Market research is the process of gathering information about your businesses industry, customers and competition in order assess the feasibility of your business idea. Prior to starting your research it is important to determine your objective and to clearly define your research questions. Many entrepreneurs avoid doing market research out of fear they will not find what they want to find or because it can be costly / time consuming. However, making decisions without first doing some research can be risky. Market research should therefore be seen as a crucial first step before moving forward with your business idea. Knowledge of the market gives you the advantage of making informed decisions, which in turn should improve business success. The findings of your market research should form the basis of your businesses marketing mix - commonly referred to as the ‘4 Ps’ of marketing - Product, Place, Price and Promotion.
Although market research is generally considered to be part of the planning stage of starting a business, periodic or ongoing market research is often needed throughout a business’s life span. For example, it can be beneficial to conduct additional market research when expanding, changing location, opening a new location, entering a new market or adding a new product/service line.
When conducting market research both primary and secondary data can be used. Primary data refers to data that has come directly from the source (your target market in this case). Focus groups, interviews, surveys and observation are all considered sources of primary data. Secondary data refers to data that has come from another source such as an industry publication, journal, website, chamber of commerce, or government agency. Usually it is a good idea to start your research with secondary data in order to see what’s out there and identify what information you still need. A good place to start looking is at your local library or simply on the Internet. One of the benefits of using secondary data sources is that it is less resource intensive since someone else has already collected and organized the information. However, one of the challenges with using secondary data is it can be difficult to find the precise information you are looking for in order to address your research questions. As a result, many people choose to supplement their secondary research with some form of primary data collection. This may be as simple as counting cars to get an idea of traffic at a potential business location or can be more complex involving a series of interviews and/or focus groups. Ultimately, the level of complexity is dependent on the business owner and to an extent the size of the business.
Primary Data Collection Methods
A survey or questionnaire is a series of questions related to the topic of interest. Surveys and questionnaires often have a range of possible responses which respondents can select.
- Depending on the design, data can be counted and statistical analysis can be performed
- Can be less time intensive than interviews and focus groups if not completed in person
- Large sample sizes are possible
- Lower cost than interviews or focus groups
- Responses are usually short and/or selected from a predefined list limiting the depth of the data
- Response rates are low, particularly if the survey/questionnaire is mailed or e-mailed to respondents
- Using Surveys to Conduct Market Research http://www.allbusiness.com/marketing/market-research/1311-1.html
- Questionnaires and Surveys - A Free Tutorial http://www.statpac.com/surveys/
An interview is a structured discussion in which the researcher aims to gain information on the views and experience of each participant individually. Usually multiple interviews are conducted until the researcher feels the responses (or the data) are becoming repetitive. This is often referred to as the point of saturation. Interviews can be formal or informal depending on the purpose of the research and the researcher.
- Can provide in-depth insight
- The interviewer can probe for more detail whenever needed
- A one-on-one setting may make some people feel more comfortable and willing to more freely provide information
- Can be time consuming
- Analysis can be difficult
- In some cases an individual’s actions will not correspond with what they say. Consequently, the data can be misleading in behavioural studies such as those looking at purchasing patterns in a specific target market
- In Depth or One on One Interviews http://www.marketstreetresearch.com/capabilities/methodology-in_depth.htm
- Personal Interviews http://www.fao.org/docrep/w3241e/w3241e06.htm
A focus group is an organized group discussion, usually with four to eight participants, that aims to gather information on the views and experiences of participants in relation to a specific topic that is supplied by the researcher.
- Allows the researcher to view collective human interactions and determine the degree of consensus on a topic
- Can gather a large amount of information in a limited period of time
- Can provide in-depth insight
- The interviewer can probe for more detail whenever needed
- Can be time consuming
- Without experience focus groups can be difficult to facilitate
- Often an individual’s actions will not correspond with what they say they do. Consequently, in behavioural studies interviews, focus groups and questionnaires alone can be unreliable
- Group setting can be intimidating for some respondents
- Using Focus Groups in Market Research http://www.b2binternational.com/publications/white-papers/market-research-focus-group/
- Ten Tips for Running Successful Focus Groups http://www.groupsplus.com/pages/mn091498.htm
Observation refers to any activity in which the researcher uses their senses to observe the activities of their subjects.
- Can be used to support and/or cross reference information obtained through the interviews and focus groups
- In some cases it can be difficult to be discrete
- Can be subjective
- The Past, Present and Future of Observational Research in Marketing http://www.emarketing.net.cn/upload/file/2009/09/21/211253540738542.pdf
- Seven Rules for Observational Research: How to Watch People do Stuff http://www.quirks.com/articles/a1997/19971208.aspx?searchID=625728
Researching your industry will help you gain a better understanding of the environment in which you are operating your business. An industry is a grouping of businesses fulfilling a similar need. For example, at a broad level the food industry would include everything from food producers to restaurants, grocery stores, caterers and convenience stores.
In North America industries are categorized using the North American Industry Classification System (NAICS). Looking up your NAICS code may help you find information from government agencies; however, this information is often too broad to be particularly useful to small business owners operating in a specific industry segment. Many libraries carry a range of ‘how to’ books on starting various businesses. Picking up one of these books may be a good place to start. Your local library may also be able to direct you to the appropriate resources for finding out more information on your industry.
When researching your industry you want to look for information about sales trends, changing demand for your product/service, industry standards and new markets. Since statistics are often out of date, also consider how the current economy will impact your industry. If you have concerns, plan for any problems and consider ways to minimize the risk. Social and environmental entrepreneurs should also investigate trends in sustainable consumption and how they will impact their business. Increasingly, incorporating sustainable practices into your business model can give you a competitive advantage over other businesses who have failed to recognize the value of such practices.
When running a business it is important to know who your target market is so that you can effectively market to them. Customers can be described in terms of both their demographics and psychographics. Demographics include age, gender, race and income, whereas psychographics refers to the values, beliefs, interests and personality of your customers. It is particularly important for social and environmental entrepreneurs to understand the psychographics of their customers since values and beliefs play a large role in influencing ‘green’ consumers purchasing decisions. Although not all ‘green’ consumers are the same, a basic understanding of their common characteristics/values may help you examine the market for your environmental product or service. Since sustainably produced products often need to be sold at a premium it is also important to be aware of the elasticity of demand. In other words, how sensitive consumers are to the price for sustainably sourced and produced products.
In general, understanding your customer’s preferences will help you learn how to better serve them. Improved understanding can help you make important decisions such as where to locate your business and how to set convenient business hours. It may also give you an idea of how your customers make their purchasing decisions, which in turn will help you with sales. If you are selling business to business you can define your target market in terms of business size, legal structure, location, industry and services/products offered. Since every business has its own culture, it is also possible to research businesses to determine what their values and beliefs are.
Once you know who your customers are the next step is to find where they live and work. Fortunately, demographic and geographic information is usually collected with census data and is often available at local, regional or national government offices making this step fairly straightforward. To start contact your local government office or search their website.
Your competitors can provide valuable insight into your industry and customers. When researching your competitors pay attention to things such as their pricing, business hours, online and offline marketing presence, location, store layout, sales/discounts, guarantees, return policies and advertising. Analyzing your competitors can provide a wealth of information in terms of how to/how not to run your business.
When researching your competitors you may find it helpful to categorize them into two groups: direct and indirect. Direct competitors are those competitors who offer the same product or service as you; whereas, indirect competitors are those competitors who fulfill the same need as your business does. For example, two video rental stores would be direct competitors whereas a cinema and video rental store would be indirect competitors. Of course you should be more concerned with your direct competitors; however, if you have a unique business idea you may find it difficult to find direct competitors and therefore will need to focus on your indirect competitors. When conducting competitor research one thing to keep in mind is that every business has competitors, it is just a question of how direct or indirect they are.
Once you have completed your research the next step is to compile and review the information you have found and begin to formulate a plan for running your business. You may find it beneficial to perform a SWOT analysis for your business. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.
Strengths and weaknesses are internal factors that you have some control over, whereas opportunities and threats are external to your specific business. For example, a strength may be your education or past experience working in the industry. A weakness could be that you have limited marketing knowledge. An opportunity may be increased demand for environmentally friendly products and a threat could be the recent global economic recession.
Much can be found on the SWOT analysis technique on the internet. For example: this brief article presenting the SWOT framework:
And these articles futher describing SWOT analysis methods, as well as providing examples and downloadable templates:
Relevant government service websites and market research data resources
- The Environmental e-Market Express (a U.S. Department of Commerce commercial service - monthly notifications of environmental market research, trade leads and events) http://www.buyusa.gov/eme/enviro.html
- Canada Business Government Services for Entrepreneurs http://www.canadabusiness.ca/eng/88/
- Industry Canada Economic and Market Research Statistics http://www.ic.gc.ca/eic/site/ic1.nsf/eng/h_00072.html
- Market Research World (a host of online resources and research related articles relevant to market research buyers, researchers, newcomers to the industry, students and individuals with an interest in the market research industry) http://www.marketresearchworld.net/
- RBA Market&Research (self-proclaimed "world's largest market research resource" - contains a long list of web-based data resources) http://www.rba.co.uk/sources/mr.htm
- Sustainable Business – Is There a Market? (an open-access wikibook containing detailed information on market research for sustainable business) http://en.wikibooks.org/wiki/Sustainable_Business/Is_there_a_market%3F
- The 4 Ps are out, the 4 E's are in (a thought-provoking article defending the need for an update in the traditional "marketing mix" concept, due to the changes in markets over the past 50 years) http://www.ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx
Key Resources for Business Planning, Marketing and Financing on the Entrepreneur's Toolkit
- Start a Social Enterprise
- Find help for your project?
- Research your markets
- Write a Business Plan
- Raise money for your sustainble enterprise
- Write a fundraising letter
- Develop your business through networking