Modeling An Entry Strategy for the Tablet Market

Modeling An Entry Strategy for the Tablet Market

Summary

Even the best-designed product will face steep challenges in a highly competitive category. Using consumer data, Vital Findings can simulate the impact of a product introduction in order to optimize the market entry strategy. Using a discrete choice methodology, the team at Vital Findings can develop a market simulation to determine whether and how a company could successfully enter a growing but crowded market, like the market for tablet computers. In this case (abstracted from our work at previous companies), a major electronics company approached our team to test a variety of product configurations and pricing strategies within a competitive context. Powered by consumer preferences derived using a discrete choice methodology, we created a desktop market simulator calibrated to actual sales and profit data, allowing strategic planners to examine the potential impact of the new device on the market. Using this approach, our client could determine if/when they should go to market with their new product, establish the key features to enhance the product design and focus their messaging on, and quantify projected market share.

Objective

Determine if an electronics company should enter the market for tablet computers, and the best strategy for doing so.

Apple dominates the tablet market with the iPad. Our client has newer technology, including some potential breakthrough features...but so do Apple's other competitors. Further, bringing a new tablet to market will take 12-18 months, during which Apple could release a new tablet (or simply announce one) and the competitive environment could also shift. Our client could simply buy analyst reports, field a survey, conduct focus groups, or even use a concept testing service like BASES to evaluate their tablet's chances. But the high potential for the market to shift makes this challenging. To truly understand whether and how to enter the market, they need to simulate how consumers would react to their product introduction based on different market scenarios.

By coming to Vital Findings, the client could maximize their chances of success by building a forecasting model that takes into account consumers' preferences for different brands and product features, as well as consumers’ informed opinions on what products they would buy in different market scenarios. Given these objectives, off the shelf methodologies won't do -- the client needs a discrete choice survey with an elegant, custom design.

Advanced Analytics Survey

Approach

Over the past decade, the best minds in marketing science and economics have developed and refined discrete choice as a methodology for measuring the extent of consumer preferences for product features and pricing strategies, and have successfully used this to simulate consumer reactions to new products. This method demonstrates not only which features consumers consider most in making buying decisions, but also how much each feature matters. For example, in the tablet market, consumers may say they decide which tablet to buy based on product features and price. But tested in a competitive context, consumers may demonstrate that brand is the overwhelming decision criteria -- for example, some consumers may never choose a device that is not made by Apple (and others may have the opposite reaction). Discrete choice allows us to understand what the "price of entry", "nice to have", and "deal breaker" features are for a new tablet.

In discrete choice, consumers are essentially asked to go shopping in the survey -- based on 12-14 shopping scenarios, which product do they prefer most, and which would they actually buy (if any)? As part of the realism, consumers see 4-6 products per task and each product has a list of key attributes that are crucial to the decision making process (e.g. brand, price, memory, wifi/internet, Bluetooth, apps, operating system, screen size, weight, etc.). To develop these scenarios, Vital Findings conducts qualitative research to learn about the consumers’ decision criteria in the category and key features that should be incorporated into the product descriptions.

Further, in this case, our client needs an even more custom discrete choice design. While their main objective is to decide whether to "greenlight" their tablet, they really have three goals:

  • Understand which product features are most important to consumers
  • Quantify their potential market share and profit opportunity (best case and worst case) based on the current market
  • Understand the impact on potential market share and profit opportunity of Apple introducing a new tablet device

A standard discrete choice study would be appropriate to address the first two objectives; the third requires a custom design. In our custom design, consumers first evaluate products based on the current state of the market. Then, we introduce the scenario of Apple introducing a new tablet to the market, and test scenarios where there are multiple competitors from Apple. By comparing these new scenarios to consumer reactions to the current market, we can help our client measure the additional risk posed by this scenario, help them understand the importance of timing their product introduction, and whether to enter the market at all.

Finally, using current sales, and cost data, we can calibrate each market scenario to revenue and profit, quantifying the opportunity for our client. And by delivering a desktop tool in addition to our analysis, the client's strategic planning, finance, marketing, and product development teams can evaluate "what if" scenarios based on different features, prices, and competitors in the market.

Result

Using the model, Vital Findings' team can determine whether the new tablet is likely to grow the market or take enough share from competitors to represent a viable business opportunity. By running the model under different price and feature constraints, we can estimate the company's best-case and worst-case revenue, providing a critical consumer-based option for managing risk. Finally, by allowing the company to determine which price/feature combinations maximize share, they can maximize their chances of success if they do decide to launch.

Opportunity

Choice-based methodologies offer the latest advances in marketing science. Product introductions are extremely complicated, and discrete choice is a powerful methodology to minimize risk and maximize the opportunity for success.

By quantifying consumer preferences for product features, this method can also help with the following questions:

  • Which consumer segments are most price sensitive, and which are more likely to pay more for advanced features?
  • Is improved technology enough to counter the advantages of having a dominant brand?
  • How can I tie my consumer segmentation closer to actual feature preferences?
  • Consumers say they're "very likely" to buy the product I want to develop. What does that really mean?

Keywords

  • Market Simulation
  • Discrete Choice
  • Quantitative Research
  • Product Strategy
  • Feature Optimization

Innovative Methods

What advanced analytics enhancements does Vital Findings provide?

Discrete Choice Methodology:
This method allows for multiple market scenarios and product configurations to be tested simultaneously.

Interactive Tool:
Vital Findings delivers an interactive tool that manipulates the model to analyze the “what if” scenarios, bringing the data to life and providing the most accurate recommendations.

Advanced Analytics Interactive Tool

Clients can see the impact on consumer demand of changing prices and product specs.

Qualitative Research to Develop Decision Criteria:
The discrete choice model is enhanced by including findings from qualitative research that determines how consumers make decisions in the category, allowing us to add these factors into the survey design.

Customized Discrete Choice:
Our expertise allows us to go beyond pre-packaged solutions; in this case, we developed a two-phase design to simulate the market before and after the introduction of another Apple tablet.

Financial Projections:
Cost of production and pricing data can be used in conjunction with the sales data to calibrate the consumer-based model produced by the discrete choice data, allowing us to estimate potential revenue and profit.