Market Research

Market Research

Market research is essential to help you to find out if there will be enough demand to start up and grow your new business successfully in its first year. Many new businesses fail to undertake basic (and in some cases, any) market research before they start, increasing the likelihood of early failure.

You can also use market research to test a new business idea, to measure customer satisfaction levels, to plan product launches, to analyse competitor activity and to help you develop a marketing plan. Whatever its exact purpose, thorough market research will help you confirm or refine your assumptions about your market and business proposition.

How will market research help you?

Your initial market research will be crucial in helping you to identify:

  • Whether there is a market for your business idea.

  • The value and volume of demand for your products.

  • Trends currently affecting your market sector, and likely future developments (for example, proposed legislation or technology changes that may affect your ability to trade).

  • Specific information about your target customers, including who they are, where they live, what gender they are, how old they are, their employment status, how much they earn, their buying habits and characteristics.

  • Who you will be competing against, and their strengths and weaknesses.

  • Whether there are potential business partners you could collaborate with.

Market Research - Information About Your Market Sector

Answering the following questions will help you to build up a picture of the key issues and trends that could influence or affect your business idea and market sector:

  • What volume and value share of the market will you have to capture?

  • Does your knowledge of the market and the research you have carried out suggest that there is sufficient demand for your product or service?

  • Are these markets expanding or declining?

  • What are the current trends?

  • What are the medium-term forecasts for the next two to three years?

Information about your customers

It is essential to accurately define as much detail as possible about who will buy your product or service, so that you can target your marketing efforts precisely towards your target audience. Your market research will help you address the following important questions:

  • The characteristics of your target customers in terms of age, gender, socio-economic status, profession, location, buying habits, ethnic background, interests and so on.

  • The reasons why these specific groups of people (or businesses) will buy from you.

  • How much they are prepared to pay, and how often.

Information about your competitors

Thorough research will help you to understand your competitors' business activities, performance, successes, failures, marketing methods and so on. This research will enable you to identify:

  • Who your competitors are, and how many you have.

  • Where they are located.

  • What your competitors sell, and how they promote their products or services.

  • Your competitors' strengths and weaknesses, and how you can make your business different from theirs.

  • If other competitors will enter your market in the near future.

To find information about potential competitors, your local city / central library may have directories of trade associations and trade publications.

Alternatively, you can identify your business sector's trade association at browse a directory of trade publications online.

Where can you find market information?

Market information is available from a variety of sources. Some is free and useful as a starting point, but often you will need to pay for more in-depth information and data.

For example, accessing detailed market information can involve buying market reports from a variety of premium sources, including those that specialise in publishing data about specific market sectors. This type of information tends to be general and countrywide. However, this can provide you with good background information that is useful for your business plan or marketing plan.

Primary research

After your 'desk-based' research (using the Internet, library, books and magazines to research the information sources described above), you may need to get more specific information through your own original - or primary - research. You would usually gather this information by conducting a survey or through focus groups.

In planning your primary research, you need to consider:

  • How to identify and select a representative sample group.

  • What is the best way of getting the opinions of the selected group (for instance, by phone, e-mail or a personal visit).

  • The best way of choosing and phrasing the questions.

  • How you will analyse and interpret the results.

Talk to your business adviser; they will be able to help you organise your research and can find out if there are any research grants for which you might be eligible.

Providing Value in your Marketing

Marketing Basics

Market Research - Questionnaire

A market research questionnaire is a useful tool for collecting and understanding the views of your customers or potential customers as part of your primary market research. It is also a useful means of adding structure to an interview or focus group. The questions you ask will help you to estimate levels of demand, market size and opinions on pricing in relation to your product or service. In designing the questionnaire, you need to craft questions carefully that will stimulate unambiguous answers from respondents about their needs and wants.

Uses of market research questionnaires

A well thought out questionnaire, which asks the right questions and is properly completed, can be a useful means of understanding aspects about a product or service, such as:

  • Consumers' awareness of your product or business.

  • Consumers' attitudes towards your product or service.

  • Consumers' perceptions of product performance.

  • Consumers' buying behaviour.

Questionnaire techniques

There are three main questionnaire techniques:

  • Personal survey (that is, face-to-face).

  • Telephone questionnaire.

  • Postal/e-mail questionnaire.

Your choice of technique will depend on the type of group targeted and the information required.

Questionnaire structure

A questionnaire can fall into one of three categories - structured, semi-structured or unstructured.

  • A structured questionnaire is a series of 'closed' questions asked in the order in which they are laid out. These questionnaires are best suited to large interview situations like a postal survey.

  • Semi-structured questionnaires (a mixture of 'closed' and 'open' questions) enable you to retain control while also allowing for a wider range of responses. They are often used in business-to-business surveys.

  • An unstructured questionnaire is a series of open-ended questions, the order of which can be changed by the interviewer. This type of questionnaire is often used with narrow or specialist target audiences, either face-to-face or over the telephone. While the unstructured approach can provide valuable insights, it can be difficult to analyse and draw meaningful conclusions from the findings.

There are a number of issues to consider when deciding what structure of questionnaire you should use, including the aims and objectives of the survey. The method of data collection you use must suit the nature of the sample and the questions you want to ask. With telephone and face-to-face questionnaires, for instance, you will be able to answer any queries about the questions, whereas a postal or e-mail survey will be expected to be easy to follow and self-explanatory.

You also need to decide on how you will analyse the data, and incorporate this into the design of the questionnaire (for instance, including boxes to tick or pre-coded questions).

Question consistency is vital; asking your target audience the same questions in an identical order is essential for accurate analysis.

Market Research - Types Of Questions

There are five main types of market research questions:

  • Closed questions - where the only answers are yes/no/don't know. For example: 'Are you planning a holiday this year?' It is possible to anticipate the answer and results can be easily summarised.

  • Open questions - where the respondent is given the chance to answer freely. For example: 'What is your opinion about this new brand of soap powder?' This produces more realistic information, but is harder to interpret.

  • Multiple-choice - where a series of set answers is given, and the respondent chooses one. These are easy to summarise, but it is hard to design these questions without missing out other alternatives. For example, 'If you had a choice of restaurants, which would be your first choice?' (Indian, Chinese, Mexican or Italian?)

  • Direct questions - relating to the respondent's own behaviour. For example: 'Which TV channel do you watch most?'

  • Indirect questions - by asking questions about other people, the respondent's own attitudes are revealed. For example: 'Where do you think the average parent would prefer to buy disposable nappies?' (At a chemist, a supermarket or a delivery service?) Indirect questions should be used in cases where people might mislead the researcher about their own behaviour; for example, they may say that 'The Sun' is the most popular newspaper but might not admit to reading it themselves.

Setting market research questions

  • Ask your questions in a logical order. The first question you ask should tell you whether it is appropriate to continue with the respondent. For example, if the target group are coffee drinkers, 'Do you drink coffee?' could be asked first.

  • Put the easy and interesting questions at the beginning of your questionnaire. Confidential, personal and complex questions should be listed at the end.

  • Make the wording of questions as simple as possible, and clearly define all regional and technical terms.

  • Questions should be precise, related to time, place, type and so on.

  • Avoid double-barrelled questions like 'What do you think about the colouring and design of this product?' These can be confusing to answer and difficult to analyse.

  • Avoid leading questions that imply an answer (for example, 'Most people choose Brand X for its quality, why do you buy it?') or biased questions (for example, 'Would you buy this record if a percentage of the price went to charity?').

  • Be careful how you phrase questions relating to age, income or status. For example, instead of 'Can you afford a holiday?', ask your respondent 'Will you be going on holiday this year?'

  • Avoid asking questions beyond the respondent's span of memory (for example, 'What TV programmes were you watching this time last year?'). Rather, ask the respondent a question that they can answer with confidence.

Testing a questionnaire

Test the effectiveness of your questionnaire before using it as a tool for market research. To do this, the questionnaire should be tried out on a small sample of people. Ensure that the questions are easily understood and give the desired kind of response. This testing should expose any ambiguous or unnecessary questions, and help you to decide whether questions are suitable for the purpose.

Analyzing questionnaire results

Although individual responses can give some interesting insights, it is the collective questionnaire result that is of most use to your research and marketing plans. Analysis involves turning raw data into a representative list of similar responses.

To do this, information can be entered onto a spreadsheet to enable easy comparison between responses. With large numbers of replies it is easier to code and analyse the data using a database. There is the option of handing over your replies to a specialist market research agency that will have data analysis software; however, this can be expensive. You can display your results in charts or tables, and you should aim to produce a report of the findings followed by your recommendations.

  • If you can, limit the number of questions you ask - too many questions may affect the response rate, particularly of postal questionnaires.

  • Ensure that the meaning of the questions is easily understood and unambiguous.

  • If you use an independent market research agency, ensure that they are members of a reputable trade association that stipulates defined codes of practice.

  • If you use a postal questionnaire, it is a good idea to give the respondent an incentive to return it - for example, a prize draw or a discount on a purchase. A return rate of 10% of the questionnaires mailed is considered to be a good response.

  • Be honest. If the results show up something you do not like or had not anticipated, look at it from a positive viewpoint as a foundation for changing your product or market focus.

Further Market Research Advice

  • Your market research will form a major part of your business and marketing plans, so keep your research to refer back to when you are reviewing or developing your plans in the future.

  • Make time to do your research properly. It is one of the most important things you will ever need to do, and getting the right information now will help avoid problems later.

  • Be realistic with your research findings, and be sensible with your assumptions and market predictions.

  • Be careful when asking friends or family for their input as potential customers; they may want to encourage or discourage you unduly, so might offer biased views.

  • If you decide to use an external market research agency make sure they are reputable and experienced agencies and consultants.

Marketing research is an organized way of finding objective answers to questions every business must answer to succeed. Every small business owner-manager must ask

  • Who are my customers and potential customers?

  • What kind of people are they?

  • Where do they live?

  • Can and will they buy?

  • Am I offering the kinds of goods or services they want -- at the best place, at the best time and in the right amounts?

  • Are my prices consistent with what buyers view as the product's value?

  • Are my promotional programs working?

  • What do customers think of my business?

  • How does my business compare with my competitors?

Marketing research is not a perfect science; it deals with people and their constantly changing likes, dislikes and behaviors, which can be affected by hundreds of influences, many of which cannot be identified. Marketing research does, however, try to learn about markets scientifically: to gather facts and opinions in an orderly, objective way; to find out how things are, not how you think they are or would like them to be; to find out what people want to buy, not just what you want to sell them.

Defining the problem (or opportunity), the first step of the research process, is so obvious that it is often overlooked, yet it is the most important step. You must be able to see beyond the symptoms of a problem to get at the cause. Seeing the problem as a sales decline is not defining a cause, it's listing a symptom.

To define your problem, list every possible influence that may have caused it. Have your customers changed? Have their tastes changed? List the possible causes. Eliminate any that you don't think can be measured, because you won't be able to take any action on them.

You must establish an idea of the problem, with causes that can be objectively measured and tested. Look at your list of possible causes frequently while you're gathering your facts, but don't let it get in the way of the facts. (Incidentally, although this publication speaks of problems, the same techniques can be used to investigate potential opportunities.)

Assess Available Information

Once you've formally defined your problem, assess the information that is immediately available. You may already have all the information you need to determine if your hypothesis is correct, and solutions to the problem may have become obvious in the process of defining it. Stop there. You'll be wasting time and money if you do further marketing research.

What if you aren't sure whether or not you need additional information at this point? What if you'd feel more comfortable with additional data? Here you must weigh the cost of more information against its usefulness. You're up against a dilemma similar to guessing in advance your return on your advertising dollar. You don't know what return you'll get, or even if you'll get a return. The best you can do is to balance that against the cost of gathering more data to make a better informed decision.

In gathering information, think cheap and stay as close to home as possible. Before considering anything fancy, such as surveys or field experiments, look at your own records and files. Look at sales records, complaints, receipts and any other records that can show you where you customers live and work, and how and what they buy.

One small business owner found that addresses on cash receipts allowed him to pinpoint customers in his market area. With this kind of information he could cross-reference his customers' addresses and the products they purchased, to check the effectiveness of his advertising.

Your customers' addresses can tell you a lot about them. You can pretty closely guess their life-styles by knowing their neighborhoods. Knowing how they live can give you solid hints on what they can be expected to buy.

Credit records are an excellent source of information about your markets. In addition to customers' addresses, they give you information about their jobs, income levels and marital status. Offering credit is a multifaceted marketing tool, although one with well-known costs and risks.

When you've finished checking through your records, turn to that other valuable internal source of customer information: your employees. Employees may be the best source of information about customer likes and dislikes. They hear customers' minor gripes about the store or service -- the ones the customers don't think important enough to take to you as owner-manager. Employees are aware of the items customers request that you may not stock. They can probably supply good customer profiles from their day-to-day contacts.

To many of us, the term ‘market research’ was something you did if you had a multi-million pound business and you required highly statistical commercial/demographic/product profiling to turn probability into fact. The cost of hiring experts - if you could convince yourself that they would consider taking on your project - was another determining factor against the whole mystique of market research.

There used to be some justification in the past for thinking that market research was beyond the small business owner. There were a number of problems to overcome: the lack of affordable marketing services/agencies, no in-house analysis skills, poor/costly demographic information, and not least our own lack of knowledge in the subject. But, none as big as the business owner not making time for market research before launching a business, service or product.

Look in local libraries for commercial information, local and national newspapers, Yellow Pages, magazines and down your local high street for businesses similar to the one you intend to start and assess from a distance how much room there is for another similar business. Talk to friends and family - especially those who run or manage a business - about how you have thought through your business plan and seek their support: and possibly to the extent that they will also be your first customer/s. This is the way of most small businesses and is sometimes sufficient bearing in mind that the small business owner is unlikely to be competing with big corporations or bulk manufacturing so it’s a case of producing a better product than is currently available locally.

As research is time consuming, and at times costly, planning is vital if you are to ensure your data is sufficient to cover all of your information leads. For instance, if you did your research without first compiling a cash flow forecast you will not be able to ask people if they will pay, as a minimum, the breakeven cost of an item.

You should also ensure that the information you seek is the most critical information you need and not that which confirms something you already know. Ensure the questions you ask are those that get the fullest and most honest response and not the easiest: for those asking or telling!

How to conduct your own market research

You can have the best product in the world but, without extensive information on your customers and their behaviour, your chances of succeeding will be slim. Which is why a knowledge of the market in which your products or services are sold is so crucial. And one of the best ways to gather that information is through rigorous market research.

Not only do you need to know about your customers' behaviour; you must consider external influences such as political, economic, social and technological ( PEST) factors as well. Serious thought should be given to how, when and what type of market information you should be pulling in and how you intend to use it for the profitability of your business.

Unless you are on top of what is happening in your market, you are going to lose out. For example, supermarkets now account for a 60 per cent market share of all wine sales, compared with 30-40 per cent 10 years ago. What this means for smaller wine merchants is that they have to stand out from the crowd to maintain a foothold. Arthur Rackham Fine Wine Merchants discovered this and responded by offering a combination of quality wine and food for its discerning target audience.

The reality for many businesses is that although they understand the importance of market research, particularly before the launch of a new product, very few have sufficient resources to carry it out.

But it needn't cost a fortune. A solution to your cash flow difficulties could be to hire a freelance researcher. Without the overheads of an agency, such a person could quite easily conduct qualitative studies cheaply.

However, it is often not necessary to commission research yourself. Information about your marketplace is already available. Industry reports, secondary data, observation and a secret shopping trip to a competitor might all provide useful insights which could help you build up a broad market picture. To support this broad market view, a company can generate information from its own sales activities and customer base.

How to use the Internet for market research

The Internet offers the largest, most accessible and quickest source of data ever known. There is information out there on almost every conceivable subject, a lot of which is free. The question is how and where to find the precise information you want without drifting or drowning. Knowing how to get access to the information you need quickly and accurately is the most effective way to conduct your market research on the Internet.

What are web directories?

Directories tend to focus on particular topics. They comprise a series of classified headings that you drill through to reach a selected list of relevant websites. So to get information on grants, for example, you could a link through Business to Finance to Funding to Grants.

How do they work?

Directories rely on website owners submitting details of their site to them. The directory editors then visit the site and decide whether it is worthy of inclusion in the directory. Thus you are assured of a certain quality and relevance. However, the lengthy process means that directories are often not up-to-date.

Search for the right stuff

Powerful search tools make it easy, in theory, to find want you want. In practice, many searches can produce vast quantities of material, often irrelevant or unrelated to your topic of interest. Search engines keep an index of keywords on the Internet. Unfortunately, as the process they use to find keywords is automatic, there is no sensible human element to filter out any garbage. Also they do not index many password-protected sites.

What are keywords?

You connect to a search tool by typing its address into your browser. You then type keywords in a search box and the search engine then sifts through its database and presents you with a list of websites that it thinks are relevant. This relevance ranking is based on the number and frequency of your keywords on the target page and where they appear. Pages with your keywords in the first paragraph are more relevant than those where the keywords appear later.

What else can search engines do?

Some search engines can answer natural language queries if you type in normal questions. Although they are easy to use and give a broad overview, you may need a more sophisticated approach to narrow your search. Easier still, most popular portals and browsers have search buttons that automatically bring up the major search tools. But you can get different results if you re-run a search five minutes later and, if it is busy, it may present you only with what it has found in the allotted time.

Try a cross engine search or umbrella site

Different search engines have particular strengths, so try several. You can automate this if you go to "cross engine site". These search several search engines simultaneously, remove duplicates and present a single list of results. Unfortunately you cannot so easily fine-tune your search. Umbrella sites are where an organisation has evaluated key sources on a subject and provided links to them.

Choose your keywords carefully

The order of your keywords can make a difference so put the most important concepts first. Keep it simple: put in only the main concepts. Lock words together with quotation marks: Tony Blair or small business, for example.

Advanced search tips

Search tools have a tips page explaining other advanced techniques. These allow you to find words near each other, or only text only in the page title, or lists of who is linked to a site. Use + to find sites containing multiple words: sailing holiday returns pages containing sailing or holiday. +sailing +holiday pulls up pages with sailing and holiday. Exclude pages with a minus sign, for example : -ocean racing.will throw up pages which refer to racing but not ocean

Access publishers' archives

Many publishers, especially newspapers, have searchable archives of past editions. These can provide very useful background information.

Ask the world

Don't forget the most powerful resource of all - other surfers. Find relevant user groups and post your query. Somebody is almost bound to know the answer or where to find it. Remember, anyone can put anything up on the web. There is no guarantee of accuracy, so try to cross-check data.

A strong Business Plan may not guarantee success; but it could certainly prevent failure!

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