Conducting Market Research
Market research does not have
to be highly sophisticated, expensive or complicated. It can be a
do-it-yourself thing. The important thing is to make sure it gives you
reliable information that you can use in building your business. Market
analysis provides information about the market potential which provides
the basis for accurate sales forecasting and your marketing strategy. Its
basic components include:
- An estimate of the size or the market
for the product/service;
- Projected market share;
- Information about your market; and
- Analysis of the competition.
Market research involves activities
designed to obtain data about the market and falls into two main
- Primary research involves collecting
new data through market surveys and other field research - specific
studies that are conducted on behalf of your company.
- Secondary research involves gathering
preexisting information that is useful to your purposes from published
In addition to conducting research, it is
quite valid to rely to some extent on your own opinions and observations,
especially if they have to do with your local community. "Outsiders" will
not know a community like the people who've spent their lives there.
However, it is important to back up your opinions with data and research.
Don't rely solely on your intuitive feelings; they're probably not enough
to go to the bank with. Resist the temptation to only look for data that
confirms your opinions.
Information you gather goes into
estimating the sales your company will achieve during its first few years
of operation. The feasibility study and business plan you are putting
together are built upon these estimates. Because research is one of the
principle tools for determining whether the business will work, it is
worth making an investment.
You need to be as specific as possible
about the dimensions (size, trends) of the opportunities your business
faces. Since a new business doesn't have a track record, your research
must be thorough enough to enable you to make realistic sales estimates.
Primary research is information you gather firsthand. Common examples of
primary research information-gathering techniques include personal
interviews, surveys and focus groups.
Observation is also a common technique.
You record what your customers do naturally. Through observation, market
researchers determine how consumers behave as they buy and use a product,
or how they are influenced by some marketing strategy being used by the
business. This method works very well in a retail environment. It is a
useful technique to learn how and then, perhaps, why customers purchase a
product that is in direct competition with your product. If your product
is already being sold, you might watch how your customers act while
purchasing your product.
A pitfall of the observation technique is
that the presence and/or bias of the observer can influence the behavior
of the subject. As you observe customer behavior in stores, markets, etc.,
try to be inconspicuous in your presence.
When businesses gather primary data, they
often are gathering qualitative data. Qualitative data is data that cannot
be counted. It reveals the quality of a subject's experience or beliefs.
Qualitative research is gathered by allowing customers to answer questions
in an open-ended, unstructured manner. Customer preferences might be
examples of qualitative data. Focus groups, one-on-one discussions or
interviews can provide qualitative data.
Secondary research is information you
gather from existing sources like statistical information from published
sources. Quantitative data describes things that can be measured and
analyzed with statistical analysis. These are expressed in numbers and
reveal such things as the quantity of customers with a particular
characteristic. How much do your customers earn each month? How old are
they? How much do they spend each month on groceries?
Both qualitative and quantitative
information can be important to you as you do your market research. There
is a problem with using only quantitative data gathered from a small
number of individuals. It may not be a large enough number of people, with
a large enough product sampling to be reliable for decision making. Would
you make the decision to completely change your product based on the
thoughts of a handful of customers? When you combine quantitative and
qualitative data, however, you can expand what you learn by combining or
showing connections between observations, preferences and the quantitative
data you have developed. You can develop a good base of information, for
example, about the characteristics of your typical customer.
The place to start your primary research
is with your customer. You may ask, "What information should I find out
about my customer?" The answer is "everything." The better you know and
understand your customer's wants, needs and desires, the better able you
are to meet those needs with a product that sells. The goal of gathering
and analyzing customer information is to prepare a customer profile. This
customer you expect to market your product or services to is called your
target customer and represents an average or typical customer. It may be
one profile of one customer group or several profiles covering several
Demographic vs. Psychographic Customer Data
Businesses gather demographic and
pyschographic data in order to discover more about their customers.
Demographic data describes specific characteristics of an individual such
as age, level of education, occupation, income, marital status and
address. Psychographic (lifestyle) data describes an individual's
activities, interests, opinions and beliefs. This data give marketers
insight into such things as how potential customers live, make buying
decisions or plan for the future.
To illustrate the magnitude of demographic
and pyschographic trends, consider the following psychographic trends that
have directly impacted marketing strategies today.
- Shifts in age make-up of the
In the United States, 77 million baby boomers make up one-third of the
population and represent one fourth of the economy's purchasing power.
As baby boomers reach their peak income earning years, their income is
expected to double. The size of the youth market (people ages 12-19) is
expected to continue decreasing, but its spending is increasing. The
mature market (individuals 50 years old and over) commands half of the
discretionary income in the United States and holds 77 percent of its
assets. Within 30 years, one-third of all Americans will fit into this
- Changes in family composition
Increases in the divorce rate and the percentage of working women and a
decrease in the birthrate after 1960 have all caused major changes in
the make-up of the typical American family.
- Increasing proportion of
In 1990, 58 percent of women worked, as compared to 33 percent of women
in 1950. In 2000, the number of women in the workforce again rose. Women
are entering the work force at younger ages and changing the face of
American business in nearly every industry. The time crunch that many
working women feel has helped to fuel the boom Internet and telephone
shopping and other timesaving services.
- Increase in ethnic backgrounds
Historically, cities have traditionally held people from many different
ethnic backgrounds, while rural areas have tended to be more homogenous.
However, economic and demographic shifts the last 20 years have changed
that historical pattern and rural America now is home to people of many
different colors, nationalities and religions. This ethnic diversity
provides numerous opportunities to develop new specialty and ethnic
markets for products.
- Shifting male-female purchasing
Because more women are working in addition to having a family, men are
playing a larger role in child care and household duties than ever
before. Although 80 percent of the grocery shopping is still done by
women, marketers are beginning to see a shift in who makes the
purchasing decisions. Because women are earning more money and achieving
more professional independence, they are spending more money on travel,
dining out, entertainment and luxury products.
These are only a few of the major trends
you can observe, research or read about that could affect the products you
wish to take to the market place.
Your Market Potential
After gathering your primary and secondary
research information, you are ready to analyze your market potential. You
should be ready to answer these questions.
- Who is your target customer?
- What are the defining characteristics
of your target customer?
- Who is your competition?
- What are your competitor(s)' product(s)?
- What is your current trade area?
- What is your market size?
- What are your market trends?
- What is your market potential?
- What is your true production potential?
Adapted from Marketing, Research and Analysis; NxLevel Training.