Introduction to Market Research

Introduction to Market Research

Introduction to Market Research

Good instincts and intuition certainly play important roles in business But gut feelings about yourcustomers' needs and preferences aren’t enough If you want to minimize risk and improve your chances

of success, you need sound, objective data That's where market research comes in

Market research is the process of collecting and analyzing information about the customers you want toreach, called your target market This information provides you with the business intelligence you need

to make informed decisions Market research can help you create a business plan, launch a new product

or service, fine tune your existing products and services, expand into new markets, develop anadvertising campaign, set prices or select a business location

Types of Market Research

Market research methods fall into two basic categories: primary and secondary Your research mightinvolve one or both, depending on your company’s needs

Primary research involves collecting original data about the preferences, buying habits, opinions andattitudes of current or prospective customers This data can be gathered in focus groups, surveys andfield tests

Secondary research is based on existing data from reference books, magazines and newspapers, industrypublications, chambers of commerce, government agencies or trade associations It yields informationabout industry sales trends and growth rates, demographic profiles and regional business statistics

Using Market Research

Market research allows you to pinpoint a host of key business factors about your market It can help youidentify:

o Growth trends in your business sector

o Size of your target market

o Best location for your business

o How your business stacks up against the competition

o Factors that influence buying decisions

o Degree of demand for your product or service

It also can reveal key information about your customers and prospects, including:

o Their demographic profile

o The types of features or special services they want

o What they like and dislike about your product or service

o How they use your product or service

o How often they buy and how much they will pay for your product or service

Once you analyze the results of your market research, you'll be in a better position to create a focusedbusiness plan, develop a targeted advertising campaign, set competitive prices, select a new businesslocation or take other steps to grow your company.

Market-Research Techniques

Market research can provide critical information about the buying habits, needs, preferences andopinions of current and prospective customers While there are many ways to perform market research,most businesses use one or more of five basic methods: surveys, focus groups, personal interviews,observation and field trials The type of data you need and how much money you?re willing to spendwill determine which techniques you choose for your business

1 Surveys Using concise, straightforward questionnaires, you can analyze a sample group that

represents your target market The larger the sample, the more reliable the results

o In-person surveys are one-on-one interviews typically conducted in high-traffic locations such asshopping malls They allow you to present people with samples of products, packaging oradvertising and gather immediate feedback In-person surveys can generate response rates ofmore than 90 percent, but they are costly With the time and labor involved, the tab for an in-person survey can run as high as $100 per interview

o Telephone surveys are less expensive than in-person surveys, but costlier than mail However,due to consumer resistance to relentless telemarketing, getting people to participate in phonesurveys has grown increasingly difficult Telephone surveys generally yield response rates of 50percent to 60 percent

o Mail surveys are a relatively inexpensive way to reach a broad audience They're much cheaperthan in-person and phone surveys, but they only generate response rates of 3 percent to 15percent Despite the low return, mail surveys are still a cost-effective choice for small businesses

o Online surveys usually generate unpredictable response rates and unreliable data because youhave no control over the pool of respondents But an online survey is a simple, inexpensive way

to collect anecdotal evidence and gather customer opinions and preferences

2 Focus groups In focus groups, a moderator uses a scripted series of questions or topics to lead a

discussion among a group of people These sessions take place at neutral locations, usually at facilitieswith videotaping equipment and an observation room with one-way mirrors A focus group usually lastsfor one to two hours, and it takes at least three groups to get balanced results

3 Personal interviews Like focus groups, personal interviews include unstructured, open-ended

questions They usually last for about an hour and are typically recorded

Focus groups and personal interviews provide more subjective data than surveys do The results are notstatistically reliable, which means they usually don't represent a large segment of the population.Nevertheless, focus groups and interviews yield valuable insights into customer attitudes and areexcellent ways to uncover issues related to new products or service development

4 Observation Individual responses to surveys and focus groups are sometimes at odds with people's

actual behavior When you observe consumers in action by videotaping them in stores, at work or athome, you can observe how they buy or use a product This gives you a more accurate picture ofcustomers' usage habits and shopping patterns

5 Field trials Placing a new product in selected stores to test customer response under real-life selling

conditions can help you make product modifications, adjust prices or improve packaging Smallbusiness owners should try to establish rapport with local store owners and Web sites that can help themtest their products

Secrets of Successful Market-Research Studies

Whether your goal is to expand into new markets, introduce a new product or service, or gauge customerreactions, even the smallest of small businesses can benefit from a simple but well planned market-research study

Market research helps you understand your market, your customers, your competitors and largerindustry trends Good research will reveal details about your current customers and help you target newcustomers For example, before you open an organic produce market, find out if there's a demand forfood grown without pesticides and if customers will pay more for it

In addition to giving you insight into customer needs, market-research studies can help you avoid costlymistakes, such as introducing an unpopular new line of goods or developing a service that no one reallywants Coca-Cola's introduction of New Coke in the 1980s shows what happens when decisions aren'tsupported by good research Coca-Cola revised the formula of its traditional Coke brand of soft drinkand lost millions in sales By performing a study and asking people what they thought of the newformula, the company could have avoided public-relations headaches

When you set up a market-research study for your business, follow these basic guidelines:

Use the right sample The research sample — your study’s group of participants — has to be just the

right size Too large a sample costs too much, and too small a sample offers inaccurate results

You also need to make sure you have the right samples from your overall population Even a sample assmall as 1 percent of a market or group will work, as long as the sample truly reflects the overallgeographic area or population you want to query

Mirror the market Your surveys must reflect all characteristics of the market, such as geographical

area or population group from which it is drawn Nielsen TV ratings are based on very small samplings

of the overall audience, but they're accurate to a few percentage points

For example, if half of your target market is aged 65 and older and half is 30 and younger, make surethat the sample size accurately reflects your demographic If one-third of your market lives in one townand two-thirds lives in another, your survey must reflect the geographic split in order to give youaccurate information about your market

Get quantifiable results Successful studies follow proven approaches, often based on the world of

statistics and sampling But don’t worry — you don't need a PhD in mathematics Most results can betabulated with simple arithmetic and broken down into percentages that anyone can understand

If you follow these guidelines, you’ll collect information that can contribute to the success of yourenterprise In short, market-research studies can save money, save time and — above all — save youfrom disaster

Understanding Your Target Market

No business can be all things to all people Instead, you must reach specific customers and satisfy theirparticular needs As an entrepreneur, you must identify those customers and understand as precisely aspossible what they want

The process of finding and studying potential customers for your venture doesn´t have to be complex orexpensive but it is extremely important In a nutshell, it requires you to find out everything you canabout the customers you intend to pursue Once you have that information, you´ll have a much betterchance of capturing those customers for your business

The facts you need to know about your target market fall into these three categories:

Demographics Begin your research by checking the demographics of the region you plan to target.

You´ll want to know the population´s make-up in terms of age, gender, income level, occupation,education and family circumstances (married, single, retired and so on)

To find that information, you´ll probably need to visit the local library Good sources available at mostlibraries include:

o Country and City Data Book, published by the U.S Department of Commerce

o Survey of Buying Power Data Service, published by Sales and Marketing Management

Geographic and lifestyle factors Give some thought to where and how your target customers live Are

they Southerners or Yankees; urbanites, suburban soccer moms or country folk? Are they risk-takers orconservative; athletes or couch potatoes; spenders or savers? The answers will help determine what youcan sell to them, how you should sell it and at what price

Customer needs Consider all the reasons why people might buy your product or service For example,

say you´re opening a string of health clubs Will your customers come to meet other people, to takeexercise classes or to play racquet sports with their friends? Find out by talking to people in the localfitness industry and by quizzing friends or acquaintances who go to health clubs Then you can designand market your club accordingly

Once you´ve considered the key demographic factors, you can begin to assemble a customer profile, amore focused statement that describes your target market in detail Consult that profile when you makedecisions about issues such as what products and services to offer or advertise; how much to charge forvarious products; and expansion plans

Market Survey

1 In what type of business, industry or profession do you work? (Please check one.)

 Education

 Government/public administration

 Manufacturing

 Personal/business services (consultant, CPA, lawyer, etc.)

 Transportation/public utilities

2 What is your position? (Please check only one.)

 Chairman of the Board

5 Do you serve on your company's board of directors?

 More than 24 months from now

8 In the last 12 months, have you been directly involved in initiating,

recommending, ordering or approving the purchase of any of the following products or services for your firm? (Please check all that apply.)

 Accounting services

 Answering/paging systems

 Building materials/equipment

 Computers and computer

accessories and/or related

computer equipment (include

 Travel services

 Advertising /PR/sales promotion

 Banking and financial services

 Car/truck/van purchase or lease

 Computer software

 Copiers

 Express mail/courier/package delivery, overnight delivery

 Office furniture and fixtures

 Other office machines

(calculators, typewriters,

postage meters, etc.)

 Temporary office help/employeerecruitment

Motivation Survey

1 How knowledgeable are you about computers?

 Very

2 Which of the following are important to you when evaluating a computer equipment purchase? Check all that apply

 After-sales support

 Best price for features

 Easy to use

 Lowest price available

 Newest technology available

3 Which of the following sources of information do you use to make

decisions about computer or software purchases? (Please check all that apply.)

4 Which of the following publications do you rely on for information

regarding your business or your plans to start a business? (Please check all that apply.)

5 As a small-business owner, please check those of the following topics

covered in Entrepreneur magazine that you consider useful

 All of the above

 New ideas for business

On Target

You need market research to hit the mark with prospects But if costly surveys and focus groups aren't in your financial picture, try these creative, budget-friendly ways to get to know your target audience.

Entrepreneur magazine - August 2004

By Isabella Trebond

Would you shell out $200 for a pair of shoes without trying them on? Plunge into a steaming bathwithout dipping a toe in first? Of course not?but people do the business equivalent every day Many an

entrepreneur has found out too late that nobody wants to buy hand-quilted Christmas stockings at $24.99

a pop, or that moneyed customers won't trudge to the unfashionable part of downtown for luxurystationery

The paradox: Conventional market research is expensive (corporations regularly budget tens or hundreds

of thousands of dollars for it), but no one needs it more than a startup entrepreneur A couple ofmarketing blunders won't put a giant manufacturer out of business, but just one can sink an entrepreneurwith shocking ease

This article walks you through the basic steps of do-it-yourself market research We'll skip the true but unaffordable techniques?like focus groups, professional surveys and direct-mail questionnaires?and fast forward to ideas for those of us with more creativity than cash The focus is on startup research,but many of the same techniques can also be used to refine your marketing plan for an existing business

tried-and-or to figure out why it's not flourishing the way you think it should

You'll start by roughly defining your typical customers, determine if enough of them exist, and, finally,try to decipher their buying habits, preferences and prejudices

Step 1: Define Your Target Customers

Your "target customers" are those who are most likely to buy from you Resist the temptation to be toogeneral in the hopes of getting a larger slice of the market That's like firing 10 bullets in randomdirections instead of aiming just one dead center of the mark?expensive and dangerous

Try to describe them with as much detail as you can, based on your knowledge of your product orservice Rope family and friends into visualization exercises ("Describe the typical person who'll hire me

to paint the kitchen floor to look like marble ") to get different perspectives?the more, the better.Here are some questions to get you started:

 Are your target customers male or female?

 How old are they?