Before launching a business, product line, or new service, it is imperative that a company understands how much of an actual demand there is for it as well as how financially viable the idea will be in the market. 

 

Failing to adequately validate a business idea can cost precious time, energy and money, as well as the opportunity cost of not investing resources in another area of the business that has greater long term potential to drive value to all stakeholders, the most important of which, of course, are customers. 

 

In this article, we will explore some of the ways a business can utilize digital marketing tactics to validate their business ideas before launching, as well as how one of our clients, a well-known manufacturer of vacuum cleaners, did just that before launching a brand new product line of air purifiers.

 

Measuring Demand

One of the simplest and quickest ways to begin to gauge potential customer demand for your product or service is to use Google’s Keyword Planner tool to estimate the number of searches for all the potential search terms a customer would use to find or describe what you are selling. 

 

For example, our client was interested in supplementing their traditional offering of vacuum cleaners with premium air purifiers. Using the Keyword Planner, we researched different ways consumers might search for this type of product and search volume for each keyword. Though our client already had a product they wanted to test in the market, keyword research is usually best done at the ideation stage to determine potential demand to reinforce the decision or avoid allocating time or resources to further developing an idea with little to no demand.

 

Sizing The Market

Another tactic to gauge potential demand is to use a social platform like Facebook or LinkedIn to measure the size of your target customer segments. Though you cannot measure actual purchasing intent to the degree that you can through looking at keyword search volume, you can determine the size of your target market in terms of potential customers. 

 

Our client piloting the air purifier had determined six customer personas they wanted to target based on their internal research. We were then able to look at which audience target options would best correlate with those personas, as well as how large those audiences were. 

 

Generating Interest

Whether you are a business that hasn’t launched or an existing business that is considering or in the process of developing a new product or service that hasn’t been released in the market yet, you can still start attracting potential customers by setting up a landing page and promoting it using paid channels such as search, social or display. This page should clearly define the product or service you are offering as well as your unique value proposition and a distinct call to action, which can be to enter an email address in order to learn more, get an early invitation, or even make a pre-order. If you are not generating any interest in the form of clicks to the page or capturing any emails, you may need to test different messaging on the page to know what will resonate more strongly with your prospects.

 

If after trying different messaging on the landing page, you are still not generating the desired interest, you may have an idea that your target customers are simply not interested in. If, on the other hand, you see a lot of traffic to the landing page as well as people signing up to learn more or receive updates, that is a strong sign that your prospects like what you are developing.

 

Determining Financial Viability

Of course, creating a company, product or service to meet existing demand is not enough. An idea worth pursuing must also have a clear path to profitability. Using the tools described above, you can forecast rough customer acquisition costs by estimating the number of ad impressions, click-through rate, and conversion rate. With these metrics, you can, in turn, estimate the number of clicks, cost, conversions, and cost per conversion or cost per customer. 

 

If you know or can model the immediate value of each customer as well as the profit margin, you can determine the approximate profitability of each customer. Determining customer lifetime value will obviously be difficult at this stage, but you can model that out using assumptions such as average number of purchases per customer or average subscription length if your revenue model is based on that. 

 

If it looks like the path to profitability will be too narrow, you may want to reconsider who you are targeting, your price points, other costs that could affect your margins, or even the feasibility of the idea itself. You could also try to determine which types of customers would be most profitable and focus your targeting on those segments and then broaden the approach after launch.

 

Testing Scalability

If you already have an initial product, such as our client, you can go a step further than just doing research or putting up a landing page and actually start setting up marketing campaigns to test whether you want to launch a new business or product/service line. 

 

Our client had one product, an air purifier, and wanted to determine how well it would perform in the market. If it went well, they would scale the number of air purifier products and marketing investment into the highest performing channels. Using a combination of paid search, paid social, and programmatic advertising over a period of four months, we were able to generate a significant number of sales as well as a positive return on advertising spend as well as profit factoring in cost of goods sold. The performance justified an expansion of their product line as well as continued investment in digital marketing, and today they are well-known players in the air purifier industry.

 

Bringing It All Together

The tactics described above can help you not just determine demand but also whether you can realistically acquire customers in a profitable and scalable way. As with all things marketing related, you can draw better, more confident conclusions with more data, so it will behoove you to try everything you can to validate your business idea. If you can create an initial product or service and put some budget into a limited marketing campaign, that will provide you with the greatest visibility into whether or not your idea for a new business, new product or new service is worth pursuing.

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