Why is Market Research Important?
Market research is important to better understand the demand from the target market and the implications involved with offering a solution. Businesses of any age can use the data they collect to help generate new product concepts, find new markets, establish pricing, and avoid paths that may not be a good fit.
It's critical to conduct market research at every milestone of the business from cradle to grave. Entrepreneurs can use it to determine if their idea for a new business is feasible. Well-established companies can benefit from market research if they wish to expand into new markets and better define the competitive landscape.
Companies should use this data to refine their product and make them more attractive to the intended customer. This includes everything from establishing an appropriate price to enhancing the design and features of the product itself. The data collected could even reveal potential entry points into related, underserved markets.
Market research can also help the business to better market their product to the intended customer. By understanding such qualities as what they need, where they shop, and what they like/dislike about the competition, the business can better craft a message that speaks to the target audience and gains their attention.
Types of Market Research
There are essentially two main types of market research data.
1) Primary Data
Primary data is first-hand information gathered by the individual or company. For instance, when a business sends you a survey after contacting their customer support, they are soliciting direct customer feedback.
Other commonly used examples may include:
● Focus groups / Interviews - Asking questions and soliciting responses about the product or the preferences of the respondents. These questions may be exploratory (open-ended) or specific (close-ended).
● Observation - Monitoring trends or consumer behavior. For example, collecting data on the browsing and buying patterns of customers through the merchant's app.
● Ethnographic research - Having the interviewer adapt to the environment of the target market so that they can gain a better perspective of their situation.
● Information solicited from market research firms - If a business does not have access to the market or wants to cast a wider net, then it can purchase this information from a market research firm.
Note that primary data can be quantitative (numerical) or qualitative (non-numerical). In either case, these measurements can be analyzed using statistical methods to help the business draw conclusions.
2) Secondary Data
Secondary data is making use of information that's already available to the public. For instance, when the news reports that home prices are declining, a real estate entrepreneur may act upon this information by looking for new properties to purchase.
Other commonly used sources of secondary data may include:
● Reputable online content
● Trade journals
● News from industry associations
● University research
● Government research
● Research published by competitors
How to Do Market Research
Anyone who wishes to conduct market research can do the following.
1) Define the Problem
The first step is to identify what problem exists. This step is critical because nearly all successful businesses are rooted in solving some perceived issue.
For example:
● Fast food exists because people are busy and don't have time to prepare their own food.
● Rental properties are available because not everyone can afford or wants to own a home.
● Mobile phones are popular not only because consumers need a way to contact one another, but also because the apps that can be installed make life and work easier.
It's essential to start your market research by understanding the problem because it can provide better insight into the nature of the overall market. For instance, is this problem temporary or is it something that will always be a challenge for society?
2) Propose Your Solution
Based on the problem, how do you intend to solve it and compete in the market? In other words, what will your product or service will be?
At this time, your idea doesn't have to be too specific. This will be an iterative process and your final solution may look very different from the initial concept as you complete your market research and gain more perspective.
However, you should have a general sense of what it is you'd like to sell to your customers. This will be critical because with each concept you brainstorm, you'll also want to compute how much your costs would be.
3) Identify Potential Customers
With the problem and potential solution in mind, who would be the most likely to buy it from you? Attempt to qualify this by determining your customers:
● Gender
● Age
● Geographic location
● Occupation
● Income level
● Etc.
Keep in mind that your buyers could be anyone from a niche group of people to various demographics worldwide. At the same time, you'll also want to have some sense of how large of a market you'd like to compete in: local, regional, national, etc.
4) Identify the Competition
The next logical question to ask yourself is who is already a player in this market? For instance, if you'd like to open a coffee franchise, how many other restaurants in the area are already serving coffee?
This step is necessary because it can help you to learn whether or not the market is already saturated. Returning to the coffee shop example, if there are already several other places serving coffee, then perhaps a different location or a related service (i.e., coffee shop and bakery) should be pursued.
Studying the competition also gives you some insight into the product they are offering. This is desirable for understanding the:
● Product features
● Pricing
● Observable demand
Use the information you discover to better refine your product and its ability to satisfy demand.
5) Collect Data
Now that you know what to look for, the next step is to begin collecting data. This should come from primary and secondary data sources.
Again, data collection does not necessarily have to be done on your own. If the budget allows for it, then it could be outsourced to market research firms.
6) Analyze the Findings
Data is only meaningful when it can be used to spot trends or tell a story. At a basic level, this can be done with statistical analysis tools like creating charts, building a histogram, or finding patterns. If more complex analysis is required, then it may be helpful to contact someone who has experience in this field.
7) Draw Conclusions
Finally, what can we say about the proposed business venture? Does it make sense to proceed, or is the market too saturated? Is there too little demand? Would the profit margins be too small?
While drawing your conclusions, try to remain as unbiased as possible and listen to what the data is telling you. For example, suppose you'd really like to invent a product and take it to market, but the research says otherwise. Unfortunately, this could be a sign that the product wasn't meant to be and that your efforts would be more successful if applied to a different venture.
Examples of Market Research
It’s important for businesses of any size to survey the market and make educated predictions about how their venture may endure. The following are a few examples:
● An entrepreneur would like to open a local landscaping business. At first, he notices a lot of other landscaping contractors and fears the market may already be too crowded. However, after taking a closer look at the competition and interviewing potential customers, he recognizes that almost none of them offer fertilization services. Hence, he decides to move forward and target this niche sector of the market.
● An inventor has created a product they believe satisfies a common problem. She does her market research and finds out that there are already similar products on the market that are substantially cheaper in price. She decides to hold focus group sessions and learns from the feedback that they would still be willing to pay for it despite the higher cost.
● Imagine there's a software company that already has a successful platform for buying and selling products but uses an external supplier to process payments. After consideration, they decide it would be strategic if they could create their own proprietary software to also process payments. The company researches the current competition and decides that not only would they save money internally but that there would also be an outside demand for this service, and it would be profitable at their current target price.
The Bottom Line
Market research is how entrepreneurs and businesses learn more about the landscape that they wish to operate in. The data collected tells them valuable information about customer demand, competition, profitability, and attributes that should be included within their own product. Market research should be used to spot trends in the environment and draw conclusions about the likelihood of the venture being successful.