Market research and new ideas
March 18th, 2006 by 
Chris Harris
The first thing that any new business or new product group should do is market research. Maybe.
Maybe it’s the last thing it should do. Maybe it should never be done.
I recently attended a workshop on Innovation put on by the San Diego Software Industry Council (SDSIC). One of the most fascinating discussion topics to me was the debate over how useful market research really is for new ideas.
There is plenty of evidence that market research is a successful way to reduce risks and anticipate demand for [tag]incremental innovation[/tag]. When determining if there’ll be higher demand for stripes or polka-dots on a new cell phone case, there’s nothing as good as asking the market directly.
On the other hand, one of the guest speakers poignantly discussed what he termed the “iPod” problem.”
Picture this: As a diligent market researcher at Apple, you gather together a bunch of people in a room and ask them how much they’d be willing to pay for a proposed hand-held music player which could store several CDs at once, yet is much smaller. Each participant lean back in their chair and consider the various types of portable CD players out there available for anywhere from $19.95 - $59.95. After a few additional surveys and sample groups - you gather your survey results and present them to your boss along with the product development roadmap.
The Rio PMP300 from Diamond went on sale in Sep. 1998 for $200 - and was a huge success! After creating a similar device selling for $399 Apple expanded the market with downloadable music over the internet. Apple reported sales of over 42 million iPods at the 2006 Macworld Expo.
How could one discover that the Rio, which was at least two to three times as expensive as the most common alternatives, would be so hugely successful?
What about the iPod selling for twice as much? Or the concept of downloadable music being a keystone to open up the entire digital music player market?
Were these events foreseeable? Or were they just one of the experiments that worked - each associated with countless failed technology investments that never made the news?
A few of the speakers at the SDIC conference seemed to indicate that traditional market research (study groups, polls, surveys, etc.) are not effective at determining the viability of a new idea. This approach seems to advocate watching the customer in their environment, noticing certain phenomena, and asking pointed questions to test hypothesis. The best justification I have heard to represent his point of view is, “As the expert you are responsible for innovating on the customer’s behalf. The customer operates in a certain frame of reference and cannot be relied upon to accurately consider things outside of that frame of reference.”
The other camp seems to believe that traditional market research is still possible - it just has to be done with more care and perhaps iteratively than is done with incremental innovation. Their mantra seems to be: “The customer is always right and knows what they want. You just need to keep an open mind and know how to ask.”
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Posted in Entrepreneurial, Innovation, Start-up, Technology | 