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Anecdote: How to Define a Market Opportunity

I’ve been perusing some of my old business school books and re-discovered a few key points from Kotler on Marketing: How to Creat, Win, and Dominate Markets:

There are three situations that give rise to a market opportunity:

1. Supplying something in short supply
2. Supplying an existing product or service in a new or superior way
3. Supplying a new product or service

Market Research and Defining a Market Opportunity

An Anecdote for Defining a Market Opportunity 

Research is the starting point for marketing. Without market research a company enters a market like a blind man. There is a story about a Hong Kong shoe manufacturer who wonders whether a market exists for his shoes on a remote South Pacific Island.

He sends an order taker to the island, who upon a cursory examination, wires back: “The people here don’t wear shoes. There is no market.”

Not convinced, the Hong Kong shoe manufacturer send a salesman to the island. This salesman wires back: “The people here don’t wear shoes. There is a tremendous market.”

Afraid the salesman is being carried away by the sight of so many shoeless feet, the Hong Kong manufacturer sends a third person, this time, a marketer. This marketing professional interviews the tribal chief and several of the natives and finally wires back:

“The people here don’t wear shoes. However, they have bad feet. I have shown the chief how shoes would help his people avoid foot problems. He is enthusiastic. He estimates 70 percent of his people will buy the shoes at the price of $10 a pair. We probably can sell 5,000 pairs of shoes in the first year. Our cost of bringing the shoes to the island and setting up distribution would amount to $6 a pair. We will clear $20,000 the first year, which, given our investment would give us a rate of return on our investment (ROI) of 20 percent, which exceed our normal ROI of 15 percent. This is not to mention the high value of our future earnings by entering this market. I recommend we go ahead.”

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If you enjoyed this post, you might also like:
Market Research Mistake: Falling in Love with an Idea

Photo credit: Flickr, Mislav Marohnić, Ditching the shoes (CC BY 2.0)

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