The ironies of quantifying market demand

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Anyone proposing something new in an organisation is likely to be hit by four questions that represent two contradictory lines of enquiry. They serve perhaps to highlight the ironies of trying to quantify demand.

four questions that represent the ironies of market demand

On the one hand: The search for precedent

Question 1: Who else has done this?

Wrong answer: If the real answer is that many others are doing it, you have signalled what should be a non-starter. That’s because if others are doing what you are suggesting, it is not an innovation. It is, at best, catch-up. If you present it as a competitive opportunity, then you are, as Michael Porter has pointed out, relying on the incompetence of your rivals and that is not the basis for a sustainable competitive position.

Right answer: The idea is new for the sector, and a similar concept, using a parallel model, has worked well in other sectors with a similar competitive profile.

Question 2: Is there a demand for it?

Wrong answer: You think so, or there should be, or it’s a great idea so it’s bound to work.

Right answer: The forecast demand is sensible, based on conservative assumptions and calibrated to allow an exit if things don’t work out. If you can, draw parallels with other sectors where an idea of similar dynamics was introduced, the reaction of the market and the speed at which volume grew (against forecast). It will be particularly important to show why and how others won’t be able to simply copy or catch up to meet demand once it is established.

On the other hand: The search for uniqueness

Question 3: Why can’t it be copied?

Wrong answer: It can be, or no-one would bother, or we’ll be first.

Right answer: Because this is an initiative that has been inspired (not copied) by what has happened elsewhere, it cannot simply be replicated. Preferably there are high barriers to entry. These can vary greatly – from reputation to distribution to special relationships to IP. The highest barrier of course is not one thing, but rather a combination of factors that, when combined with the idea, give it singular distinction.

Question 4: Why hasn’t this been done before?

Wrong answer: Because no-one’s thought of it. That simply makes what you’re proposing a question of luck, in which case it can (and will) be easily copied once others see how well it works.

Right answer: The market conditions are favourable and/or there’s been a change in customer expectations and/or a competitor has pulled out of a market in which you can identify residual value and/or the IP to make the idea work has only recently been developed and protected, and/or you are now operating at a scale where you can implement the idea economically. Once again, the power of the offer lies in the combination of factors that you have and that others don’t.

Three ironies of demand

1. For demand to work in your favour, there must be enough need for viability but not so much that it encourages instant commoditisation. So there must be real interest but it is probably latent.

2. There must be an answer to a problem and that answer must be simple enough to be understood by customers, but not so simple that anyone can copy it.

3. Demand needs time to grow but not so much time that you run out of cash or interest before getting a return.

Photo of “I don’t know why you say goodbye I say Helloooo”, taken by Lee Nachtigal, sourced from Flickr

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