Market Research

The words "Market Research" are often scary to entrepreneurs.  They do not need to be.  Your challenge is to determine if there are customers for your product or service, how many customers are there, how much will they pay and how you will get them to buy.

This is not an academic exercise.  Its objective is to generate meaningful operating numbers that can be used for your projected income and operating expenses and relate that data to your company.  Growth in your industry is only beneficial if you can relate it to your increased revenues.

Marketing means more than selling, it is concerned with every aspect of the product or service from inception, design, pricing, distribution, selling and promotion through to after sales service and measurement of customer satisfaction.

Your market research will form the basis of your marketing strategies.  Promotions can include advertising, radio spots, sponsorships, brochures, signage, business cards, referrals, direct mail, and guest speaking.

Do you understand the market for your product or service?

The most significant aspect of a business is its ability to provide a product or service the market wants and at a price the market is willing to pay.  It is therefore very important that you thoroughly research the market before establishing your business.

An operator’s understanding of the market can make or break a business, especially during its early stages.  Conducting market research will provide you with up-to-date information on the people who are likely to buy your product, the prices they are willing to pay and the type of product they want.

One of the harsh realities of business is that not everyone has 20/20 foresight or an infallible instinct for making the right decision.  Being informed and having accurate information will enhance your chances of success.

Successful marketing requires timely and relevant market information.  Although the expense may be a deciding factor for many small businesses, there are significant cost benefits offered through the insight market research can offer.  An inexpensive research program, based on questionnaires given to current or prospective customers, can often be a good starting point.

Market research also identifies trends that affect sales and profitability.  Population shifts and local economic situations should be monitored to quickly identify problems and opportunities.  It is also important to keep up with competitors' market strategies.

What is a market?

A market can be defined in one of two ways.  It can either be:

• An existing group that you can sell direct to (for example a bakery always sells to an existing market)
• A potential group that you will need to create to support a new product or service (for example an invented product or service which would be untried and untested and therefore require a market audience to be created from scratch

In both cases it is worth finding, understanding, recognising and dividing markets into smaller segments, which can then be studied.

Market segmentation

Segmenting a market involves identifying distinct groups of potential buyers by gathering information across a range of types.  These can include age, family size, life cycle, occupation, location, product knowledge, product usage, lifestyle, values and personality.

Find out about your market

Typical topics that will help you to discover the particular needs for your marketplace include:

• Age.
• Gender.
• Address.
• Occupation.
• Spending habits.
• Educational standards.
• Average income.
• Amount of disposable income.
• Favourite colours, styles, models etc

A fashion manufacturer, for example, will want to know who can afford their clothing, who has a highly developed sense of style, what the age breakdown is and other factors relevant to their industry and target market.

After segmenting their market and interpreting this information, the fashion manufacturer can make more accurate decisions about styles, ratios, quantities and costs.

Match your product to the market

Your goal when segmenting the market is to match your product with a market.  Typical research questions would include:

• Who will buy the product?
• Where are the potential customers?
• What are they willing to pay?
• How would they like the product presented.
• In what quantities will they buy?
• What colours, sizes, quantities or varieties will they buy?
• What competition already exists?
• What is the profile of an ideal customer?
• How can you divide the marketplace?
• How do you reach potential customers?

Keep your product in touch with its market

The following activities will help to develop your knowledge of the market and foster a good relationship between your product and its market:

• Following and reacting to trends in the market.
• Contacting market research companies and the Australian Bureau of Statistics.
• Keeping abreast of all government regulation of your market and industry.
• Dividing your market into sales territories.
• Knowing how to communicate to each segment of your marketplace.
• Knowing which media, language and imagery to use.
• Knowing which trade publications, newspapers or magazines are relevant.
• Knowing who the key players in your industry are.
• Knowing what buying and consumer groups exist in the industry.

When conducting market research, it is usually best to hire a professional to conduct it for you, as they bring to the task an understanding of the marketing and economic environment, experience, a range of proven methods and the computer programs and power necessary to process data and interpret the results.

The importance of market research

While conducting market research can be time consuming and costly, the cost of research needs to be balanced against the importance of ensuring that your business venture is successful.  Some businesses will conduct research using their own staff but it is often difficult to be objective about your own product.

Experienced market researchers, on the other hand, have the industry networks and systems in place to deliver a comprehensive, unbiased and ultimately more useful research report.  Unless you have had extensive experience in the area, it is often a wise decision to hire professionals to conduct all or part of your market research rather than doing it yourself.

Types of market research

There are two main types of market research:

• Quantitative - using information such as statistics, ratios and market size.
• Qualitative - using information gained through human relationships with the market.

 
Quantitative data is objective, formal, unbiased and in its most common form involves questionnaires of the yes/no variety.  Quantitative data, while supplying easily digested facts about your market, does not provide an in-depth response to your product or service.
Qualitative data, which is subjective, open-ended, and informal, can provide a more complete picture by finding the reasons why your audience does or does not like your product or service.  The most common form of qualitative research is the focus group.

All good researchers will combine both kinds of data to provide the most strategic and significant report.

Questions to ask: the four P's

The four questions which form the basis of any good market research are known as 'the four P's'.  These are:

• Product. 
• Price. 
• Promotion 
• Place (or position)

Using the four P's to guide your research will help you to focus the questions you need to ask, such as:

• Who will buy your product or service?
• Where are the customers?
• How often will they buy and in what amounts?
• What styles and colours do they like?
• What sizes or specifications are needed?

While long-established businesses can call on experience and historical trends, which they have charted over many years, businesses in the start-up stage need to answer these questions before they embark on a marketing strategy.

Even established operations need to analyse their products and markets regularly and cannot rely on historical data alone to drive their marketing strategies.

Six steps in market research

A common and effective method for conducting market research uses the following steps.

1.         Define the problem.

This is the most important step and it is vital to document the needs, preferences and feelings of the market as accurately as possible.

• State the nature of the problem and the terms of reference clearly and accurately.
• Define any associated issues e.g. challenges in the marketplace, specific wants, needs, likes and dislikes of prospective customers.
• Devise a set of market research questions.
• Ensure that the parameters of the results are defined and agreed upon.

2.         Make a preliminary investigation

Typically, this stage uses desk research where other studies and data are analysed and other experts are consulted for their opinion in order to focus the enquiry.

• The definition is tested and, possibly, redefined.
• New and unnoticed issues are defined.
• The actual character of the investigation starts to emerge.
• Theories to be evaluated are formulated.

3.         Plan the research

At this step you can now select the techniques and the methodology of the study.  For example, techniques such as questionnaire surveys, sales forecasting, market measurements, motivation research, operations research and factor analysis are devised and applied, ready to receive the data.

• Specific pieces of information required for the research are defined.
• All available facts are incorporated.
• Appropriate research techniques are finalised.
• The most suitable probability models are selected.

4.         Gather factual information

This can be done in many ways including:

• Telephone polling.
• Mailed questionnaires.
• Personal interviews.

Which method you select will depend on the depth of information required.  Some research areas require personal interaction, while others may be answered by a simple 'yes' or 'no' answer over the telephone.

5.         Interpret the information

The data is studied, computed and segmented according to criteria such as age, location, or income level.  The theories of the study are then tested against the real data, and results are displayed in a meaningful format (e.g. using diagrams, graphs or written descriptions) so that conclusions can be drawn.

6.         Reach a conclusion

Once the results of your research have been interpreted, your conclusions will look at recommendations for action or a further need to define and locate any 'missing' information.  As part of your conclusion you will need to:

• Redefine or restate the problem.
• Redefine or restate any related issues.
• Clearly state your conclusion, including any actions or recommendations.

This broad information may not reflect the uniqueness of your product or service, specific selling techniques, the personality and size of your company.  Therefore, you need to narrow it down by making it a better fit.

Often you can learn from experienced personnel you interview to fill sales positions in your company.  Ask them to document their historic production claims with commission statements and pay stubs.  What do they think of your concept?  Your pricing?  How would they improve it?  Sell it?  What mistakes are their current employers (your competition) making?  Obviously, this anecdotal information should be weighed carefully depending upon the motives and credibility of the source.  However, by interviewing enough people, a pattern of accurate data begins to emerge that is useable.

If possible, test the market by making actual sales calls and trying to close deals.  Go to a similar market elsewhere if confidentiality is a consideration.  This is a hands-on process, your own experience may help in the narrowing process but it’s not nearly as credible or objective as a third party source.