Understanding market research

Never underestimate the power of market research: if it's well done, it can help you decide exactly where your business will sit in the market, allowing you to work out what your customers' expectations of your service will be and determining how you should approach your branding.

What is market research?

  • Market research is a method of looking at the market you plan to enter in an objective, systematic way, allowing you to analyse exactly how you will position your business and predict how and where to place yourself in the market. Business owners then include the data in their business plans to help potential stakeholders gain a better insight into how the business will fare.
  • Market research comes from a number of sources, which can loosely be divided into:
    • Secondary research - research commissioned by others which is relevant to your business. This generally takes the form of reports and statistics put together by government agencies, chambers of commerce, trade association or statistics groups such as Mori or Nielsen. Most people start with secondary research to give them a good idea of the state of the market as a whole.
    • Primary research - research the business has done itself, often by putting together focus groups, drawing up surveys or simply interviewing potential customers and competitors. This allows you to get immediate feedback about your product or idea.
  • When you're conducting market research, it's likely you'll want to look at the following categories:
    • The environment surrounding your business - the political, social and economic factors around the business. If you are starting up during a recession, are you sure people will be able to afford bespoke bathrooms? Likewise, is Kensington the right place for a pound shop?
    • Your potential customers and who they are. Finding out about your customer will help you to decide how to brand the business, how much to charge and where to place it in the market.
    • Who your competitors are and why they are successful. Use competitors as case studies, looking at what has worked and what hasn't, and even niches they've overlooked which you can target.

Why market research is important

  • The main reason market research is essential for any new business is to find out if there will be a demand for your product or service. Not only will this help you decide whether to go ahead with the business in the first place, but it will allow you to work out what volume you will need to produce and how many people you will be able to afford to employ.
  • Having all the figures and statistics at your fingertips when you are pitching for finance will help to convince investors and bank managers, demonstrating your business acumen and showing savvy enough to entrust with their cash.
  • Good market research will help you work out who your customers are, determining their average age, gender, income, occupation and habits. If your customers are other businesses, it will help you work out how big they are, who their customers are and who makes the procurement decisions. This will allow you to target more specific markets and disregard unsuitable ones.
  • Because market research will help you understand your customers' habits, it will also help you increase your marketing returns by allowing you to target more specific groups in more effective ways.
  • Likewise, a good understanding of your customers, their income levels and how much they are willing to pay, as well as an insight into how your competitors approach pricing will enable you to determine how much you will charge for your offering.

Checklist

  • Market research looks at market data objectively
  • Start with secondary research before you move on to primary sources
  • Look at the environmental circumstances surrounding your business
  • Look into your customers and their habits
  • Check out your competitors to see how they price their offerings

FAQ

How large should my survey be?
Your sample size should be as large as possible - if you are targeting consumers, questions at least 100 people, but more if you can. To be technically representative of the UK population, you should survey at least 342 people.

How often do I need to do it?
Market research should be an ongoing thing so you can monitor how your market is evolving. You don't necessarily need to conduct large customer surveys on a regular basis - keeping up-to-date on the latest activities in your market should be enough.

Should I use a market research agency?
It may be more cost-effective to outsource your market research to an agency which already has the infrastructure in place to get fast results. If you have a limited budget, though, it may not be a viable option as market research agencies rarely take on projects with a budget below £2,500. Make sure you check up on your agency thoroughly before you agree to use them, though.

Jargon buster

Quantitative research: Quantitative research looks at statistics: how many customers there are, what their age ranges are,  what their average incomes are, and provides information you can then present as a graph or table

Qualitative research: Qualitative research is more anecdotal: for example, you may want to ask customers why they use your product or what you can do to improve your service. This can't be presented in a table or graph format, but may be useful to help you better understand your customers.

Open/Closed questions: An open question forces the answerer to put detail in their question - for example, 'How do you think we can improve our product?'. A closed question generally has a yes or no answer - for example, 'Is our product useful to you?'.

Examples

Resources

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