Many inventors dream of putting their products in major stores
such as Wal-Mart and Sears. But small markets are often the surest
road to big profits. Small markets have less competition,
distribution channels that need innovative products, and lower
start-up costs.
Deborah Dolman markets a voice-activated video system that
replaces a court reporter. The traditional court reporter uses a
stenograph machine to record spoken words during a trial. The
records are sent to a computer-aided transcription system and
translated to hard copy. Dolman's system includes five
videocameras, microphones and VCRs. Each camera focuses on a
different area in the courtroom. Voice-activated cameras are
triggered by a signal from the microphone nearest the person
talking. Dolman has a patent on the electronic circuitry that
controls the voice-activated switching.
With Dolman's system, a complete video of court proceedings
can be taped and given to a transcriber, who prepares a typed
report. The system costs $40,000 to $50,000. Its benefits are lower
costs (the cost of a court reporter is eliminated, and transcribers
don't need to be specially trained); greater convenience
(courts don't have to schedule around a court reporter's
eight-hour day); and greater reliability (observers can see body
language and hear nuances of speech that add meaning to the
words).
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Dolman, a former court reporter, started a court reporting
service, Dolman and Associates, in 1979, before she invented her
video system. In 1992, she put her first three systems in the field
for testing, and in 1997, her Lansing, Michigan, company, Dolman
Technologies, sold $3 million worth of products.
Part of the secret of her success was choosing a small market.
Here's a closer look at how the four advantages of small
markets benefited Dolman . . . and how they can
work for you, too.
1. Market information is easily accessible.
Dolman's target customers are court systems nationwide. She
conducted interviews and market research in Lansing with judges,
lawyers, court reporters and transcribers. Courtrooms have many
more similarities than differences; when Dolman started developing
her product, she knew her research in Michigan would translate to
the entire market.
Dolman also sells her product as a videoconferencing tool.
Corporations are a large target market. The situations they want
videoconferencing systems for vary widely and can include sales
meetings, training, interviews and conferences. Companies may pay
anywhere from $5,000 to $100,000 for videoconferencing
equipment.
Inventors have trouble getting accurate market intelligence in
large markets because their target customers have different needs,
require different product features and are willing to pay a wide
range of prices. Even established marketers have trouble
introducing products that meet the needs of most potential
customers in a large market.
2. Marketing costs are low. Courts are easy
to locate, don't have many new products to evaluate, try to
control costs and absolutely must have either a court reporter or a
video system. In a small market, prospects typically know each
other. This contributes to word-of-mouth advertising and
testimonials that have a strong impact on prospects. All these
factors helped lower Dolman's marketing costs.
The keys to low marketing costs are identifying prospects,
reaching them easily and effectively, and communicating a solution
to a need. Dolman's market has all these characteristics.
Courts have a clear identity, are easy to find through legal
magazines or direct-mail lists, and understand the benefits of
Dolman's product: saving money and allowing court to be held
for longer hours.
The corporate videoconferencing market doesn't meet these
criteria. True, some corporations are willing to pay $40,000 to
$50,000 for a videoconferencing system. But which ones are they?
Most companies aren't prospects, and it's difficult to find
the ones that are without marketing to a large number of companies.
Another problem with a large market: Prospects buy for a wide range
of reasons, making it more difficult to focus your marketing
materials on specific customer needs. The result: More sales calls
are required to make a sale.
3. Distribution channels are easily
established. Distribution networks are set up to provide a
variety of products to a certain type of customer. A distribution
system might concentrate on courtrooms, large advertising agencies
or individual muffler shops. If you have a small market, it's
easy to find a distribution system specializing in that market, and
often the distribution channel is seeking additional products.
Dolman, for example, could have sold her products through
transcribing services, which sell their services to courts already.
Instead, she decided to sell directly to courts because they were
readily accessible.
The corporate videoconferencing market is more difficult to
access. Corporations buy a variety of products, and distribution
channels often can't handle any additional products. In
addition, distribution networks targeting large markets don't
like to carry products aimed at a small percentage of customers
because they don't make enough money.
4. Profit margins are high. Inventors
typically produce their initial products in small volumes, at a
high price, because they lack the financial resources to produce
larger quantities. (Dolman produced just three systems her first
year.) Fortunately, most suppliers to small markets produce small
quantities of products at fairly high prices. Consumers in small
markets expect that, because they know the suppliers are basically
producing custom units. Dolman was able to custom-assemble her
first three systems, sell them for $40,000 to $50,000 apiece, and
still make a fair profit. Most small-market suppliers I've
worked with had pre-tax profit margins of 15 percent to 25
percent.
In the large corporate market, buyers are accustomed to
low-priced electronics products. Selling a $40,000 to $50,000 item
is tough; corporate buyers will push for a reduced price. Even if
you survive the initial price pressure and start to sell
successfully, you'll soon find competitors eager to enter the
market. Many will be established companies with low-cost
manufacturing procedures that you can't match.
Inventors like Dolman, who compete in small markets, typically
receive little press coverage because their products aren't
exciting to most people. But I've found these are the inventors
still in business after 10 years, still producing tidy profits and
still growing their businesses. Inventors in large markets often
have trouble sustaining their market presence for more than two or
three years. Don't ignore small markets: They're the
gateway to long-term business success.
Don Debelak, author of Bringing Your Product to Market
(John Wiley & Sons, $19.95, 800-225-5945), is a marketing
consultant specializing in bringing new products to market.
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