Bookworm Capitalist

What is market potential?

Modern business is synonymous to war. In business, however, instead of conquering lands and territories, you conquer people’s hearts and minds. This is the essence of modern strategic marketing. The one who conquers the most number of hearts and minds leads the game. That is why we have market leaders in different industries. Some of these market leaders have become powerful enough to lead the hearts and minds of the consumers to more innovative products the market has never known before.

What then is market potential? Market potential is the number of hearts and minds that your idea may conquer. By measuring market potential, you, as an entrepreneur would know up to what extent your idea can reach—how many people.

Market potential and sustainability of an idea

Well, not so many people see the importance of measuring the market potential of their idea. The common notion is, if the idea sells, then why bother to deal with these figures? Ask yourself again, why bother? The answer is, you measure market potential so you would know the limit. And when you know the limit, you would know whether you are limiting yourself and if you could push things further.

Knowing the market potential of your idea means that you know the potential number of hearts and minds that you can conquer. After you know this, you can see how many hearts and minds actually demands your idea—that is, how many hearts and minds have the willingness and ability to turn their wants into demands. When you know the current level of demand, this is the starting point of analysis.

The next questions will be, these people who actually demand my idea, what percentage are they of the whole market potential? Is it a small proportion, which means my idea is new and can further be pushed—that there is a lot of room for growth? If it is a huge proportion, then why is it huge? Perhaps other people have introduced them to the idea? Perhaps I would be facing a lot of competitors?

Key questions in determining the market potential

While a lot of marketing experts can offer different sophisticated ways to measure market potential, for an entrepreneur, it could be deduced through logic. These are the key questions to determining a hypothetical market potential:

 How many people are likely to use/utilize my idea? This question explores how many people will likely use your idea. Say, if your entrepreneurial idea for example, is to offer a solution to the absence of an accessible food store within your neighborhood—you ask yourself how many people will likely to patronize such a store? Perhaps you may count the number of people in the neighborhood, and the people in the nearby neighborhood. Remember, this is not a matter of who have the ability to buy, and who have the willingness to buy. Those two questions we will explore later. The key is, you have an idea of who and how many will benefit with the idea.

 How many people have the ability to pay for my idea? After determining the number of people who will benefit from your idea, you can determine who among those have the ability to pay for the idea. Let’s go back to the food store example. Well, basically all the people in your neighborhood can afford the food store, except if your idea is an upscale gourmet one which will require you to classify who will be able to afford, perhaps according to income or purchasing power. The key is you have an idea of those who will have money to put your idea on their budget and spend for it. This is usually a percentage of the figure in the first question.

 How many people are willing to pay for my idea? Out of these people who are likely to benefit from the idea, who have the ability to pay for the idea—you now ask, how many are willing? Of course, even if people will likely benefit from your idea, and they have the money they pay for it, if they are not willing to pay for it—your idea will not turn into sales. After all, you wish to turn your idea into cash right?

 How much are they willing to pay given a certain period? The final item that you need to know is how much these people can allocate for your idea. Which is, given a certain period, how much are they willing to pay?

Market potential and marketing research

In the previous section, we say we are measuring the hypothetical market potential. This is because, as entrepreneurs we do not have access to information that is at least scientifically gathered through marketing research. Not that we do not have access, but this kind of information costs a lot for us to offset the benefit that we can get. However, this should not limit us to measure the market potential of our idea.

Large companies can afford to hire market research firms to gather figures for them. This is because, the benefits to gather such information offsets the costs. The benefit, that is to lessen the uncertainty and risk of loss for the big business. Well, but those big companies also started small. So, just doing some bit of scientific guesses and some logical estimates will do in our case.

Wrapping up

Measuring the market potential is crucial even for us entrepreneurs who are starting it small. While the availability of hard data will cost a lot, scientific guesses and some logical estimates can do in our case. Marketing research is very important for any business, as information is power during these times. But, doing our own research may not require us to spend thousands of dollars at first. A little bit of observation is research too, and would cost us a little.

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