Conducting Market Research: A Small Business Guide
Essential for almost any business, carefully crafted market research should ensure you'll only launch products destined for success
Before you start up, gaining an understanding of your potential market is essential. You might have the greatest idea ever on paper, but if it doesn’t fly with your potential customers, it’s time to think again. Good market research can deliver these essential insights that test the viability of your business idea.
This article provides an introduction to market research for any small business. We cover how to identify your target market, and how to conduct your own market research.
You will learn how to leverage different sources of information to conduct research at low cost, what you can learn from your potential competition, and whether to employ the services of a market research agency.
Read on to find out more.
What should market research help you find out?
The key element of market research is identifying your potential customer base.
From your product, you should already have a general idea of what kind of customer you will target – you wouldn’t set up a dry cleaning business targeted at children, for example.
Use ‘the five W’s’ to guide your information gathering here – who, what, when, when, where and why.
- Who? -Who are your customers? If you are selling to consumers, you need to establish their age, sex, income bracket and lifestyle choices. If you have a business-to-business offering, investigate their size, sector, and general purchasing patterns.
- What? -What products will your customers buy the most of? In what quantities?
- When? -When will you see the most business? A wedding planner service will see most of its custom between the months of May and September, for example. Similarly, a kebab shop won’t expect much custom before 10pm.
- Where? -Where will customers buy your product? Will they prefer a retail location or could you sell online?
- Why? -Why should customers buy from you? In other words, what is your USP (unique selling proposition)? Your market research should establish whether there is a real need for your product.
How do I conduct my own market research?
When you have established which customers to target, you need to find a representative sample of your target market and conduct your own research into whether there is a real demand for your product. Broadly, you can do this in one of three ways.
Firstly, let people use your product or service and ask them what they think. The simplest method of doing this is allowing your potential customers to sample your product and ask them for their honest opinions. For example, if you plan to run a management consultancy, you could invite some of your target businesses to undertake a free initial consultation. At the very least, you will be amassing a list of contacts.
Secondly, undertake quantitative research. This is an approach in which all participants are asked the same questions (usually through a survey), with the answers providing hard statistics you can use to inform key business decisions. If you were looking to open a coffee shop, your research might reveal that 40% of adults in your area drink coffee, and 9% visit a coffee shop regularly.
Finally, undertake qualitative research. This kind of research produces less hard statistics, but can be much more revealing about people’s general attitudes to a particular product or service, and uncover insights impossible to glean from surveys.
Generally, such research is undertaken in focus groups of around 10 people (or a series of face-to-face interviews), and participants are asked open questions and encouraged to discuss their attitudes towards a certain subject (“What do you think about coffee shops?”)
How do I ensure my research is conducted fairly?
There are a number of simple and straightforward things you can do in order to ensure your research is conducted fairly. While you’ll always want positive feedback, it’s not always what you need and sometimes negative feedback can be more helpful in the long run.
As a result, don’t use friends and family for market research if at all possible – they are likely to just tell you what you want to hear. People who don’t know you are much more likely to give an objective opinion.
When looking at responses of said participants, it is a good idea to get an objective party to analyse them for you; you may subconsciously downplay criticism and negative feedback if you do it yourself.
Finally, learn from criticism. Negative feedback is the most valuable – approach critical comments with an open mind, and see if you can use the feedback to refine your business model.
What are some low-cost research methods?
In addition to the market research you conduct yourself, there are a number of resources you should use to obtain large-scale insights at low cost.
Commercial market research reports are available to purchase online and they can give you detailed information on things such as consumer trends, purchasing habits and sector-specific insights. Sites such as Mintel, Marketresearch.com and AMA Research should help you in this regard.
Trade associations can also be a value resource for a cheap method of research. The trade association covering your proposed sector may compile industry-specific market research for its members – and reports are often free. Find your local trade association by clicking here.
Finally, UK National Statistics provides a number of UK-wide governmental statistical reports that can reveal valuable insights into your sector. Reports are free.
What can I learn from my competitors?
Taking the time to gain a thorough understanding of your potential competition might be the most valuable piece of market research you do.
Put yourself in the customer’s shoes and analyse it from their point of view. What are they doing well? What could be improved upon? By doing this, you might be able to spot a gap in the market you could fill, or how you could offer an improvement on your competitor’s product.
Work out the demand for the competitor’s product and see if you can improve on it in any way. Will this change over time? Is there a way you could offer a cheaper alternative? Is the market saturated, or is there room for a competitor?
Should I use professional help?
You might decide that getting someone else to do it for you is a better option than doing it yourself. Your options include:
A market research company
Hiring a specialist market research company will be expensive, but they will be able to use their expertise to give you an unparalleled understanding of the market tailored to your exact needs. Visit ESOMAR to find a market research organisation.
Hiring an individual
Research doesn’t necessarily have to be conducted by a professional. You could hire an individual to conduct telephone interviews for you, for example, or interview people on the street (street interviewers need permission from your local authority). You could also pay someone to sift through the results you gathered. If you do this, make sure you brief the person properly – leave nothing to chance.
What should you do after completing your market research?
The importance of market research as a small business cannot be overstated. The more research you do, the better understanding you will gain about the market and your potential position within it.
For this reason, it’s generally not a good idea to set time limits on your research, but finish when you have a genuine understanding of how your offering will work.
After you have done your research, learn about the following: