for a wide range of items based on consumer understanding
including the launch of new brands and renewal of existing products
at P&G’s research development headquarters. In 2010 he joined INTAGE Inc., serving as a director for INTAGE Singapore Pte. Ltd. In 2013, after serving as the marketing manager for a major private brand product planning/
development firm, he joined INTAGE Consulting Inc. (presently INTAGE) in
2016. He presently provides support for consumer-oriented marketing
activities across a wide range of industries, including daily consumer goods, durable consumer goods, and distribution and services.
Kouichi Hirai graduated from the Graduate School of Engineering at Osaka
Prefecture University, and joined P&G in 1995. He engaged in product
development for a wide range of items based on consumer understanding
including the launch of new brands and renewal of existing products
at P&G’s research development headquarters. In 2010 he joined INTAGE Inc., serving as a director for INTAGE Singapore Pte. Ltd. In 2013, after serving as the marketing manager for a major private brand product planning/
development firm, he joined INTAGE Consulting Inc. (presently INTAGE) in
2016. He presently provides support for consumer-oriented marketing
activities across a wide range of industries, including daily consumer goods, durable consumer goods, and distribution and services.
Reproduction and Quotation
◆This report is copyrighted by INTAGE Inc. Please check the following prohibitions and precautions, and specify the source when reproducing or quoting this report. “Source: INTAGE “Knowledge Gallery” article published MM/DD/YYYY article”
◆The following are prohibited: ・Alteration of this article in full or in part ・Sale or publication of this article in full or in part ・Uses that are against public order and morality, and uses connected with illegal activities ・Reproducing or quoting panel data* for the purpose of advertising or promoting companies, products, or services *Panel data include: SRI+, SCI, SLI, Kitchen Diary, Car-kit, MAT-kit, Media Gauge, i-SSP, etc.
◆Other precautions: ・INTAGE Inc. shall not be liable for any trouble, loss, or damage caused by the use of this report ・These usage rules do not restrict the use of quotations or other uses permitted under the Copyright Act of Japan
◆For inquiries about reproduction and quotation, click here