Market research can save you from making costly mistakes when launching your new business, help test your business idea, and find out what your customers really want.
Market research is the process of collecting information about your target market and customers. It can reveal the size of your potential market, how you can stand out from the competition, customer likes and dislikes, how much customers are willing to pay, and what you can do to improve your products and services.
While market research is an important activity at any stage of the business life cycle, it’s essential when launching a new business. You may believe that there’s a demand for your products or services because you asked friends and family for their opinion, but without sound market research you’re simply left with guesswork.
Discovering if there’s a market for your products and services, and finding out if your business idea is a good one before you launch will help you to avoid costly mistakes.
Market research can help you get funding for your start up. Banks and investors will want to know that your business proposition is viable, so being able to show demand for your products and services will make them more inclined to invest. Market research shows that you’ve done your homework.
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Ongoing market research will help keep your business on track. It keeps you close to your customers’ needs, allowing you to hone your product and services as demand or markets change. It delivers feedback on the effectiveness of your marketing, from product packaging and promotions to the marketing methods you use.
Watch this: Market research takes time and effort but the results are worth it, and that’s why market research is important according to this video from Square One:
How can market research help?
Market research can be used to:
Calculate market size – Understanding market size and its nature will help you know the potential number of customers that would buy from you. Called the ‘addressable market,’ this is the number and type of people who could buy, assuming you could reach them all.
For example, the addressable market of a pet food business would be anyone in the UK who owns a pet. It can also calculate the ‘target market.’ This is the subset of the addressable market that you can realistically reach. For example, a pet food business that only sold locally in York would have a target market of all pet owners (the addressable market) who live in York (the target market).
Understand customers better – Make your marketing more effective by finding out where your customers live, what their shopping habits are, and the types of things they value from a product or business.
Test your business idea – Before launching your start up, early feedback can help you refine your business idea, price it competitively and see if there’s enough demand for it.
Improve your business – Feedback from customers is invaluable for planning improvements to your business or future product launches. Use research to find out about your customer service, staff, quality and satisfaction with your business.
Improve your brand – Find out what customers associate with your brand, such as trust, innovation or value. Try different logos and tag lines to see if they change what people think and feel about your business.
Know your competitors – What customers think about competitor businesses is valuable, as it helps you spot weaknesses you can exploit. For example, customers might think competitors have poor customer service or that products are too expensive. You could then launch a cheaper product or focus on a delivering brilliant customer service.
Make the news – Use a survey to create a news story related to your business, such as customers finding it difficult to do something. You can then reveal how your start up helps solve the problems faced by customers that your market research found.
Types of market research
There are two kinds of market research: primary research (also known as field-based research) and secondary research (also known as desk-based research).
Primary research – Involves gathering new data that has not been collected before, typically by contacting customers directly to gain feedback. This may be done by through focus groups, face-to-face or telephone interviews, surveys, questionnaires or observing customers as they shop. With primary research, the information collected is fresh and specific your business’s needs or objectives. This means you can gain valuable insight into the key topics that affect your business specifically – and the data you collect is yours alone.
Primary research can be costly and time consuming. Talking to customers yourself will be the cheapest option, but employing a third-party to carry out primary research may be more cost-effective.
Secondary research – Involves gathering already researched and collected information found online, in news stories, using industry publications, reports, whitepapers and organisations such as the Office of National Statistics (ONS) and YouGov which has a helpful audience profiling tool. In this case, someone else has done the data collection and you must interpret the data to answer your own market research questions.
A lot of secondary research is freely available online or from public libraries. If you’ve more budget, you can pay for market research reports specific to your market or commission research tailored specifically to you from market research companies such as Mintel, Informa and Euromonitor.
Want to learn more about market research? Read our free guide to market research techniques.
Understanding research methods
Both primary and secondary research can be either qualitative or quantitative in nature.
Quantitative research produces data that’s numerical and is analysed using mathematical and statistical methods. For example, you may use national census information (secondary research) to find out the size of your local market, or ask a large selection of people the same question in a survey (primary research). The results might be expressed in percentages, such as 80% of people want to build a home extension, but have trouble finding a reliable business.
Qualitative research usually involves words or observations. Sources for qualitative data can be primary such as interviews, focus groups, questionnaires, observations, or secondary such as from reports or news stories. Qualitative research can provide valuable insights into your target markets and customers such as how they think and feel about your products and services, how they choose between competitors and how pricing or marketing strategies affect their decision making.
Get started with market research
Before you decide which route to take, think about the following:
Set your goals – The first step is to clearly define your objectives for research or decide the specific questions you want answered and by whom. The type of information you need will determine the source, methods and sample size of your market research. Don’t attempt too much. The more focused your market research, the more valuable it will be. Researching all your queries may prove too expensive, so concentrate on the key information you need to deliver the best revenue opportunities.
Choose a research method – Look to see if similar market research has previously been carried out. Ensure existing data meets your objectives and answers all the questions you have about your target market and customers. How has the existing data been used and by whom? Are there any gaps? How up to date is the information? Is the source reliable?
Estimate the cost of conducting your own primary research. Going online or to your local library shouldn’t cost much more than your time and effort. Hiring a market researcher or consultant may be expensive but the results they achieve may be of greater use, meaning it’s a more cost-effective approach in the long run.
Using a combination of qualitative and quantitative research may provide the best results.
Data analysis – Decide how you’re going to analyse your market research data and what you’re going to do with the results. Review all the data collected, checking for gaps – you may need further research to ensure an accurate interpretation of the data. Any conclusions you draw from the data should reflect your initial research objectives and business goals in general.
Market research is essential for creating a business plan? Read our free guide to how to write a business plan.
Market research tips
There are lots of ways to carry out market research – some you can do yourself at little cost, while others require the services of a market research company.
Watch this: Market research isn’t perfect, but is a tool to consider when starting a business. Here, Canadian journalist, speaker and author Malcolm Gladwell provides an amusing look at the pitfalls of market research:
Look online – Online reports and census records are a treasure trove of market research information, while the Office of National Statistics (ONS) has information on consumer demographics such as income, shopping habits and age. Head to your local library or go online to research the market and your competitors, using tools such as YouGov Sixth Sense and the British Library Business & IP Centre.
Trade associations have lots of information on their specific market, such as statistics and facts on geographical areas or type of customer. This can be useful for helping create your business plan and forecasting demand and market trends.
Surveys – There are lots of free online tools for carrying out surveys, such as SurveyMonkey or you can use social media to post a few questions online. Email customers asking for them to complete the survey, or include the survey on your website, and think about offering a prize draw for people who take part.
Alternatively, if you’ve permission, contact customers by phone and ask them a few questions. If doing it in person, stick to a script and be upfront about who the survey is for and how long it will take to complete. Keep questions short and to the point.
Focus groups – Focus groups are a great way to get feedback, but take time to organise and need an experienced moderator. A session usually lasts one to two hours and involves a group of eight or ten people. Expect to pay around £30-60 for each attendee, plus the costs of the expert and the venue, plus refreshments. Get attendees to sign a non-disclosure agreement if showing them a new product or service, and record or take notes during the session. It will also take time to write up the research afterwards. Filming the focus group can help, freeing you from writing notes and focusing instead on questioning the attendees and getting a discussion going about the market, your product or your business.