The title of this post represents my thought process whenever I walk out of Target, and I’m pretty sure I’m not the only one. I try very hard to control myself; I honestly do, but usually to no avail. However, I’ve developed a strategy: if I’m only after a few items, I’ll opt out of taking a cart or basket in hopes of grabbing only the things I can carry (which are hopefully also the things I came for). More often than not, however, I find myself trotting back to the front of the store to grab one of those familiar red carts. I feel like I’m David fighting against Goliath, except this “Goliath” isn’t trying to hurt me; rather, he’s offering me the latest and greatest in the home organizational tools that I didn’t know I needed.
It seems that Target knows what I want before I do. How do they do it?
This is precisely the idea behind the concept of latent demand. Latent demand goes far beyond traditional supply and demand ideas, instead drawing on aspects of creativity and psychology to uncover the future wants and needs of a customer in a particular market.
Latent demand is everywhere. It exists in both new and old markets, and it includes both new inventions and innovations to existing products. It represents the unknown aspects of a market. Therefore, it’s up to entrepreneurs to uncover the demands a market has not yet achieved and to develop an actual demand for that product or service.
Latent demand doesn’t only exist in entrepreneurship, however. Target, for example, establishes latent demand through the products they stock, the placement of each product, and the ways they market those products. Apple’s latent demand strategy, on the other hand, focuses on identifying the things consumers will desire in their technology and developing devices that include those capabilities. Therefore, how to identify and establish latent demand depends largely upon your industry.
In general, though, I’d like to describe some strategies to ensuring that your product or service fulfills latent demand.
1. Identify Your Market and Conduct a Market Analysis
Once you have a product or idea, you’ll first need to concisely identify your market. From there, you’ll be able to do a market analysis, which can be however formal or informal you wish. If it makes sense for you to just mentally think through these steps, go for it; however, when you’re trying to find investors, it may be valuable to show that you’ve gone through the hassle of composing a formal market analysis. Therefore, I’ll describe the format of one here.2
Part 1: Objectives of the Research
This section simply offers an introduction to your market analysis. Here, you’ll want to briefly describe why you’re conducting this study, what you hope to learn, and the purpose of it. A solid paragraph should suffice.
Part 2: Description of the Market
This part should contain descriptions of three things: your general market, your target market, and the demands of your target market. The description of your general market should be simple and brief, but the description of your target market must be more thorough, detailing the demographics, demands, purchasing patterns, attitudes, and wants of your target customers. Finally, figure out what products are currently appealing to your target market and/or what products may appeal to your target market in the future.
For an example of a market description, specifically of a target market, click here.
Part 3: Market Metrics
Market metrics include estimates of both size and growth. As for the size aspect of metrics, you’ll need to describe the current size, potential size, and actual penetration of the market’s major products for both the overall market and individual segments. Next, you’ll need to research current and future growth estimates for the overall market and the individual market segments. This information is often easily located online and is very important to know. Potential investors will often ask questions about the size of the market you’re trying to reach, and it’s pivotal to have a prepared answer.
Part 4: Competitive Analysis
A competitive analysis entails a very thorough description of your competition, including your competition’s product or service, market share, customers, strategies, etc. However, the most important part is something called a SWOT analysis. SWOT is actually an acronym that stand for strengths, weaknesses, opportunities, and threats, so you’ll want to assess your competition based on these four categories. Another, much briefer, part of a competitive analysis is a list and description of potential competitors.
For a great template to use for a competitive analysis, click here.
After your market analysis, you’ll hopefully have a very clear understanding of those included in your market, what they currently demand, and what products and services they might demand in the future if those were provided.
2. Conduct a Gap Analysis
Now that you know your market inside and out, it’s time to use your knowledge to identify the “gaps” via a gap analysis. A gap analysis seeks to identify the difference between “what is” and “what could be.” Most often, these are used in managerial settings to distinguish between actual employee performance and desired employee performance. However, the basis behind it leads to some great applications in the world of latent demand. As it applies to latent demand, a gap analysis is used to identify and analyze the gaps that exist in a market and to discover what product or service would be necessary to fill those gaps.
To put together a formal gap analysis, follow along with this template as I describe each step.3
Step 1: State Descriptions (Current & Future)
This first step simply entails describing where you are currently and where you hope to be in the future. This description can either be very general or very specific, often depending on how solidified your idea for a new product or service is. For example, if you already have a product in mind, your current state might read, “seeking to identify the latent demand in the ______________ market for my ______________ product/service.” And your future state could read, “develop and market my product or service in a way that creates and fulfills latent demand in the ___________ market.” You should also describe current and future aspects of your target market in this section.
Step 2: Bridging the Gap (Identification & Description)
The first part of this step involves deciding whether or not a gap exists between the current and future states. A simple “yes” or “no” will suffice in this section on the table. If you believe a gap exists (which will hopefully be the case for at least one… this is a GAP analysis after all!), you should use the next section to describe the gap and the characteristics of it.
Step 3: Factors and Remedies
To start, you’ll need to list all of the factors you believe contribute to the gap(s) you’ve described. The more thorough you can be, the better. Most importantly, the final step is to describe a solution to the perceived gap(s). List remedies, actions, and proposals that specifically correlate with the factors from the prior step. The solutions that you describe should serve as the guiding premise for the product or service you create.
By now, you should know your market and its gaps very well, which has ideally led you to identify where latent demand might exist. If you already had a product in mind, hopefully you’ve been able to modify it to fit potential latent demand, and if you didn’t already have a product in mind, maybe you had an epiphany somewhere along the way.
3. Consider Marketing Tactics
For this next and final step, we’re going to skip the product development stage and jump straight into marketing tactics. Like I mentioned, latent demand has to be developed and proven to your customers since they don’t yet realize that they NEED your product. No matter how well you believe your product or service fulfills the latent demand of a market, actual demand (the kind that leads to sales) won’t exist until you develop it.
Developing actual demand for a product that presumably fulfills the latent demand of a market is accomplished largely through marketing tactics. Retail stores love to carry products that are unique and innovative, which therefore have the potential of meeting latent demand. However, these products won’t sell unless an actual demand is established through marketing tactics like strategic placement and informative displays.
Obviously, a large retailer’s marketing strategies for turning latent demand into actual demand will look much different than those of a start-up, at least initially. However, it’s still very important to know how to market your product well. Throughout your product’s early life, you will have to pitch it to countless stakeholders: friends, family members, nosy strangers, future customers, potential investors, etc. Therefore, developing a sales pitch that is both effective and brief is pivotal to the success of your product. Beyond product pitches, you should approach all of your marketing tactics from the eyes of a completely unknowledgable consumer. Anticipate their questions and concerns, and accordingly develop marketing tactics that expressly address those. Marketing that uses this strategy can turn latent demand into actual demand for even the most skeptical or uninformed customers.
In the end, latent demand is a pivotal economic force to consider as you develop and market a product. Although it is much less tangible than the actual demand of a market, it is arguably much more important. The most successful business ventures are usually those that create a new facet in an existing market, and being the first to identify latent demand is the way to do this. It is, of course, risky to launch a product that doesn't have an equivalent already on the market. However, following the strategies from this post should help you to understand your market and the gaps that exist within it, hopefully decreasing the risk.
As for a strategy for taking down the Goliath of Target's latent demand strategies: you're on your own, David.