Market research involves collecting and analysing information about your industry, customers and competitors and using it to make decisions in your business.
You are probably already conducting market research on a small scale – chatting to customers and suppliers or checking on competitors are some examples.
To get the most out of market research, you need to know what you should be asking and how it can help justify your new start-up.
Types of market research
You can gather information directly from your customers through surveys and focus groups. While it can be time-consuming to get information this way, it’s up-to-date and relevant to your business, and therefore, valuable.
Information on your industry, gathered by third parties, can also be used to understand your market. Government statistics, trade journals, and company surveys are all useful sources of readily available market research.
There are also a variety of reports and existing research available online that you can consult. You might be able to get information from official sources about the average income and age of people living in the area where you want to start your business. The US Small Business Administration and the US Bureau of Labour Statistics are good places to gather information.
Questions for start-ups
If you’re thinking of starting a business, you’ll need to talk to potential customers and study what is happening in your chosen industry. Here are some important questions to ask.
Is there demand?
- Who else is producing the same or similar products?
- What advantages can you offer that the competition doesn’t?
- Is the market saturated or is there room for your business?
- Is the market growing, stagnant or in decline?
If the answers to these questions are promising, ask people who fit the profile of your potential customers what they think of your business idea. Another alternative is to start the business on a small scale or part time to test the market and establish if there is demand for what you are offering. This is a good way to test the water before investing your valuable time and money.
What can I charge?
There are a number of factors you’ll need to consider when deciding what to charge. These include:
- The amount of money you’ll need to generate to cover the cost of sales and your monthly overheads.
- What your competitors are charging. You can find out what your competitors charge by visiting their website, viewing advertising material or discretely visiting their business.
- What potential customers are prepared to pay for your product or service. You can find this out by asking a sample group of your potential customers what they’d be willing to pay.
Once you have a price range in mind, think about the message the price conveys. If your products and services are cheaper than competitors, for example, will people perceive them as inferior? If you’re charging more, can you justify this by guaranteeing better quality or offering after-sales service if needed?
Is there potential to make a reasonable profit?
Once you’ve established that there is a demand for your product, you’ll need to work out how many customers you’re likely to get. Multiply the number of customers you might serve in a certain period (a week, month, school term, or year) by the average spend per customer, and then subtract your expenses.
It’s safer to underestimate your customers and overestimate your expenses to allow for unexpected items or expenses you may have overlooked.
Where should I locate?
Do you need a physical location, or could you be based online? If you’re setting up a physical shop, location is important and particularly for retailers. Consider the amount of foot traffic that passes your store front, the availability of parking for customers, and whether other businesses in the area complement or compete with yours.
If you’re a service business or manufacturer, location possibly is less important. Aim to locate somewhere affordable and easily accessible. Ideally, you’d want to be close to your suppliers and customers and have enough parking for your employees and space to expand if necessary.
What future changes might affect my business?
You’ll need to watch for trends and changes in your industry and local economy. Could politics, social or technological changes impact on your business? For example, is new technology changing your industry? Are there a lot of businesses entering your market, and if so, what are they better at? Could environmental concerns impact on your sales? Is the local council introducing new regulations that might affect your business’s location? Keep informed about potential threats to your business and plan and act accordingly.
Here are some questions to ask your customers:
- What do you like about our business?
- What could we improve?
- What do you think about this particular product or service?
- What do you think of our website?
- Why do you buy from us and not our competitors?
It’s a good idea to keep an eye on your competitors’ websites, Facebook pages, and Twitter accounts to see what products and services they offer, how they communicate with their customers (or don’t), and the loyalty schemes they use. This will help you make better marketing decisions for your business.
Other important questions existing businesses should ask themselves are:
- Who else can we sell to?
- Should we be offering new products and services?
- Have any of our products and services become obsolete or unprofitable?
When it comes to market research, small businesses have an advantage over larger companies. While you may lack the funds to commission experts to do research for you, you are much closer to your customers and better placed to approach them with questions, and you can act quickly on the answers given. When your savings, future, and business reputation are at stake, you can’t afford not to do market research.