Successful entrepreneurs are renowned for intuitively feeling a market’s pulse, project trends before anyone else detects them, and identifying needs that even customers are unaware of. After you are famous, perhaps you can claim a similar psychic connection to the market. But for now, you’ll need to reinforce your claims to market insight by presenting solid research in your plan.
Market research aims to understand the reasons consumers will buy your product. It studies consumer behavior, specifically how cultural, societal, and personal factors influence that behavior. For instance, market research aiming to understand consumers who buy in-line skates might study the cultural importance of fitness, the societal acceptability of marketing directed toward children and teens, and the effect of personal influences such as age, occupation, and lifestyle in directing a skate purchase.
Market research is often split into two varieties: primary and secondary. Primary research studies customers directly, whereas secondary research studies information others have gathered about customers. Primary research might be telephone interviews or online polls with randomly selected target group members. You can also study your own sales records to gather primary research. Secondary research might come from reports on other organizations’ websites or blogs about the industry.
Conducting market research provides answers to those unknown elements. It will greatly reduce risk as you start your business. It will help you understand your competitive position and the strengths and weaknesses of your competitors. And it will improve your marketing and sales process.”
Questions to ask about your industry
To start preparing your industry analysis and outlook, dig up the following facts about your field:
- What is your total industry-wide sales volume? In dollars? In units?
- What are the trends in sales volume within your industry?
- Who are the major players and your key competitors? What are they like?
- What does it take to compete? What are the barriers to entry?
- What technological trends affect your industry?
- What are the main modes of marketing?
- How does government regulation affect the industry?
- In what ways are changing consumer tastes affecting your industry?
- What are recent demographic trends affecting the industry?
- How sensitive is the industry to seasons and economic cycles?
- What are key financial measures in your industry (average profit margins, sales commissions, etc.)?
How to find similar companies
When looking at comparable businesses (and their data), find a close match. For comparative purposes, consider:
- Companies of relative size.
- Companies serving the same geographic area could be global if you plan to be a web-based business.
- Companies with a similar ownership structure. If you are two partners, look for businesses run by a couple of partners rather than an advisory board of twelve.
- Relatively new companies. While you can learn from long-standing businesses, they may be successful today because of their twenty-five-year business history and reputation.
You will want to use the data you have gathered not only to determine how much business you could do but also to figure out how you will fit into and adapt to the marketplace.
How to do original research
One limitation of in-house market information is that it may not include exactly what you’re looking for. For instance, if you’d like to consider offering consumers financing for their purchases, it’s hard to tell how they’d like it since you don’t already offer it.
You can get around this limitation by conducting original research—interviewing customers who enter your store, for example, or counting cars that pass the intersection where you plan to open a new location—and combining it with existing data. Follow these steps to spending your market research dollars wisely:
Determine what you need to know about your market. The more focused the research, the more valuable it will be.
- Prioritize the results of the first step. You can’t research everything, so concentrate on the information that will give you the best (or quickest) payback.
- Review less expensive research alternatives. Small Business Development Centers and the Small Business Administration can help you develop customer surveys. Your trade association will have good secondary research. Be creative.
- Estimate the cost of performing the research yourself. Keep in mind that with the internet you should not have to spend a ton of money. If you’re considering hiring a consultant or a researcher, remember this is your dream, these are your goals, and this is your business.
- Don’t pay for what you don’t need.