For the uninitiated, it’s neither a tangible object nor is it an accounting function you’ll see on a business school classroom chalkboard. Rather, it is the unarticulated demand consumers have for solutions they didn’t realize they were seeking.
Latent demand, we find, exists for two reasons. First, consumers are always open to better ways to address their needs. Marketers erroneously declare their market to be “mature” only to be unceremoniously surpassed by some unforeseen upstart that understands consumers want convenience, customization and positive experiences. Second, consumers are rarely able to envision or articulate the new solutions they would benefit from. To identify latent demand opportunities, start with the fact that latent demand is available within any industry, including your own.
Companies need to look at the same consumers and situations they’ve always looked at but see things never seen before. Leaders must challenge existing approaches to industry and push back on the time-honored orthodoxies dictating prices, distribution and marketing. Think about how you would disrupt your own industry and how others might disrupt it.
Companies must also learn to see the world through the eyes of the consumer, which, granted, is not as simple as it sounds. As management expert Peter Drucker noted, “The buyer rarely buys what the seller thinks he is selling.” Seeing the world through consumers’ eyes enables companies to avoid this trap and illuminates latent demand potential.
If you’re a business owner, product developer, or aspiring entrepreneur eager to energize the hunt for latent demand, we propose four approaches:
First, challenge the industry’s dominant business model. If that model happens to be centered around, say, low cost, you may be able to tap latent demand by taking a premium approach. Alternatively, a company could work on decreasing ownership costs and expanding the market.
Second, crash the category. This means, importing a new benefit or set of benefits from a different industry or country. Find out if consumers are buying and bundling multiple products to deliver a single desired benefit and if importing new benefits could open up opportunities.
Third, latent demand can be tapped by stripping down offers with too many features that add cost but don’t add value for significant customer groups. Find out if consumers will be okay with more affordable, convenient options that don’t have as many bells and whistles or may have different bells and whistles that cost less to deliver.
Fourth, and finally: try to resolve tradeoffs. Demand can be unlocked in situations where consumers are forced to make compromises that leave them unsatisfied. Find out if customers have to sacrifice performance for speed, great taste for greater healthiness or low cost for convenience.
Successful innovation is less about unbridled genius than about focusing on the evolving needs of your actual – and potential – customers. Understanding your consumer and uncovering latent demand is possible, and with it comes growth.
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