Doing market research may seem like an unnecessary step when you "know" you have a brilliant business idea or new product that the public will eat up, but take a second to temper your excitement with a dose of practicality: What if no one else sees the brilliance in your product? As sad as that might be, it's better to know whether the odds are for or against you before sinking too much time and money into this venture.
That's exactly what exploratory market research will help you discover. You can do market research on your own with a small or nonexistent budget, but for high-stakes or large business ideas, it can be useful to hire a market research firm. You just need to understand a few basic principles to get started.
The Importance of Market Research
Market research helps you understand if anyone would pay money for your product or service. The best market research not only indicates interest (or a lack thereof) in your idea but also gives you information about how to succeed against your competitors. It's best to do market research before you even take the time to write a business plan so you can feel confident in moving ahead.
If you need to ask for financial backing, investors will expect to see your market research. Both qualitative and quantitative data will make it easy for them to evaluate the risk and viability of your product. What if the research shows your idea is a bust? In that case, this research saves you from making premature financial decisions, such as signing a production contract for a product that likely won't sell, and will give you the opportunity to save your resources for another idea.
Some of the important questions that market research will help you answer include: Is there even room for you to enter this market, or is it crowded with competitors? Do the industry trends show that the overall market for your product is increasing or decreasing over time? What's the average selling price for similar products?
Common Types of Market Research
The common types of market research can be split into two main categories: primary and secondary market research, also known as direct and indirect market research. Primary market research methods gather information directly from your target audience, and secondary market research refers to third-party data collection.
Primary market research hones in on your current or potential customers in order to understand their pain points and their interest in purchasing your product as a solution to those pain points.
Face-to-face interviews may be time consuming, but they can provide exceptional results thanks to the ability to immediately follow up by asking specific questions. Focus groups, internet surveys and even social media surveys all represent primary market research. It's also possible to conduct market research through the mail or over the phone, which may be particularly worthwhile if your target market is an older population who won't view these methods as outdated and thus are more likely to respond.
Whereas primary market research tends to focus on opinions, secondary market research is typically a fact-gathering endeavor. You'll evaluate industry trends and analyze your competitors to discover your ideal niche in the market. You can also continue to gather some opinions from your target market with secondary research but not from your own direct outreach. For example, if you browse a competitor's reviews looking for unhappy comments (pain points), you're conducting secondary market research.
Sources for Market Research Data
Reaching out to the right people for conducting primary research can be done for free with a little creativity. For example, if you know your target audience is new mothers, consider finding new-mom groups on Facebook that will allow you to distribute a survey or start a discussion about your idea.
If you have a business-to-business idea, consider cold calling or emailing businesses in your target sector to conduct a quick interview. However, for larger ventures, sometimes it's best to hire a market research firm to tap into their resources.
Secondary market research can also be done for free thanks to resources like the U.S. Small Business Administration and the Bureau of Labor Statistics. Use these websites to discover whether a particular industry is growing or waning. You can also use Google Trends to evaluate the popularity of certain keywords — and by extension, certain industries or products — over time. Are keywords related to your business idea dropping off the radar or skyrocketing?
Google Ads shows the competitiveness of certain keywords, which can give you information about a particular market's saturation and whether it would be difficult for your company to break into that niche.
Business credit reports are also available for public viewing, and you can use this information to discover whether your competitors seem to be financially stable. If they aren't, they might not have much revenue due to low consumer interest. Finally, don't forget to review information about your competitors' products like retail price, shipping costs, functionality, materials and even customer comments in order to determine what your business would do differently.
Avoiding Biased Results
As a small business owner, your biggest supporters are likely your friends and family. Maybe they're the ones who encouraged you to follow your dream in the first place. They are certainly not going to provide you with the honest feedback you need in order to grow your business because they are biased in your favor. Don't include them in your market research.
It's also important to kick your own personal bias to the curb throughout the market research process. Remember that the goal of market research is to objectively determine if an idea is viable and worth investment. It doesn't matter how much enthusiasm or money you throw into your venture if no one wants to buy your product because it doesn't solve a pain point, and discovering true pain points (or a lack thereof) can't happen if people are worried about hurting your feelings.
You also don't want to hit the streets and ask every stranger you meet whether he would buy your product. Focus on your target audience when sending surveys or conducting interviews. For example, if you ask someone who doesn't own a pet whether he would like a new gadget for removing cat fur from clothes, the answer will automatically be "no" and will skew your results. Take care to ask additional questions — such as if he has pets, what kind of pets and whether he considers pet hair on clothes to be a problem — to help you interpret his interest in your product.
Analyzing Quantitative Market Research Data
Some market research data is quantitative in nature, which makes it appropriate for performing a mathematical analysis. You don't have to be a math whiz to do statistical analyses thanks to computer programs that can do it for you, but it helps to have someone double check your logic.
One of the most common statistical analyses is a regression analysis, which looks at the relationship between two or more sets of data to see if one of the data sets influences the outcome of the other data set(s). For example, you might do a regression analysis to see if your competitors' prices affect customer satisfaction or the company's financial stability.
Other common types of statistical analysis are used to interpret survey results, such as cluster analysis, factor analysis, T-test and conjoint analysis. A cluster analysis could help you discover what multiple customer segments have in common in terms of their demographic data, pain points, geographic data, etc., which could then allow you to tailor your product, service or marketing technique accordingly. A factor analysis identifies the strongest underlying motivations for your customers, and a T-test helps determine whether differences in customer segments are significant or mere coincidences.
A conjoint analysis requires respondents to rate multiple scenarios. In the end, the data helps small business owners understand what trade-offs their customers are willing to make in order to gain specific benefits. For example, customers might be happy to drive an extra 10 minutes for a low price, or they might be willing to pay more money for something that is clearly high quality. Knowing that you can perform these types of data analyses can help you set up the right kind of survey.
Interpreting and Applying Data and Information
Sometimes, you'll have to form an opinion about the data, such as a survey answer, and decide what it implies about your business idea. To avoid a subjective bias, you can have individuals or groups interpret the information separately and then share results. If everyone comes back with the same conclusion — that the business concept is viable or not viable — then it's likely there's no bias in their results. To reach that final conclusion, you and/or your team need to ask questions and turn to the data for answers.
What pain points did you discover in your primary market research? If your potential customers complained about problems you had never even thought about, it's time to go back to the drawing board and improve your product to enhance its marketability. How well do your competitors seem to be faring? If they seem to be struggling, dig deeper to find out why and to determine how you might fare better.
When you looked up keywords on Google Trends or viewed industry stats on the Bureau of Labor Statistics website, was there positive growth or a decline? This could mean that demand for your product or service is decreasing, and you could be facing a saturated market. Did survey respondents like your idea or think it wasn't worth their money?
What Comes Next?
After conducting and interpreting your market research, you might have a very clear picture of what to do next. All signs could be pointing in a very positive direction, encouraging you to set up a new business venture. However, maybe you got nothing but negative feedback, telling you the idea was a dud.
Sometimes, the waters are murky, and your venture has some risk associated with it. Go ahead and start a business plan to further understand your possible budget and requirements. Perform a SWOT analysis to determine if your strengths can diminish some of the risk. At this point, no one but you can decide whether you have the passion, energy and dedication to take on a risky venture.
Of course, all new business ideas involve some risk. Even if your market research gave you two thumbs up, you'll also need to develop a business plan, create a budget and secure financial backing. In other words, don't let overwhelmingly positive market research make you complacent. If you decide to go for it, go prepared.