Monday, January 11, 2010

Intangibles Develop New Markets

One of the most famous examples of the power of product intangibles is xerography. In the late 1950's, the Haloid Corporation (the predecessor of Xerox Corporation) developed the first dry copier, but ran short of funds for marketing. Haloid approached IBM with the notion that IBM handle distribution. The idea seemed to be a good one, in that IBM had the sales force and service organization that Haloid would otherwise have to establish.

IBM hired Arthur D. Little, Inc. (ADL) to do a study of the market for dry copiers. ADL reported that the entire U.S. potential market was 5,000 machines. The study was used as one of the factors in IBM's decision to reject the Haloid offer.

So, with limited resources, Haloid brought the 914 Xerox copier to market. In the first two years, even though production was constrained, over 10,000 units were placed in use. Twice as many copiers than the predicted potential of the total market were sold. This story, and others like it, demonstrate the power and value of the tangible / intangible product concept.

ADL and IBM looked primarily at the tangible product. Haloid, on the other hand, concentrated more on intangibles. The 914 was sold in a unique way: based on a flexible utilization plan (in other words, on an intangible).  A customer could acquire a Xerox 914 for as little as $95 per month, which covered the machine and the first 2,000 copies per month. Additional use was billed on a cost per copy scale.

Customers bought double the projected total market forecast in the first two years primarily on the intangible aspects of the product. This is but one of many examples of short-sided research that focused more on tangibles than intangibles.

It has become a premise of the industry that research cannot uncover a market for a product that does not yet exist. But this premise is wrong. The problem is not with research, per se, but with research that focuses exclusively on the tangible product factors.

Good qualitative research, conducted by well-experienced professionals, often can elicit glimpses of markets based on intangible factors that might otherwise be ignored.

Are your market research efforts focused on the tangible or intangible side of solar/photovoltaics?

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