20-11-2007
Understanding your target customers – the unseen Dragons of the Den
by Rosie Beasley for Simply Business
I’ve never lost any personal belongings while sailing, probably because I’ve never been, but once I did drop my door key through a gap in the floorboards of my local pier, to be lost forever in the murky depths of the North Sea. As a consequence I couldn’t get into my house, which was pretty annoying.
So I can sympathise with boat lovers who lose such things overboard at sea. The Waterbuoy – featured on Episode 5 of Dragons’ Den – is the perfect foil for those unfortunate nautical mishaps and with it James Halliburton has invented a winning product for his target market. It solves what is presumably a common problem on boats and is an easy, convenient, even desirable gadget for boat owners and keen sailors everywhere to attach to their keys.
Create simple solutions for real problems
In a programme which so often demonstrates that inventors and start-up companies ignore their core markets completely when developing their products, it is refreshing to see such a simple example to the contrary.
Understanding the people to whom you wish to sell is a large factor in the success of a new business. It is the key to many important activities such as product development and design, packaging, marketing and sales.
James impressed at least three of the Dragons, not just because his product appealed to their inner sailor, but also because of the future potential of the product. While Deborah and Duncan were put off by his high profit forecasts, Theo, James and Peter all saw past the basic product to all the other possible uses for the technology.
Patenting your product, particularly the technology behind it, always scores points with the Dragons, and in this case it’s easy to see why. The Waterbuoy has uses that extend well beyond a key chain. In theory it could be fitted to every item on a boat, including the people!
Get the price (and the product) right
In contrast, it was hard to identify which people virtual puppeteers David Field and Ali Kord were targeting with their animation technology. They were quite vague about the type of business that would want to buy their product and clearly had done no research to find out. Suggesting that their virtual puppets are a way for branding companies and experiential marketing companies to bring their clients into the digital age is also a bit insulting to any such agencies they might try to target.
What these guys have as a product is simply a ridiculously expensive novelty gadget. You have to feel a bit sorry for David since he invested his own money in a venture with no solid basis for a profitable or even viable business. The price of purchasing just one of their units is a steep £20,000 with another £8,000 added on for each new animated character.
The cost of these virtual puppets is prohibitive and unjustifiable, not least because operating it also involves additional costs like having to pay a person on-site to be the voice and body of the animation, or of training staff to use the technology. Children are the only end users who this type of interface might appeal to, and even then they’d probably be happier and less frightened by a man in a costume.
Knowing the price at which to pitch your product is another important aspect of understanding your potential customers that businesses need to get right. Too high and you’ll never get off the ground. Too low and you might devalue your business.
However the animated character did provide some humour in what was fast becoming a public flogging for poor David and Ali. Its random facial expressions while the pair were presenting their pitch were timely and classic!
Do your research
When starting a business you really have to develop all aspects of your product with your target market in mind. Everything from the brand name, to the design, to the usability, to the price needs to meet the needs and more importantly fulfil the desires of the people that would buy it.
The best way to find out what your future customers want and who they are is by conducting research.
Anne Hempstock had certainly done so before she entered the Den, and this plus her proven experience with developing alcohol brands appeared at first to stand her in good stead. Her product is Cream Cutie, a bite-sized Baileys-esque cream liqueur drink.
Her own experiences with purchasing and drinking this type of beverage, plus research into the market had shown her a gap for developing a drink along the same lines as Baileys, but in an alcopop format. Anne knows that few people ever get to the bottom of a bottle of cream liqueur, usually consigning it to a cupboard after a few glasses only for it to go mouldy. Her research also told her that as a result people wanted smaller bottles at a more reasonable price.
The name itself - Cream Cutie - doesn’t strike a cord for me as a female (clearly the market she is aiming at). However the bottle design and the concept show early potential for the 
development of a strong new alcohol brand for women, a market in which there is still much leverage for new products.
However, Anne unfortunately fell flat upon discussing her financial projections and forward plans for the business. The Dragons drew her into a discussion about selling the brand on for a profit, and as she has had some experience in this area she fell easily into this trap.
Had Anne mentioned plans to sell the drink into pubs and bars, or to take it from being solely a Scottish brand to a UK-wide brand, she may have had more success with the Dragons.
Beat the competition
The final entrepreneurs to enter the Den - Shane Lake and Tony Charles - have a business that was launched into an already competitive market. For them, making Hungryhouse.co.uk a success will be as much about researching their competitors as about knowing their customers, despite achieving an investment in the Den from James Caan and Duncan Bannatyne.
The Hungryhouse website is an online portal for ordering takeaways. The concept is simple: choose from a range of restaurants and takeaways, view the menus and prices, read the reviews from other customers, and place your order. The customer pays for the food on receipt, while the website charges the restaurant a 9% commission on the order.
While such an idea is useful and is likely to have a wide appeal – anyone who owns a computer and an internet connection could become a customer – it lacks any unique selling point to differentiate it from similar companies. For a business that relies for its revenue on taking a commission from other businesses, there has to be a USP that sells the concept as a viable business opportunity to these restaurants.
A quick search online reveals several pages of similar takeaway companies before Hungryhouse even appears in the listings. Some of these are better than others, but realistically only the most determined of hungry punters will persevere to page 4 of the search results.
In their pitch, Shane and Tony failed to come up with anything that set them apart from the competition. However my own small bit of research revealed that the opportunity is there to corner the market for whichever company comes up with the best interface, and has the most restaurants. Hopefully with help from the Dragons, who saw potential profit in their business, the pair will be able to come up with a more complete product offering.
Episode 5 of Dragons’ Den showed us the good, the bad and the downright terrible when it comes to understanding target markets and demonstrating this in a pitch. No entrepreneur should even be thinking about launching a business without gathering this vital background information. Sinking your money into an idea for a product or service that no-one wants to pay for is a sure fire way to business failure.