| One of the
most important factors in business success is a good knowledge
of your market. For a start, is there an ongoing, significant
need for your product or service? Even if there is a need
for it, is there a desire for it? What alternative solutions
are people using now? How much does this cost? Why should
they switch to you?
These are all basic questions every business owner/manager
needs to ask when they set up, and indeed continually throughout
the life of the business. It is therefore surprising how few
businesses take the time and trouble to find out about their
market in detail before they start. They spend time and money
producing something – and then wonder why no one is
buying it.
Even though market research is essential, many small businesses
assume it is not for them. This is partly because they think
they know all about the market already, based on their experience.
However, this is often from a limited perspective, such as
one or two previous jobs, which may not be typical of the
wider market and its opportunities. So when starting a new
business, even in a familiar field, it is always worth checking
assumptions.
Market research is a highly specialised discipline in its
own right. But there are also some simple techniques anyone
can use to great effect. This guide shows you how to get answers
to the basic questions, the answers which will underpin how
well you will succeed in business.
The purpose of market research
Before you start, decide what you want your research for,
because this will determine the sort of research you will
have to do.
Your sources will be very different depending on whether
you have been in business a while, or whether you are just
starting out or planning to. In the former case, existing
customers and sales data provide a wealth of information.
However, your questions in either situation will be similar.
You need to know:
- Is there a market for my planned or existing products?
- What or where are the main threats and opportunities?
There are two main reasons for research:
- To provide you with data for your own planning.
- To provide your financial supporters with tangible evidence
that your business plan is based on a thorough knowledge
of your market.
These two goals may demand different types of knowledge.
For example, the most useful information may be informal and
may not look very convincing written down in a business plan.
Formal statistics, on the other hand, look very impressive
written in a plan, but may be of limited relevance in practice.
There are three basic levels of market research, crudely
described as:
- Market awareness – This includes
reading papers and journals, talking to friends and colleagues,
talking to your competitors’ clients, becoming a customer
of your competitors to analyse how they do things, simple
analysis of sales, surfing the web, visiting the library
and observations – for example, counting how many
people enter your premises.
- Ongoing research – This includes
feedback from customers, routine surveys and a culture of
staff building relationships and seeking responses from
customers and prospects.
- Formal research for special projects
– This is carefully planned research, probably carried
out by a professional, with a clear brief and timescale,
to support a significant new investment.
We will concentrate on the first two here, since they are
easy and essentially inexpensive for any business –
new or established, small or large.
Market awareness
Your customers
Marketing starts with your customers, existing or potential.
Understanding your customers is what most people associate
with market research. To do this, you need to find out everything
you can about them that is relevant.
Canvassing is a traditional method – approaching people
with a clipboard to ask them a series of questions about their
buying patterns and about particular products and services.
The key is selecting a mixture of people of the appropriate
demographic profile (age, gender, income group, job title
and so on) to reflect your target market.
Such research can be simple. For example, before one painter
and decorator set up in business, he conducted a door-to-door
survey in his area himself. He asked householders whether
they ever used decorators, how much they paid, what experiences
they had had, what they disliked about the decorators they
had used in the past, and what they looked for when hiring
one. This feedback enabled him to tailor his approach precisely
to what people wanted. Result: his business took off fast.
However, you can canvass people adequately by telephone and
this may be more cost-effective if your prospective customers
are not local. You must, however, ensure that you are not
contravening any data protection laws by making unsolicited
calls. The MRS website contains some useful advice and guidelines
on this matter (see Useful contacts).
Your market
How is business done in your industry? How are goods usually
sold and delivered? What discounts and credit arrangements
do other suppliers offer?
You need to know about this before you go into business,
not least because your opportunity may be to do things differently
– to break the mould. But it is equally important to
keep up to date with trends.
In particular, read the trade papers of your industry. Find
out what deals are being done – especially what sorts
of deal. Is the way business is done changing?
Always ask yourself the question: 'Who are my customers?'
The ultimate consumers of your product are the most obvious,
but your immediate customers may be retailers, distributors,
or agents first. Decision-makers may not have the same values
as users. You may have to research several markets at once.
Your competitors
Find out what you can about your competitors. There are some
inexpensive things you can do on your own:
Read the trade papers and the business pages of local papers.
Look at trade directories as they come out, noting any changes.
Try out competitors’ services as a ‘mystery shopper’.
Talk to their customers who may also be yours.
Talk to your competitors. While they may be your rivals, they
are also your industry colleagues. You will be surprised at
how open many people will be, albeit without giving away all
their trade secrets.
Research key competitors at Companies House – get their
annual reports.
However, do not become too obsessive about the competition.
You only study them to answer one question: 'Why should the
customer buy from me rather than from them?' To answer that
question, you have to think less about the competition than
about yourself and about your customer.
Ongoing informal research
Informal research is what you should be doing all the time.
Feedback
Possibly the most important market research you can do is
to actually talk with your customers and prospective customers.
It is as much an attitude of mind, whereby everyone who deals
with customers – sales, service, accounts – gently
and casually seeks feedback in the widest sense.
Whenever you meet them, perhaps to arrange delivery, don’t
just do the business and leave. Ask them what they feel about
the product. Even if they have no problems, they will appreciate
being asked.
Combine customer relations with customer research:
- What other services would they like?
- How do they use your product?
- Do they have a colleague whom you should talk to?
It is sometimes a good idea to invite key customers to some
sort of social event to help develop the business relationship.
When you do, take the opportunity to get their views on current
and future products and services.
Listen carefully to what they say. Notice the slightest hint
of dissatisfaction. People, especially in the UK, do not like
to complain, so the first you know of a dissatisfied customer
may be when they become an ex-customer.
Ask them particularly about what they would like in an ideal
world. For example: 'If there were one thing you could change
about the product/service, what would it be?' Then see if
you can move towards providing it.
If you have a sales staff, get them to listen to customers
and listen to them in turn. If your product is such that you
have many customers, you or your staff should also talk to
the retailers and distributors. And, no matter how big your
business becomes, it is always a good idea to handle a few
customers personally to keep your finger on the pulse.
Surveys
Survey your customers from time to time. In general, postal
or telephone communications are not as good as personal contacts,
but they are still better than nothing. You may want to send
a formal questionnaire or just ask for general comments, or
both. The response rate for postal surveys may be very low,
but, again, people will appreciate being asked. Including
a response-paid envelope, offering a prize and/or making forms
anonymous all tend to raise response rates. Alternatively,
if you have your customers’ email addresses, and they
have given you permission to contact them, you may find an
email questionnaire is easier and more cost effective than
post.
Those who respond are, by definition, not typical –
but the mere fact that they feel strongly enough to respond
means you should take what they say seriously. Many others
may feel the same way but could not be bothered to respond.
Complaints
You should have a formal complaints procedure – but
you should not simply aim to solve the problem as fast as
possible. Complaints are also a vital tool of customer research.
They are pointers to opportunities for improvement.
It may be that your customers have seen that there is something
missing, not only in your product, but also in the market
in general. You would be foolish to ignore it. The customer
really is always right.
Sales records
Study your own sales figures regularly. You should, in any
case, be reviewing these from time to time, so getting them
should mean no extra effort or cost.
Compare year with year, month with month. Are there other
seasonal trends? Are these short term or long term? Or is
a product in long-term decline? Consider why things are the
way they are.
Look also at your order books. What’s happening now?
What’s happening in the future? You can see things more
clearly by drawing old-fashioned graphs of sales figures.
The statistics you extract from your own business records
are more reliable for your business plan than any you get
from a library or the Internet.
Review data regularly
You probably have a great deal of information already available
within your business. In most businesses, that information
is unused.
Set a fixed time every month to review what you have learned
– from talking to staff and customers, from your books
and your sales figures. Talk about it with your key staff.
What conclusions can you draw? Are there trends? Above all,
what action is required?
Formal research
This is the stuff that looks good in business plans. It tends
to be the bread-and-butter of market research specialists.
Economic research shows the general state of the economy.
You may want to put it in a business plan to show that you
have accounted for the possibility of a recession or boom
over the next few years.
Of course, economic prediction is a highly specialist occupation,
with even top professors disagreeing over the simplest things
like 'Will there be a boom or a bust?' It is therefore not
your job to make your own predictions. There is no shortage
of books, journals and newspapers offering these sorts of
prediction, most of them backed by impressive statistics.
Economic statistics are also available at most university
and larger public libraries. Then there’s the Internet…
Concentrate particularly on those trends that apply to your
own industry.
The Government tends to collect statistics on everything.
You may be surprised how detailed some of them are. There
are sector-by-sector breakdowns, and also local statistics.
You may be able to get statistics for your particular industry
in your particular area. Local authorities’ economic
development departments may be able to help.
You can also get statistics on the population, and their
spending power and consumption patterns. This is important
when it comes to identifying target segments of the market.
Think, too, of the statistics that apply to your own particular
market. If you sell air conditioning, get statistics that
show temperatures. If you sell industrial machinery, get statistics
on industrial production.
You will probably discover that your problem is not finding
the statistics but cutting your way through a vast jungle
of them to get what you really need. Statistics and predictions
are of limited value, but the important thing is to have considered
all the factors.
Using market research
Market research can be a total waste of time – unless
you use it. You should be able to build up a picture of both
the market in general and individual customers in particular.
This should help you in:
- Marketing and selling.
- Product development.
Once you know how your customers respond to different forms
of marketing, you will know what buttons to push if you want
to sell more to them. However, this is a very short-term attitude.
The real value of market research is when looking at long-term
strategies.
Knowing your customers, and what they really want and need,
should be the basis of product development. If you adapt your
product according to what people actually say, rather than
what you think they say, you will always be one step ahead
of the opposition. Assumptions are nearly always wrong!
Your market research must therefore be:
- Constant.
- Responsive, rather than just testing your ideas.
- Taken into account at an early stage in the product development
process.
The last point is the most important. Market research is,
in most peoples’ minds, associated with a very limited
application: new product testing. Yet, to produce a new product
and use market research only to ‘test’ it, is
to miss the whole point. By that stage, it is too late. Instead,
turn this on its head. Find out what people want, and then
see if you can produce it.
The role of market research
Formal market research certainly has its place. It is a good
idea for any business, not just at the launch of a new product,
but regularly thereafter, to take a step back and look at
the broader issues. If you have the money, good professionals
can provide objectivity and expertise – but lack of
money is no excuse. There is much you could and should do
on your own.
Ultimately, however, it is informal market research –
a constant awareness of your customers, their needs and wants
– that is essential to keeping and developing your business.
And since all the necessary information is often in front
of you, you have no excuse for not using it.
Useful contacts
The MRS Website is a useful information source for standards
and guidelines on conducting market research effectively and
legally.
MRS,
15 Northburgh Street,
London
EC1V 0JR
T: 020 7490 4911
F: 020 7490 0608
W: www.mrs.org.uk
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