How to do Market Research
A guide to why and how your small business can carry out market research.
This article is for informational purposes only and does not constitute legal, personal, or tax advice. The information contained herein is subject to change and may vary from time to time. For specific advice applicable to your business, please contact a professional.
In today’s ultra-competitive business landscape, customer data is one of the keys to getting ahead. From understanding your customer’s wants and needs to finding new audiences for your products, market research plays a crucial role in the business world. Here’s everything you need to know about market research, including a guide on how to use it to your advantage.
What is market research?
Market research is the process of gathering information about your target market, competitors and the wider industry to either verify the success of an existing product or service or test the viability of a new one.
It helps you define and refine your ideal customers, collect information about their needs and preferences, understand your competitors and industry trends, and make informed business decisions based on the results.
Why is market research important for businesses?
Identify and monitor competing businesses to discover opportunities – activities they’re doing better where you can improve and areas they’re underperforming in that you could capitalise on.
Better understand your target market and key demographics
Identify growth opportunities
Use data to identify markets where there is untapped demand for your products or services
Understand how customers compare you to your competitors
Mitigate risks by making informed business decisions
Improve your marketing strategy by using the data gathered to produce highly targeted campaigns
Assess customer buying habits and preferences
How to conduct market research
This step-by-step guide is designed to show you how you can conduct market research effectively, regardless of the method you choose.
1. Define your research goals.
Determine what you want to achieve. Are you focusing on existing customer feedback, or are you testing a new market? This is important because your methods and processes for gathering information may be very different depending on your goals.
2. Determine the industry’s outlook.
Look at industry trends and projections to determine whether your plans are viable.
3. Decide on your target audience.
Choose a selection because you can’t survey everyone. Make sure your selection is representative of your ideal customers. Many businesses also choose to create buyer personas, which are fictional representations of members of their target audience. If you’ve created these, you can use buyer personas to narrow down your research sample.
4. Analyse your competitors.
Competitor analysishelps you understand where your business sits in the market.
5. Gather your data.
Different methods exist so choose one that aligns effectively with your research goals.
6. Analyse the results.
Turn the raw data into useful insights you can use in your business. Surveys and customer feedback are easy metrics to understand, but individual feedback and experiences are harder to quantify and require a consistent method of recording them.
Questions to ask before market research
Before you conduct your business research and make your plan, ask yourself these questions:
What are your business goals?
What audience or market are you trying to reach?
What decisions will your market research help you with?
How quickly do you need the information?
What is your budget?
Once you’ve answered these key questions, start to plan how you’ll conduct your consumer and market research. If you have the budget, using a market research firm can help direct your efforts, organise focus groups, manage your budget and undertake results analysis. Even if finances are tight, there are ways to undertake the process yourself.
8 market research methods
Market research methods are usually broken into primary and secondary categories.
To put these in really simple terms, primary market research refers to research that targets a specific customer base or demographic – or in other words, the people who are most likely to be interested in your products and services. This includes surveys, interviews, focus groups, observation and customer feedback.
Secondary market research involves using data that’s already been produced and often captures data from a broader section of the community. This may be government reports, industry publications and other commercial sources.
1. Customer profiling
Think about your business from the perspective of the consumer. What are they interested in? What do they earn? What are their interests? What is their familial setup? What are their interests? Do they use social media?
Use the information to create a buyer persona which in turn informs how you run any marketing strategy and to some extent what markets you wish to target.
Surveys are easily the most common source of market research. You can send surveys to existing customers, potential customers, or even have them posted on your website. Many businesses choose to offer rewards to encourage users to participate in surveys.
For example, you may want to release a new product and gather information about how enthusiastic your current customers would be about it. Simply send an email survey to your customer list, and analyse the results.
The best thing about surveys is they can be extremely cheap, and if you get your questions right, the data is easy to analyse. On the negative side, sending too many surveys can irritate your customers, resulting in ‘unsubscribe’ requests which diminish your email marketing potential.
3. Direct mail
This can be a great way to gain valuable consumer insights by mailing out a questionnaire to a specific group of individuals, but it can also elicit one of the lowest response rates. If you think your customers would suit this kind of marketing and you’d receive a reasonable number of replies, follow these top tips.
4. Focus groups
Small businesses don’t often jump straight to focus groups because they’re expensive. It involves gathering a selection of your target audience together with a skilled moderator who leads a discussion based on your products or services.
Focus groups are used regularly when testing new products or services, but they can also be great for figuring out what customers want from your business.
Like interviews, focus groups give you some in-depth information. However, there is a larger risk of bias, such as a dominant participant influencing others or different moderators bringing out different results.
Conducting interviews with members of your target audience is extremely valuable to gain qualitative insight into their experience as a customer. Whether you choose some of your existing customers or non-customers in your target demographic is totally up to you.
For example, you may want people to test a new product. A post on Facebook asking for volunteers will usually be met with enthusiasm, especially if you offer the product for free. Then, conduct a video call or in-person meeting with the customer to ask questions about their experience.
The downside is you risk giving away products to people who don’t cooperate or provide insightful information. However, the benefits far outweigh the risk, because when you talk directly with people, you glean much more information than you would with survey questions.
Hearing about areas in which you’re doing great and others where you can improve can level up your marketing. You can collect it in-store, online or through email marketing
Businesses regularly send customer feedback emails after a sale to find out how they did in terms of the customer experience. But you can also ask questions about product quality, suggestions for improvement and anything else that’s relevant to your research goals.
7. Public sources
Reports and surveys from government agencies such as the Australian Bureau of Statistics can be an invaluable source of information. Relevant trade bodies can also provide a wealth of information. While less commonly used than primary market research methods, using public sources can be useful for gathering information. Plus, it’s often free. Government libraries are a great source of information, and while the research won’t be specific to your business, it may be relevant to your target audience as a whole.
8. Commercial sources
Commercial sources, as their name suggests, can be a little more expensive because you’re purchasing research that’s already been done. Industry publications, media outlets and magazines are good sources of information. The positive is they’re usually very reliable sources. The negative is they’re not always current, and they can be expensive.
How to conduct a competitive analysis
A significant part of market research involves knowing your competitors and what they do, then doing it better and learning from their mistakes. So, if there’s one thing you really should do, it’s conduct a thorough analysis of others in your industry.
Identify the competition
If you don’t know who your competitors are, you can’t analyse them, so put yourself in the shoes of your potential customer and imagine yourself using your own product or service. A simple Google search should bring up a list of competitors, but go further by trying out different search terms to get an idea of what your target market sees.
You can also simply ask your customers where else they shop when they buy similar products and services, or you can take a walk around your area for other businesses in the same industry if you’re a bricks-and-mortar store.
Finally, draw up a list of the ones that appear frequently or are local to you. There may be many but a list of the top ten is easier to analyse.
Do a SWOT analysis
A SWOT (strengths, weaknesses, opportunities, threats) analysis of the competition can be revealing. It can take up a significant amount of time applying it to each business, but the results are worth it. It can help identify areas where you can capitalise on and markets you’re missing out on.
What do they do well?
What sets them apart from other businesses?
Are they using tech no one else is?
What do customers like about them?
Do they have a loyal customer base?
What areas are they missing out on?
Are there things they’re not doing well at?
Have they got poor reviews?
Is their website lacking functionality?
Is their selling process tricky to navigate?
Are there things you could do better, faster, cheaper?
Are there products you could launch or do better than them?
Could you offer improved customer service?
Could they potentially take business from you?
Are you already losing customers to them?
Are they bringing out new products/services which could affect your business?
Once you’ve completed your data collection, it’s time to categorise your results:
These are your direct competitors with the same target market, and very similar products and marketing. These are the ones to keep an eye on.
These might offer variations on your product or service or target a different market, for example your target audience might be high end whilst theirs is mass market.
These businesses don’t have products directly in competition with yours but are in a similar market. They can still pose a threat if they’re bigger or better organised, so it’s worth keeping them in mind
Determine business opportunities
Based on your research, you should have a thorough understanding of what the competition is doing and any areas that are ripe for the picking. It’s now time to drill down into your business research and ask yourself:
In what areas is the competition weaker where you could stand out?
In what areas are they doing better where you could improve?
Is there any growing or scaling back and how does this affect you?
What opportunities are there for you to differentiate yourself from the competition?
Start to build a picture of things you can do which you can then implement as part of your business plan and marketing strategy.
Whether you’re taking your first steps into business or you’re a seasoned entrepreneur, undertaking market research can help you grow faster and stand out from your competitors. It can inform long-term planning and help you re-evaluate your business as it grows, so you enter the market on a strong footing and maximise your chances of success.
Useful resources to help you understand market research
Launching your business
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Managing your business
Once your business is actually open, learn how to manage its everyday activities. Finance, operations, marketing – they’re all down to you. We give you the help and advice you need to get to grips with these.