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Many small and home-based business owners wonder, "What is market research, and why should I spend time and money to do it?.” According to Dictionary.com, “research” means:
1. Scholarly or scientific investigation or inquiry.
2. Close, careful study.
Market research is investigating and carefully studying your customers, competitors and industry conditions. Below are the three major reasons your business would benefit from market research.
1) Market research tells you whether or not there’s demand for your product or service. Even the most passionate of entrepreneurs will become disillusioned if few are interested in buying his or her goods or services. One obvious sign of demand is the presence of strong competition. But there is also "latent" demand, a strong, unmet need in the marketplace. This is where you can get creative! You (or a market researcher you hire) can interview or survey people or companies (or read the results of surveys conducted by others) to see if your product or service idea might fulfill an unmet in the market place.
Home office ink jet printers is an example of a market that didn't exist 20 years ago. Last week, I was interviewed by a Human Factor specialist from Ideo (www.ideo.com, Palo Alto, California) about my home office printing needs. While the information gathered from my interview will be used as input to help design the next generation ink jet printers for home office use, the pioneers in the industry had no current customers to interview. Good thing the ink jet industry pioneers didn't say, "Hmm, no one is using printers at home now, maybe it's not such a good idea..."
2) Market research answers the question, "What kind of person or company is most likely to buy my product or service?"
Knowing the demographic profile of your customer base allows you to more easily estimate the size of your market, using Census, trade association or other data. The knowledge also helps you make smarter marketing and advertising decisions.
Armed with your potential customer "demographic profile," you match the demographics of your potential customers with potential advertisers before you advertise. Most media companies (newspapers, magazines, radio and television stations) regularly conduct surveys so that they can provide up-to-date reader/viewer demographic information to their advertisers. For example, travel companies wanting to reach ecotourists (those that enjoy nature- and culture- based tourism) might want to advertise in the San Jose Mercury News’ arts & enternatinment section (ecotourists are, on average, 35 - 54 years old, about 80% are college graduates, earn higher-than- average incomes, and prefer to travel as couples). The San Jose Mercury News arts & entertainment section is read by 63% of all married adults, and 71% of all adults with household incomes of $150,000 or more in Santa Clara county (see http://www.mercurynews.info/advertising/MN/INDEX.HTM for readers’ demographic information for all the sections of The San Jose Mercury News).
Businesses selling to managers or professionals at small businesses in the northern San Francisco Bay Area might find success advertising in The North Bay Business Journal. Management, professionals or technicians make up 76% of their readers, and their median size company has 15 employees and $1.75 million in revenue (for more detail see http://busjrnl.com/images/ad_pages/NBBJ%20Why%20Advertise.pdf).
Use your customer demographic information when choosing networking events or speaking engagements, too. If you’re looking for sales leads (rather than business information or support), attend events where the demographics of the attendees closely match those of the people or businesses most likely to buy your products or services.
3) Market research helps make you more successful by gathering information about your competitors.
“Do not fear competition: rather, seek it and learn from it,” says Luigi Salvaneschi in "Location, Location, Location: How to Select the Best Site for Your Business" (Oasis Press, Central Point, Oregon, 1996). Analyzing similar businesses can help you estimate your sales: what are the sales and sales trends of the other businesses in your area? Is there room for growth? Can you improve the shopping experience of your potential customers in order to capture sales from your competitors? As Salvaneschi says, the purpose of competitive research is twofold: “To satisfy all the potential demand and to make a dent in the sales of your competitors.”
Conducting market research will help you truly understand your potential customers, and your competitors. You’ll understand where to focus your product development and marketing time and money. The knowledge gained from market research arms you with the information you need to grow your sales more easily.
Keywords: market research, marketing, competition
About the Author
Anne Ramstetter Wenzel, Menlo Park, CA, USA
awenzel@econosystems.com
http://www.econosystems.com
Anne Ramstetter Wenzel, owner of Econosystems, makes business planning easy for her clients. Ms. Wenzel helps her clients identify who is most likely to buy their products or services, then creates business planning documents that give focus and direction to their businesses. Ms. Wenzel is also editor of the eNewsletter Small and Home Business Market Monthly, packed with market and "Marketing from the Trenches" info for small and home-based business. For free business planning and management articles, visit http://www.econosystems.com.
