Test Your Product Research Ability by Doing A Multiple Choice Question!
2019-08-23

Let’s take a look at a practical exercise of product research. Here are 4 potential products from an Amazon seller, which belong to four different sub-categories on Amazon. The total market capacity is similar, how should we choose?

 

Market A: Hammock Stands 



Market B: Flags



Market C: Car Chargers



Market D: Wall Stickers & Murals



Many new sellers tend to look at the total market sales when deciding whether to enter a certain market. The logic behind the judgment is simple: in such a large market, there are definitely more opportunities, so I can share a piece of the pie.

However, it is difficult to objectively evaluate the difficulty of entering a market for new sellers based on the total market sales.

The first element to judge whether a market is accessible is: market competition!

But how to quantify the intensity of competition in a market?

Is it a highly fierce competitive market

Or a relatively low competitive market?


Let's go ahead and give some examples:

Learning to quantitatively evaluate the competition in the market from four dimensions, which based on sales distribution of top 100 Listings in these 4 markets. 


Note: Generally speaking, the top 100 sales data of the sub-category not only represents the best products sold in this market, but also reflects the most real and strong demand of consumers in this market. It is the valuable market data that sellers need to research.


Market competition dimension 1

Commodity Concentration


First of all, when analyzing the Top100 Listings of these four markets, we should not just focus on the total market capacity, but also pay attention to the specific sales and sales distribution of each listing.


Chart description:The abscissa is the rank of listings, the ordinate is the sales and sales proportion of each listing. The “total listings in sample” in the upper right corner is 100 by default. The new product definition is optional.(corresponding to the purple volume in the chart)


● Market A



● Market B



● Market C



● Market D



We can learn from these chart: The sales of Market A is mainly concentrated in the top one listing, which means that most of sales in this market is occupied by the top one. The sales distribution of Market B and C is more dispersed than that of Market A. TOP100 Listings all have obvious sales. Market D sales distribution trend is more flat, which indicates that this market is less monopolistic.


In order to more accurately quantify the intensity of competition in the market, let’s take a look at the definition of commodity concentration: The total sales of top 10 Listings is T, and the total sales of top 100 listings is A, then Commodity Concentration = T/A.


Meanwhile, combine the other concentration indicator in data overview to analyze:

Market A: The Commodity Concentration is 76.7%, which means that remaining listings only account for about 20% of market share. If new sellers enter, it will be hard for them to carve up this little market.

Market B & Market C & Market D: The commodity concentration of Market B is 22.5%; the commodity concentration of Market C is 35.1%; and the commodity concentration of Market D is 20.0%; which means that remaining listings of these markets account for about 70% of market share. If new sellers enter, they will be motivated to operate such market.


After analyzing the commodity concentration, we can eliminate Market A.



Market competition dimension 2

Brand Concentration


Chart description:The abscissa is the brand's sales ranking, and the ordinate is the sales and sales proportion of each brand. The “brands” in the upper right shows top 100 listings are distributed in how many brands. The new product definition is optional.(corresponding to the purple volume in the chart)


● Market B



● Market C



● Market D



In order to more accurately quantify the intensity of competition in the market, let’s take a look at the definition of Brand concentration: The total sales of top 10 brands is T, the total sales of top 100 listings is A, then brand concentration = T/A.


Meanwhile, combine the other concentration indicator in data overview to analyze:

Market B: Brand Concentration=81.9%

Market C: Brand Concentration=57.0% 

Market D: Brand Concentration=46.2%


We do not give a specific analysis here, and eliminate Market B directly. The total number of brands is small and brand monopoly is high. Consumers focus on some brands during purchase, and it is difficult for new brands to enter. Next, we will compare market C with market D.



Market competition dimension 3

Seller Concentration


Chart description: The abscissa is the rank of sellers’ sales, the ordinate is the sales and sales proportion of each seller. The “Sellers” in the upper right shows the total number of sellers in this market. The new product definition is optional.(corresponding to the purple volume in the chart)


● Market C



● Market D



In order to more accurately quantify the intensity of competition in the market, let’s take a look at the definition of Seller concentration: The total sales of top 10 sellers is T, the total sales of top 100 listings is A, then seller concentration = T/A.


Meanwhile, combine the other concentration indicator in data overview to analyze:

Market C: Seller Concentration=55.6%

Market D: Seller Concentration=34.7%


For the monopoly of Market C, the top 1 seller accounts for nearly 16% of the total sales. Sales distribution is uneven.


Under this situation, we exclude Market C.



Market competition dimension 4

Reviews


Chart description:The abscissa is the reviews interval; and the ordinate is the number of listings and sales proportion corresponding to each review interval.


It presents the difficulty of entering the market. We can learn from the chart that: The number of listings with 1-50 reviews is the largest, new products can compete with similar products and get sales with less than 50 reviews. The cost of building reviews in the early stage is very low.


In conclusion, we can quantitatively evaluate the intensity of competition in a market from the following four dimensions:Commodity Concentration, Brand Concentration, Seller Concentration, and reviews. However, market competition is only the first step for sellers to choose products. Therefore, although market D has gone through the above multiple screening, we still need to make further data analysis and judgment. Such as profitability of the market.