When to Listen to the Analysts – While Considering Adjacent Market Entry

In my last post, I expressed the view that companies should not focus on what analysts are saying about their market.  Instead marketing organizations, typically staffed with 10-100X the personnel of analyst groups, should conduct their own primary research about competitors, new products and market trends.  But there are many scenarios in which analysts can create tremendous efficiencies and competitive advantage for marketing departments.  One such scenario is when companies are contemplating entry into an adjacent segment.

Market research subscriptions from analysts can you help you to quickly assemble a lot of information about an adjacent market in a short period of time.  Research subscriptions can you help you to quickly identify market size, market segmentation, competitive landscape and possible future trends.  Obtaining a similar level of quantitative and qualitative analysis through other means would be 100X more expensive and time-consuming.  For example, the ROI from a $100K research contract becomes very clear when you get the call from your CEO asking you to evaluate various competing market opportunities by next week’s board meeting.   Ideally, technology vendors should reassess their product and go-to-market (industry, geography, segments) strategy at least once per year an annual strategic planning process.   For example:

  • Product Expansion – Perhaps you have been selling data-center server hardware successfully for several years, but are struggling with how to achieve faster growth rates.  Market expansion options might be to begin selling peripherals such as storage devices or systems management software to monitoring the equipment.  Research and advisory services can help you to quickly gather a great deal of quantitative and qualitative information about the storage and systems management markets as a starting point for the analysis. 
  • Vertical Industries – Perhaps you are selling successfully today in the automotive segment, but are wondering whether you should consider expanding into other related manufacturing segments such as aerospace, defense, shipbuilding, heavy equipment, home appliances or high tech and electronics.  A research and advisory service can enable to you quickly assess the market conditions in adjacent vertical industries.
  • Geographic Regions – Perhaps you are a US-based company which expanded last year into the United Kingdom.  Having met your sales objectives for the UK you may be considering whether to expand into adjacent markets such as Belgium, France, Germany or the Netherlands.  Market research from the analysts can help you to gather data about the competitive landscape, market size and customer priorities within each of the Western European countries.
  • Customer Segments – Perhaps you have a business application which you have been selling into large enterprises for several years, but are nearing a point of market saturation.  You should be considering whether to go down-market to sell into the mid-market.  A research and advisory service can help you to quickly “get smart” on how the purchasing patterns, capital budgets and technology environments of the mid-market differ from large enterprises.

The recommendations above may sound obvious.  But most technology vendors do not leverage market research for strategic planning as I described above.   Instead, the analyst relations team focuses their investments on purchasing research subscriptions that cover the immediate market segments the company is targeting today.  Internal research analysts, which are charged with monitoring the subscriptions for relevant content, only read, comment and distribute on reports that mention themselves or one of their competitors.  

When the annual strategic planning cycle comes around, marketing leaders at technology vendors often find that they have not subscribed to the appropriate market research services.  They have an overwhelming amount of information about their current addressable market, but very little about adjacent product segments, vertical industries, geographic regions or customer segments.  Consequently, the marketing team cannot effectively answer key questions that the board and executive team have about how best to grow revenues by entry into adjacent markets.  Herein lays the tragedy of today’s market research construct.   Most analysts would like nothing more than to consult their clients on long-term strategic planning decisions about entry into new markets.  However, very rarely does the conversation occur because of the myopic perspective of the analyst relations departments charged with the purchasing decisions for research and advisory services. 

More thoughts on when to listen to the analysts in upcoming posts…

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