How to conduct marketing research, The word market is defined as a collection of buyers (or potential buyers) of a particular product or service. The purpose of market research, therefore, is to gather information about a product and its demand. Knowing the size and make-up of a market is a good indicator of how potentially lucrative a product might be. As the owner of X-Pak S.A., in Verviers, Belgium says, ‘there is no end of finding new ways to make life easier, to innovate existing products, to improve a service, or to sell something. Good research will help you do all of these things. Research can determine if a product idea has profit potential and if demand will sustain a steady income.’ Additionally, a thorough research investigation will help:
- reveal more about a product idea (including its costs) and the target market.
- discover how the product should be sold (and how much of it people might buy).
- determine the optimal location where the product should be sold.
- find the best price at which to sell the product.
- the entrepreneur learns to speak more intelligently about the product.
- the entrepreneur connects with the paying public.
- reveal information about the size and abilities of the competition.
- explore the demographic make-up of a potential customer base.
- discover ways to modify the product or service to maximize its potential, and, − determine if it’s time to let go of an unsuitable idea and find another one.
The Objectives of Market Research
When asked how he succeeds in business, Simon Windsor, the now retired former owner and founder of the Ultra Force Group worldwide recruitment firm (which was based in the UK) said, ‘The absence of evidence is not necessarily the evidence of absence. So I’m usually very sure before I invest in the unknown.’
To help shed light on the unknown, Simon suggests that every business research project should pursue two main objectives:
- Determine an accurate estimate of costs, and,
- Produce a reliable estimate of revenues.
For example, if an entrepreneur plans to make a living selling ice cream, he or she will need to know:
A. how much it costs to sell ice cream (including equipment, raw materials, licenses, etc), and, B. how many scoops of ice cream will have to be sold per week to cover costs Research into the answers behind these objectives should:
(a) identify who is going to buy the product,
(b) determine how many are going to buy it and,
(c) provide a good estimation of how long demand for the product will last.
Tools for Conducting Marketing Research
Market research is a four-stage procedure.
- During the first stage, a question or opportunity is defined in regards to the product the entrepreneur wishes to introduce. (For example, can the local market support a new ice cream parlor?)
- In the second stage of research, the entrepreneur must decide on the tools he or she will use to obtain the necessary data (e.g.: surveys, demographic studies, income analysis, etc.).
- Collection of information occurs in the third stage.
- The fourth stage analyses all information that has been gathered.
Two types of data tools fulfill the second stage.
− Primary Data consists of obtaining information firsthand, at its source, for a specific purpose Methods of primary data collection include questionnaires, personal interviews, interviews with groups of people (focus groups), and mail and telephone surveys.
− Secondary Data involves information that has already been collected – usually for another purpose. Examples include demographic studies, surveys, college and university research projects, magazines, books, government data, Internet searches, and so on. Secondary information can also be found in libraries, Small Business Administration (SBA) offices, the Service Corps of Retired Executives (SCORE), local Small Business Development Centers (SBDC), local enterprise councils, a Chamber of Commerce, or even a community bank. Careful internet searches can also be invaluable.
Sources of Secondary Data Collection
Secondary data is the easiest source to begin with because it has already been collected – thus making it cheaper and faster to obtain. Common sources of secondary data include, but are by no means limited to:
Books. Examples include:
- The Business Periodical Index, which lists business articles that appear in major business publications.
- The Encyclopedia of Associations, which lists and describes organizations and groups across the USA.
- Standard & Poor’s Industry Surveys, which provide statistics and analyses of industries.
Commercial Information (usually sold to subscribers). Examples include:
- The A.C. Nielsen Company. Provides data on market share, retail prices, sales, television audiences, household purchases and much more.
- Information Resources, Inc. Collects supermarket scanner information, grocery product movement data, and customer behavior.
- NFO Research. Provides information for mail order businesses, the beverage industry, product testing, attitude and usage studies, tracking, and market segmentation.
- Simmons Market Research Group (MRB Group). Publishes an annual report on lifestyles and regional demographics in regards to age, sex, income, and brand preference.
Government Publication Titles. Examples include:
- The Annual Survey of Manufacturers
- Business Statistics
- The Census of Manufacturers
- The Census of Population
- The Census of Retail Trade
- Foreign Economic Trends and their Implications for the United States
- Industrial Outlook
- The Monthly Labor Review
- The Survey of Current Business
- The Vital Statistics Report
International Data Sources. Examples include:
- The Asian Economic Handbook
- Country Studies
- The Demographic Yearbook (information on 220 countries published by the UN)
- The Economic Survey of Europe
- The Europa Yearbook
- The Statistical Yearbook (UN)
- International Financial Statistics
- International Marketing Data and Statistics
- The International Trade Statistics Yearbook (published by the UN)
Periodical Titles. Examples include:
- Advertising Age
- The Journal of Marketing
- Campaign
- The Journal of Marketing Research
- Chain Store Age
- The Progressive Grocer
- International Journal of Research in Marketing
- Marketing Week
- The Journal of Consumer Research
- Sales and Marketing Management
Sources of Primary Data Collection
Make no mistake, primary data requires courage, time, and effort to collect. Questions must be proposed and written down, the right people need to be approached, and answers have to be analyzed in an unbiased manner (again, see Chapter 6 for workable suggestions on how to achieve these objectives). Don’t be afraid to ask for help. Knowledgeable people who have been through this process before will greatly add to the validity of research results. Examples of primary data collection include:
- Observing the Behavior of People.
- Posing as a customer to see what a competitor is doing
- Counting the number of customers that walk into a similar business or stop in front of a display
- Showing preliminary ads or samples to customers in order to gauge their reaction
- Investigating vehicular traffic flow patterns and/or the location of competitors
- Telephone Interviewing
Phoning potential interviewees is a fast, efficient way to speak to large numbers of people. Numbers from neighbourhood or membership phone books can provide a rich source of contacts because people of similar income brackets usually cluster in the same area. The drawback to phone interviews is that many people use answering machines to screen their calls and/or are offended by unsolicited phone calls (especially during mealtimes). Another obstacle of phone interviewing is that mobile phone numbers can be difficult to obtain.
- Group Interviews (Focus Groups)
Bringing a number of people together (or visiting a group or club that meets on a regular basis) can be a convenient way to gather opinions, explore issues, and probe for information. A good focus group can also act like a brainstorming session in that the input of different people working together usually produces more than what one individual can provide on his or her own. Drawbacks include: pre-existing groups may not paint an accurate picture of the community as a whole, groups can be harder to control than one-on-one interviews (individual voices may not be heard in a group), and some groups may expect payment in return for their time.
- Questionnaires
A questionnaire is a written set of questions designed to obtain and focus a targeted participant’s response (which is harder to do than it sounds). Questionnaires can contain open-ended questions (in which the respondent provides a short answer) or closed-ended questions (in which the answers are already written and the respondent chooses the most appropriate response). Each has its advantages and disadvantages. Close-ended questions can be answered easily and quickly, but because their answers are limited they don’t allow for unforeseen options. Open-ended questions can reveal more than closed-ended questions, but can turn people off if they’re too personal or require long answers.
Whether open or closed, questions should be simple, clear, concise, and purpose-driven. Don’t be afraid to play around with questions if they do not produce meaningful responses. Most people who use questionnaires learn as they go.
Questionnaires should avoid: (1) biased wording, (2) words, terms, or phrases unfamiliar to the general public, (3) poorly phrased questions, (4) difficult, uninteresting, or personal questions, and (5) too many questions. Take a look at the following examples developed to explore the potential market for a new restaurant and the corrective comments below each:
1. Do you enjoy eating in a good restaurant? Yes ( ) No ( )
Why ask this question? Unless you’re speaking to shut-ins, the answer is obvious.
2. What is the most conspicuous and elemental factor in your choice of an eating establishment?
Huh?
3. Would you be interested in a new restaurant if it opened in this area?
This is a biased question. Most people would probably say yes, but that doesn’t prove anything.
4. How much money do you make in a year? Whoa! Too personal!
Following are better questions to ask:
1. On average, how many times a month do you eat out?
2. What features, foods, or services in a restaurant make you want to return?
3. Which restaurants do you hear good things about and/or like to frequent? Why?
4. Do you believe that there are too many restaurants, take-away services, or food-delivery services in this area?
5. Where is the most convenient location around here for a new restaurant to open?
6. On average, how much money do you think is a reasonable amount to spend when eating out?
Although some experts think that questionnaires are vastly overused, their versatility nevertheless makes them popular and easily administered in the following ways:
One-on-One Interviews allow for a longer time to be spent with an interviewee, which offers the ability to demonstrate a product and gauge a reaction. Since an interviewer also interacts directly with his or her interviewees, it makes the answering of questions difficult to ignore. Additionally, most intelligent people, if trained properly, can administer a questionnaire, which means that several interviewers can spread out over a wide area. The downside of one-on-one interviews is that they’re usually time consuming.
While the human element is lost with Mailed Questionnaires, a mass mail-out can contain descriptive photos and be relatively inexpensive to print and send. Unfortunately, the return rate for mail-outs is notoriously low (sometimes below one-percent) unless some type of incentive is used (i.e.: money or a small gift is offered for a return – or – the completed questionnaire becomes part of a prize drawing).
E-mailed Questionnaires are extraordinarily cost-efficient and easy (and can include photos), but a list of e-mail addresses is needed beforehand. Moreover, most people hate unsolicited e-mail and use protective measures to prevent receiving them. When working with e-mail there is also the possibility of multiple returns from a single source, which will skew results.
Lastly, a Website Questionnaire has all the advantages of e-mail, however, the target audience must be Internet savvy and be aware that the website exists. Equally, having participants answer questions on a website may offer no control over who responds. Without taking proper precautions, anyone in any location can submit an opinion – or a hundred opinions – thereby skewing the results.
Don’t Walk Away from the Hard Work and Time that Research Demands
As stated at the beginning of this chapter, the point behind research is to reduce risk. The more money a business needs to get off the ground, the more proof is needed to ensure that the investment behind it is a wise one. When conducting research don’t talk to a half dozen friends and family members, then send out a few questionnaires and consider the task complete. Remember that research is the best way to obtain an estimate of future sales. This can be accomplished in part by exploring the demographic trends listed in the public records of local city halls (e.g.: is the population of the type of people who will buy your product going up or down?). Lastly, always keep in mind that market research is not a perfect science because buying behavior is notoriously difficult to pin down. Therefore, since markets have a tendency to change rapidly, different research sources and methods should be used to confirm results – a process called triangulation. In other words, combine at least one or more primary and secondary approaches before establishing a conclusion.