The key advantage of market research is that it could mean the difference between life and death for a business. Studies have repeatedly found that new ventures fail because founders neglect to look at the market before starting the business. Failing to look at the market can lead to problems like:
- Entering an intensely competitive market that does not allow new entrants to generate profitable sales volumes
- Copying a product or service from elsewhere without confirming that it has a market locally
- Failing to build in functionality for the product or service to meet user needs and expectations
All of the above can quickly lead the business to the failed businesses club. What exactly is market research? And what specific advantages does it generate?
In this post, we answer these questions.
What is Market Research?
Market research is a formal exercise to look at a target market and gather data that is important for specific business decisions.
The goal of market research could be:
- Learning about the market like size of the market, competitors and their offers, customer expectations and dissatisfactions, how the product is used, etc.
- Testing your business idea like testing different ad copy versions, different packaging, different prices and so on.
- Using a focus group to test responses to your proposed product and its features and to identify the marketing messages that are likely to work.
- Monitoring your performance in the market such as brand awareness, customer satisfaction and usage of the product.
In the next section, we look more specifically at the goals of market research in the context of a new business.
Market Research for new Businesses
The starting point of market research is a focus on customers. You are trying to find out:
- What value does my product or service deliver to its users?
- How many customers are looking for this value in my target market?
- Considering the average purchase per customer, what will be the size of the market for my product or service?
- What do users of the product or service expect in terms of functionality and features?
- Who are my competitors in the target market?
- How satisfied are customers with the offers of these competitors?
- Are there any customer dissatisfactions or frustrations that we can meet and gain a competitive advantage?
- How can I reach the customers in the target market?
- What kind of marketing message is likely to click with the customers?
It is of course possible to jump into the business with a general idea about these. However, general ideas rarely lead to the kind of business results you are hoping for.
On the other hand, if you take the trouble to get into the field and gather authentic information, you will be in a position to come up with an offer that is likely to click in the market. And promote that offer in a way that resonates with prospective customers.
Let us look at the different ways market research generates business benefits.
Advantages of Market Research
Market research involves serious work. You have to clarify the purpose of the research before starting. Next, you have to design the research consciously to serve that purpose. And finally carry out the extensive range of tasks involved.
Why go to all the trouble?
What benefits can the business expect?
Actionable Knowledge about the Market
Knowledge is power, and specifically actionable when it is about your market.
- When you know what the customer needs and expects, you can design offers that meet these precisely.
- When you know what your competitors are doing, you can develop a marketing message that differentiates you from them and presents your offer to best advantage.
- Meeting customers’ needs precisely and communicating that fact using a distinctive marketing message strengthens your position in the market.
Maximises Return on Investment
When you know the market as above, and can reach your customers with effective marketing messages, your efforts produce results significantly above average. The investment in market research will pay for itself.
On the other hand, if you have no clear idea about your customer needs and expectations, and about competitor offers and activities, you would be wasting a lot of money and effort on trial-and-error campaigns.
The campaigns can fail to generate sales in volumes because your offer falls short in meeting user needs and expectations. Overall return on investment in the business could be seriously affected.
Meaningful SWOT Application
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Businesses use SWOT analysis to identify their internal strengths and weaknesses, and external market opportunities and threats.
- If you are in close contact with the market through continuing research, identification of market opportunities and threats become quicker.
- Market research can also reveal your strengths and weaknesses as compared to competitors.
- The whole SWOT analysis becomes a meaningful exercise and you will be in a position to develop highly effective business strategies.
More effective Control
Control is exercised by:
- Setting targets
- Measuring actual performance
- Comparing performance against targets and
- Taking appropriate actions based on the findings
Setting realistic targets for sales is a challenging task in most situations. The insights generated by market research makes this an achievable task as you gain insights into market conditions, and also about the conversion rates of different types of marketing campaigns.
Branding and Customer Loyalty
With the insights into customer needs and preferences, and offers that meet these, your brand gets associated with a great image in the minds of customers.
They become loyal customers who might even pay higher prices for your product or service. Competitors will find it hard to take business from you.
With such major benefits, market research is something businesses cannot ignore. Considering further that without market research, your business runs a high risk of failure, the case for doing it becomes even more critical.
How do you carry out the market research exercise? We look at it next.
Market Research in Practice
Broadly, there are two types of research, primary research and secondary research.
- Primary research involves going into the field and collecting original data.
- Secondary research involves gathering needed data from published sources, where the original research has been done by others.
Primary data collection is done using questionnaire, conversations and observation. Questions in a questionnaire must be consciously designed to serve the purpose of the market research.
For example, if research is being done before starting a new business, your primary focus will be on understanding customers and competitors.
There are certain best practices for designing a questionnaire.
For example, questions that provide information through YES / NO answers are more effective. Once the questionnaire is ready, you can use the following methods to get answers:
Interviews involve meeting people and getting answers to the questions. Face-to-face and even video interviews are great for getting real insights. You can learn a great deal from facial expressions, tone of voice and other physical cues.
Surveys involve delivering the questionnaire through a text chat interface or email. There are several tools to run online surveys and it is easier to use these than set up interviews. Instead of a formal questionnaire, you can use “moderated” conversations to gather data.
A group of people selected to represent the company’s target customers is assembled. A moderator then guides a conversation around the product, user experience and marketing message for example.
If done skilfully without being influenced by any kind of bias, these conversations can generate high-value insights.
The researcher observes a user using the product in a real life context and takes notes that can be invaluable in designing the product. The observer can note down where the user faces difficulties and try to minimize these, for example.
The methods mentioned above come under the category of “primary market research.” In primary research, you get into the field and gather original data.
You can conduct secondary market research to gather valuable data. Secondary research involves referring to published data to gather the information you need.
Government publications such census reports, departmental reports such as labor department reports and reports published by development agencies such as Small Business Administration can provide data about demographics and much much more.
Trade publications of specific trade associations could provide just the kind of data you need for your business.
Universities and Educational Institutions
Business schools and others might have reports published under different research projects. These might be available in their journals (available for a price).
The World Wide Web
Most of the publications above would be available on the web as online publications. Additionally, you also have social media and competitor websites.
- On social media you can listen to people talking about everything, including products and companies. Listen to them.
- Competitor websites can provide you a great deal of information, such as details of competitor offers, prices, marketing messages and performance.
The data collected as above becomes meaningful only when it is analysed and interpreted. The data can be quantitative data, such as the number of people who consume say, bottled water. Or it can be qualitative data, such as their feelings about the quality of the water.
The data collected is classified and analyzed using appropriate statistical methods. Familiarity with statistical techniques is important for market researchers.
We have looked at what market research involves and the key advantages it delivers.
The core advantage is that it provides us with insights needed to compete effectively in the market. It might even tell us not to enter the market at all.
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