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How to measure market demand for a new product?

posted by: Lumo5 on 2016-11-01
tagged: marketing, business-plan, market-research
score: 1

What is the industry standard method for estimating market demand on a brand new product?

Answer 11480

posted by: Anonymous on 2016-11-01
score: 3

Thanks for clarification in comment to your question.

For example, how did Apple decide that producing the iPhone was viable since there was nothing to compare to it.

The preparation for iPhone started back in 1999, thus there was amount of time to figure out how much people wanted to pay. During this time, demand was created on the market;
iPhone is (was) a device of well-known company, and I guess people were trusting Apple brand, and it was significant modifier for the price;
reading Wikipedia article on 1st generation of iPhones we learn that Apple had to make modification to its product line and price (discontinuation of 4GB device and lowering price for 8GB one to boost sales).

Maybe I should ask: How do you find out what price people would pay for a product that doesn't exist yet.

Talk to them, but to do it effectively you need to know who is your target. Do you have idea who will be the consumer of your brand new product? Alternatively, if you are well aware about industry / market segment this product to appear in, you should already have some names of customers and even know which pain points your product will solve and even probably know how much in monetary (and not only) equivalent your product will save in cost or increase revenue for customers. And from this point you can start thinking about selling price for your product given number of devices (volume) needed to satisfy customers.

Thereby you would be assessing if it is viable to produce the product.

In general you should be able to have more revenue than cost to stay afloat - obvious business rule. Thoughts on this question should follow your answer to previous one - what potential customers say? How many products they need? What is your possible cost of production? How cost relates to possible revenue? How revenue/cost pair will change with the time (e.g. product will need to start for year or two in order to be widely accepted if it will be).

Now back to your main question

What is the industry standard method for estimating market demand on a brand new product?

This is very broad, there're many industries, and consumer/customer behavior in them may differ drastically, they can be regulated by government. I think first you may need to figure out is how new your product is. Again, for this you need to know your customer to check with them how they currently solve their related issues.

I would lay out two more or less opposite strategies:

you go to market, and talk about your new product, creating demand. This way you will probably know more or less reliably, how much people will want to pay (but note - they can refuse your product at any stage if there's no contract for it). The risk is that while you disclose your idea, it is being ~~stolen~~ used by someone who has more resources, more specific market knowledge and more determination.
you, like some inventors, start in your garage, building the prototype using your own money or money of others you trust. It will be hard, and it may be catastrophe if product will not take off (depending on you borrowing T&C). But if you are informed and believe your product will take off - then it will, and then you, most probably, will be the first on the market, putting any price which anyway should relate to the customer pain points being solved.

(of course in real life it is not black and white, and there could be a mix of two, or even something else if you have better idea)

Last but not least - always be ready to change as soon as new information arrives. Strategy is not that you draw it now for 10 years into the future. It may need change, or even discontinuation given market condition change.

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