Market research for beginners

One of the most important factors in business success is a good knowledge of your market. For a start, is there an ongoing, significant need for your product or service? Even if there is a need for it, is there a desire for it? What alternative solutions are people using now? How much does this cost? Why should they switch to you?

These are all basic questions every business owner/manager needs to ask when they set up, and indeed continually throughout the life of the business. It is therefore surprising how few businesses take the time and trouble to find out about their market in detail before they start. They spend time and money producing something – and then wonder why no one is buying it.

Even though market research is essential, many small businesses assume it is not for them. This is partly because they think they know all about the market already, based on their experience. However, this is often from a limited perspective, such as one or two previous jobs, which may not be typical of the wider market and its opportunities. So when starting a new business, even in a familiar field, it is always worth checking assumptions.

Market research is a highly specialised discipline in its own right. But there are also some simple techniques anyone can use to great effect. This guide shows you how to get answers to the basic questions, the answers which will underpin how well you will succeed in business.

The purpose of market research

Before you start, decide what you want your research for, because this will determine the sort of research you will have to do.

Your sources will be very different depending on whether you have been in business a while, or whether you are just starting out or planning to. In the former case, existing customers and sales data provide a wealth of information. However, your questions in either situation will be similar. You need to know:

• Is there a market for my planned or existing products? 
• What or where are the main threats and opportunities?

There are two main reasons for research:

• To provide you with data for your own planning. 
• To provide your financial supporters with tangible evidence that your business plan is based on a thorough knowledge of your market.

These two goals may demand different types of knowledge. For example, the most useful information may be informal and may not look very convincing written down in a business plan. Formal statistics, on the other hand, look very impressive written in a plan, but may be of limited relevance in practice.

There are three basic levels of market research, crudely described as:

• Market awareness – This includes reading papers and journals, talking to friends and colleagues, talking to your competitors’ clients, becoming a customer of your competitors to analyse how they do things, simple analysis of sales, surfing the web, visiting the library and observations – for example, counting how many people enter your premises.
• Ongoing research – This includes feedback from customers, routine surveys and a culture of staff building relationships and seeking responses from customers and prospects.
• Formal research for special projects – This is carefully planned research, probably carried out by a professional, with a clear brief and timescale, to support a significant new investment.

We will concentrate on the first two here, since they are easy and essentially inexpensive for any business – new or established, small or large.

Market awareness

Your customers

Marketing starts with your customers, existing or potential. Understanding your customers is what most people associate with market research. To do this, you need to find out everything you can about them that is relevant.

Canvassing is a traditional method – approaching people with a clipboard to ask them a series of questions about their buying patterns and about particular products and services. The key is selecting a mixture of people of the appropriate demographic profile (age, gender, income group, job title and so on) to reflect your target market.

Such research can be simple. For example, before one painter and decorator set up in business, he conducted a door-to-door survey in his area himself. He asked householders whether they ever used decorators, how much they paid, what experiences they had had, what they disliked about the decorators they had used in the past, and what they looked for when hiring one. This feedback enabled him to tailor his approach precisely to what people wanted. Result: his business took off fast.

However, you can canvass people adequately by telephone and this may be more cost-effective if your prospective customers are not local. You must, however, ensure that you are not contravening any data protection laws by making unsolicited calls. The MRS website contains some useful advice and guidelines on this matter (see Useful contacts).

Your market

How is business done in your industry? How are goods usually sold and delivered? What discounts and credit arrangements do other suppliers offer?

You need to know about this before you go into business, not least because your opportunity may be to do things differently – to break the mould. But it is equally important to keep up to date with trends.

In particular, read the trade papers of your industry. Find out what deals are being done – especially what sorts of deal. Is the way business is done changing?

Always ask yourself the question: 'Who are my customers?' The ultimate consumers of your product are the most obvious, but your immediate customers may be retailers, distributors, or agents first. Decision-makers may not have the same values as users. You may have to research several markets at once.

Your competitors

Find out what you can about your competitors. There are some inexpensive things you can do on your own:

• Read the trade papers and the business pages of local papers.
• Look at trade directories as they come out, noting any changes.
• Try out competitors’ services as a ‘mystery shopper’.
• Talk to their customers who may also be yours.
• Talk to your competitors. While they may be your rivals, they are also your industry colleagues. You will be surprised at how open many people will be, albeit without giving away all their trade secrets.
• Research key competitors at Companies House – get their annual reports.

However, do not become too obsessive about the competition. You only study them to answer one question: 'Why should the customer buy from me rather than from them?' To answer that question, you have to think less about the competition than about yourself and about your customer.

Ongoing informal research

Informal research is what you should be doing all the time.

Feedback

Possibly the most important market research you can do is to actually talk with your customers and prospective customers. It is as much an attitude of mind, whereby everyone who deals with customers – sales, service, accounts – gently and casually seeks feedback in the widest sense.

Whenever you meet them, perhaps to arrange delivery, don’t just do the business and leave. Ask them what they feel about the product. Even if they have no problems, they will appreciate being asked.

Combine customer relations with customer research:

• What other services would they like?
• How do they use your product?
• Do they have a colleague whom you should talk to?

It is sometimes a good idea to invite key customers to some sort of social event to help develop the business relationship. When you do, take the opportunity to get their views on current and future products and services.

Listen carefully to what they say. Notice the slightest hint of dissatisfaction. People, especially in the UK, do not like to complain, so the first you know of a dissatisfied customer may be when they become an ex-customer.

Ask them particularly about what they would like in an ideal world. For example: 'If there were one thing you could change about the product/service, what would it be?' Then see if you can move towards providing it.

If you have a sales staff, get them to listen to customers and listen to them in turn. If your product is such that you have many customers, you or your staff should also talk to the retailers and distributors. And, no matter how big your business becomes, it is always a good idea to handle a few customers personally to keep your finger on the pulse.

Surveys

Survey your customers from time to time. In general, postal or telephone communications are not as good as personal contacts, but they are still better than nothing. You may want to send a formal questionnaire or just ask for general comments, or both. The response rate for postal surveys may be very low, but, again, people will appreciate being asked. Including a response-paid envelope, offering a prize and/or making forms anonymous all tend to raise response rates. Alternatively, if you have your customers’ email addresses, and they have given you permission to contact them, you may find an email questionnaire is easier and more cost effective than post.

Those who respond are, by definition, not typical – but the mere fact that they feel strongly enough to respond means you should take what they say seriously. Many others may feel the same way but could not be bothered to respond.

Complaints

You should have a formal complaints procedure – but you should not simply aim to solve the problem as fast as possible. Complaints are also a vital tool of customer research. They are pointers to opportunities for improvement.

It may be that your customers have seen that there is something missing, not only in your product, but also in the market in general. You would be foolish to ignore it. The customer really is always right.

Sales records

Study your own sales figures regularly. You should, in any case, be reviewing these from time to time, so getting them should mean no extra effort or cost.

Compare year with year, month with month. Are there other seasonal trends? Are these short term or long term? Or is a product in long-term decline? Consider why things are the way they are.

Look also at your order books. What’s happening now? What’s happening in the future? You can see things more clearly by drawing old-fashioned graphs of sales figures. The statistics you extract from your own business records are more reliable for your business plan than any you get from a library or the Internet.

Review data regularly

You probably have a great deal of information already available within your business. In most businesses, that information is unused.

Set a fixed time every month to review what you have learned – from talking to staff and customers, from your books and your sales figures. Talk about it with your key staff. What conclusions can you draw? Are there trends? Above all, what action is required?

Formal research

This is the stuff that looks good in business plans. It tends to be the bread-and-butter of market research specialists.

Economic research shows the general state of the economy. You may want to put it in a business plan to show that you have accounted for the possibility of a recession or boom over the next few years.

Of course, economic prediction is a highly specialist occupation, with even top professors disagreeing over the simplest things like 'Will there be a boom or a bust?' It is therefore not your job to make your own predictions. There is no shortage of books, journals and newspapers offering these sorts of prediction, most of them backed by impressive statistics. Economic statistics are also available at most university and larger public libraries. Then there’s the Internet…

Concentrate particularly on those trends that apply to your own industry.

The Government tends to collect statistics on everything. You may be surprised how detailed some of them are. There are sector-by-sector breakdowns, and also local statistics. You may be able to get statistics for your particular industry in your particular area. Local authorities’ economic development departments may be able to help.

You can also get statistics on the population, and their spending power and consumption patterns. This is important when it comes to identifying target segments of the market.

Think, too, of the statistics that apply to your own particular market. If you sell air conditioning, get statistics that show temperatures. If you sell industrial machinery, get statistics on industrial production.

You will probably discover that your problem is not finding the statistics but cutting your way through a vast jungle of them to get what you really need. Statistics and predictions are of limited value, but the important thing is to have considered all the factors.

Using market research

Market research can be a total waste of time – unless you use it. You should be able to build up a picture of both the market in general and individual customers in particular. This should help you in:

• Marketing and selling.
• Product development.

Once you know how your customers respond to different forms of marketing, you will know what buttons to push if you want to sell more to them. However, this is a very short-term attitude. The real value of market research is when looking at long-term strategies.

Knowing your customers, and what they really want and need, should be the basis of product development. If you adapt your product according to what people actually say, rather than what you think they say, you will always be one step ahead of the opposition. Assumptions are nearly always wrong!

Your market research must therefore be:

• Constant.
• Responsive, rather than just testing your ideas.
• Taken into account at an early stage in the product development process.

The last point is the most important. Market research is, in most peoples’ minds, associated with a very limited application: new product testing. Yet, to produce a new product and use market research only to ‘test’ it, is to miss the whole point. By that stage, it is too late. Instead, turn this on its head. Find out what people want, and then see if you can produce it.

The role of market research

Formal market research certainly has its place. It is a good idea for any business, not just at the launch of a new product, but regularly thereafter, to take a step back and look at the broader issues. If you have the money, good professionals can provide objectivity and expertise – but lack of money is no excuse. There is much you could and should do on your own.

Ultimately, however, it is informal market research – a constant awareness of your customers, their needs and wants – that is essential to keeping and developing your business. And since all the necessary information is often in front of you, you have no excuse for not using it.

Useful contacts

The MRS Website is a useful information source for standards and guidelines on conducting market research effectively and legally.

MRS,
15 Northburgh Street,
London
EC1V 0JR

T: 020 7490 4911
F: 020 7490 0608
W: www.mrs.org.uk