|Market research: How to do market research
Before you start
- Before you start doing your market research, you should have a good idea of what the exact focus of your business will be. This does not mean that your focus will not change (in fact, it will HAVE to change if your market research shows you that your idea is not viable); it just means that you must know what you are looking for when you do your research. If your focus is too broad or confused, your research will only give you vague and general answers.
- Read the factsheet on How to compile a marketing plan. It will give you a good idea of the wide spread of information that you are trying to gather.
Why you are doing market research?
Your market research needs to help you
- To estimate potential sales;
- Identify the characteristics of your potential customers;
- Test the demand for new product ideas; and
- Understand trends that will affect the sales of your product..
The research is NOT to prove your own optimism. So you need to be as detached and objective as you can: Everything that your business will do flows from the information and insights that you gather here - it is absolutely crucial to get right...
Information you want to get from your market research
Here are some of the sort of questions that you will need to answer
- What type of person or business will buy the product or service?
- What do customers want from the product or service?
- How many potential customers are there?
- How are customers currently made aware of similar products (similar to yours, that is) on the market?
- How much spending power is available?
- Will spending power rise or fall?
With regard to competitors
- Are other businesses offering similar products or services?
- What do they charge?
- Are there any gaps in the market?
- What equipment and methods do they use?
- Are they seen to be good at it?
- Is anyone else likely to try to enter this market?
With regard to your planned operations
- What special skills will your business need?
- What equipment will you need?
- What special regulations cover this business?
- How much does the business need to charge?
- How much can be charged?
Types of market research
There are two main types of market research
- Primary (field) research. This is where a business does not have any existing information and has to arrange a way of collecting and interpreting the information themselves, eg a questionnaire.
- Secondary (desk) research. This involves the use of published sources of information. 'Desk' is perhaps the wrong word because it may be necessary to visit libraries, etc to find the publications required.
Formal research is highly organised and based on statistical methods, such as consumer surveys and analysis of demographic data. Informal research includes talking to business contacts, future competitors, trade associations, etc.
Below is a list of research methods that small businesses will find useful. (Large businesses, who compete for large chunks of market share and have the resources to commission expensive market research studies, focus on other methods.
Research methods for small businesses
- The most important research method is speaking to and investigating other similar businesses;
- The next most important is our own past sales or small-scale sales experiments, such as selling prototypes through one or two outlets, having 'test-runs' at flea-markets, starting off with special "guinea-pig" customers, or developing a small domestic clientele before signing on your first industrial client;
- Getting information and market research from complementary businesses who have an interest in seeing you succeed;
- Car and feet counts around specific locations;
- One-on-one interviews with potential customers;
- Limited door-to-door surveys to test the vibe in a targeted area;
- Speaking to suppliers, industry experts and advisors (just be careful that they don't have a particular service or product that they want to sell, especially if this will influence their responses);
- Reading (secondary research): but remember that the South African market is not nearly as well researched as the first world, and there is a tendency of local researchers to try to fit first-world patterns and consumer habits onto the South African market.
The main aim of this research is simply to estimate, as conservatively as possible, the amount of sales you will probably make each month in the first year or so, and whether the business will be viable. There is a secondary aim too, however, which is to get tips on how to run your business and improve your product.
Large businesses will focus on methods such as surveys by professional market researchers, aerial photography and traffic flows, focus groups (conducted by professionals) and scientific questionnaires. These are expensive and normally not affordable for small businesses. The aim of these studies is to determine the total size of the market, and then estimate what percentage share the large company can possibly get. This is not really appropriate for small businesses, because they wouldn't even get a fraction of the total market. Even if the total size of the market is taken as the local neighbourhood, small businesses don't have access the kind of scientific data needed to make a percentage-market-share exercise worthwhile.
Tips for approaching other business owners
Here are a few tips to help you approach other business owners in the right way
- You will be surprised how many business owners out there are happy to help. They have all been through the same process and understand the value of informal networks amongst business owners. You might come across a few who are truly cagey and unwilling to share information, more so in some industries, but just keep trying until you find those willing to talk to you. They will be worth gold.
- It might help if you approach people who are not or will not be your direct competitors, for example a similar business to yours, but in a different area.
- Throw your net wide. You will have to take the initiative here. Don't wait for a particular business owner to become available or return your message. Move on to the next person on your list. You can always come back to the first one later.
- When you phone a business owner you have a 50/50 chance of getting a good response. It depends on a combination of things: the mood of the business owner, whether you have caught him or her at a bad time, the way you come across over the phone. Never take it too personally. As you phone around, you will find an approach that works well for you.
- In most cases a short and to-the-point approach works best. If you want to know something fairly straightforward, introduce yourself very briefly and just ask, "I run a Bed and Breakfast/am starting a Bed and Breakfast in Cape Town; do you know where I can find an industrial size toaster?" You don't have to start with "Can I ask you a few questions?", or "Could I have a few moments of your time?" If they think about it, they will realise that they do not have time.
- If you need to have a longer discussion, you can try to make an appointment. Some people will manage this better than others. If you do manage this, then stick firmly to the time you said you would need. If you cannot succeed in making an appointment, try the ambush approach - ask your question right there and then. "What do you think the best toaster is to get for my size business?" Normally, you will get a valuable response. Often, once a business owner starts talking it is quite difficult to make them stop.
- Start networking. If you join the industry's business association, you will meet other business owners face to face in a relaxed environment. Here it will be much easier to pick their brains. Many of the business associations have their own websites on which suppliers advertise