Section Four: Market Research

Introduction

Your job as an entrepreneur is to uncover what people need and/or want in order for you to develop and promote your product or service to fill that need.

Market research will help you find these unfilled needs. In this section, you will learn how to complete a market research project.

What is Market Research?

Market research is a step-by-step process used to gather, report and interpret information that you need to know in order to make good business decisions.

Market research will help you find answers to questions such as the following:

  • How will people behave regarding a particular topic, habit, activity, decision or business?
  • Will my idea work? Can I sell my product or service and make money?
  • What marketing tools will be most effective?
  • How much product or service can I sell?
  • Is there a need for more new products or services?

Five Steps to Effective Market Research

Every research project is different. The research you do depends on the type of product or service you intend to offer.

While the emphasis may change from project to project, the same five steps should be followed in the research conducted by every entrepreneur:

  1. Define the problem
  2. Prepare a research plan
  3. Collect data
  4. Analyse the data
  5. Prepare a market research report

STEP ONE: DEFINE THE PROBLEM

Set Your Objectives

The first step helps you clarify why you are doing the market research and what you are looking for. This requires a clear view of both your overall objective and the objectives of the market research itself.

Try to make your objectives realistic and specific so that your research becomes relevant and focused.

See Table 7 for an example of a set of objectives for a feasibility study regarding a new product.

Table 7: Step One: Define Problem

Objectives for Feasibility Study
Overall Objective
  • To investigate the feasibility of introducing Product X to the North American Market
Specific Market Research Objectives
  • To determine markets where Product X could be used and trends in those markets
  • To identify primary and secondary target markets, including consumer profiles and trends
  • To determine the number, location and identity of present and potential direct and indirect competitors, as well as their strengths and weaknesses in terms of product, service and promotion
  • To identify and evaluate promotional alternatives for introducing the product into existing target market distribution channels, or to create new channels

Click on Worksheet 2.4 to define your market research objective.

STEP TWO: PREPARE A RESEARCH PLAN

Prepare a Research Plan

It helps to have some idea of where you are going in your research. Failure to lay out a basic plan in advance can lead to hopeless confusion. As you begin to collect data, you will probably need to revise your research plan, but for now, you need a place to start.

When planning your research try to keep the following in mind:

1. Topics and subjects to be researched

List rough topics and subjects you want to research. These will be based on the objectives you listed in Step One.

Don’t narrow down your field of search too soon. For example, even if you are only interested in Ontario customers, search out industry information on a Canadian or even North American basis first. This will ensure that you don’t eliminate important trends that haven’t occurred in Ontario yet.

2. Data sources to consult

There are two types of sources of data available to you – primary and secondary.

Primary data can be obtained from discussions, interviews or surveys.

Secondary data is obtained from existing sources such as government or association statistics, newspapers, magazines, trade journals, or previously published studies.

3. Time frame

Set a time frame for your research. For example, you might want to investigate all published articles on subject Y for the previous 5 years.

Remember, most statistics are already out of date by the time they are published due to the time taken to compile them. You are looking for insight, not absolute truths.

4. Written Plan

Make sure you write out your plan. This helps to organize your thoughts.

See Table 8 for a summary of what should be in your research plan.

Table 8: Suggested Contents of Research Plan

Market Research Plan

1. Statement of objectives

2. Data you will probably want to be gathering:

  • industries/markets you are interested in
  • related industries 
  • competitors/suppliers/distributors
  • legislation and standards
  • demographics/customer profiles
  • need for primary research

3. Time frame you wish to research 

Click on Worksheet 2.5 and complete the plan for conducting your research.

STEP THREE: COLLECT DATA

Sources of Data

You will recall that there are two sources of data – primary and secondary.

Secondary sources are used to determine background information, ideas and trends. A great deal of information is available from government and industry sources, as well as from companies, and even the advertising departments of magazines.

Primary research serves to refine and focus information derived from the secondary sources.

Secondary Sources

Some examples of secondary sources of data include:

1. Demographic sources

See Tables 9 and 10 for Canadian and American Demographic sources.

2. Statistical sources

See Table 11.

3. Major publications read by clients

A number of directories are available that list either publications by orientation, or list articles written on a particular topic in business and consumer magazines and selected newspapers.

Refer to Table 12.

4. Competitor/Supplier/Distributor Lists

Suppliers of raw materials or distributors of finished products into markets you are interested in can be invaluable sources of information on how a market works.

Table 13 gives some sources of this type of information.

5. Competitor Information

It is important to know details about your competitors. By analysing their business you can learn a great deal about customer expectations, market conditions and the viability of your idea. While researching them, keep in mind the things that they do well so that you can plan to do them better. Also be sure to identify their weaknesses so that you can turn them into your strengths to give you a competitive edge.

You can find information on your competitors in brochures, news clippings, advertisements, and research on the Internet.

There are two basic types of competitors – direct and indirect.

  • Direct
    • Direct competitors are those who offer the same products or services as you do.
  • Indirect
    • Indirect competitors are businesses that offer other products or services that fulfil the same or a similar function as your products or services. These competitors are sometimes referred to as substitute competitors.

Know Your Competitors

In order to assess your competition, consider the following questions:

    1. Who are your competitors?
    2. How many competitors are in your market area? Is the number increasing or decreasing?
    3. Are your competitors profitable?
    4. Is the market growing or contracting?
    5. Are your competitors strong/solvent?
    6. What are their price structures?
    7. What is the total dollar and/or unit volume of the industry?
    8. How does this relate to the need potential? (Is there a shortage or surplus?)
    9. How are competitors likely to respond to your company’s entry? What will be your response?
    10. What are the sales and market shares of each of your competitors?
    11. How are your competitors positioned? (ie. Who is their target market? What is the image they project?)
    12. Where and how do your competitors advertise?
    13. How many customers do they have?
    14. Is your industry seasonal?
    15. What level of customer service do they provide? 

6. Niche Data

Niche data focuses on legislation, trends and economic studies relating to particular market niches that you are concentrating on.

Table 9: Demographic Sources

Sources
  • Public libraries
  • Local college
  • Municipal office
  • Entrepreneurship Centres
  • Economic Development Corporation
  • Business Development Centres
  • Provincial and Federal Ministries
  • Boom Bust and Echo by David Foot
  • Government bookstore
  • Internet

Table 10: American Demographic Sources

Source Name Description
Statistical Abstract of the United States 
  • Summary of more than a thousand tables of information
  • Demographic information broken down by state
  • Footnoted bibliography
County and City Data Book
  • Published every three years
  • More detailed information than Statistical Abstract
  • Focuses on statistics for all counties of United States and cities with population of more than 25,000
Survey of Current Business
  • Monthly publication 
  • Current data and general statistics on all aspects of business
  • Valuable in reporting business trends that can help determine directions in which your market might go
U.S. Census Bureau
  • Census of Population 
  • Age, gender, ethnic origin, citizenship, education, occupation, employment status, income and family status 
  • Categorized by state, county and city
  • In large cities, categorized by census tract and city block
  • Manufacturing Census
  • Taken every five years
  • Industry Census
  • Taken every two years
State and Local Department of Commerce
  • Regional and local focus
Local and National Media
  • Extensive market research done by many magazines to sell advertising
  • Frequently available to prospective advertisers
  • Available both in Canada and in United States, but more prevalent in the U.S.

Table 11: Statistical Sources

Source Description
Computer Databases
  • Examples of databases
    • Dialog on Disc
    • Lexis/Nexis
    • Dow Jones Retrieval Service
  • Offer access to extensive databanks
  • Detailed information about specific companies or industries
Associations
  • Examples
    • Encyclopaedia of Associations
    • Professional Associations of United States and Canada
Directories
  • American Statistics Index
    • Federal and state government published statistics
  • Statistics Canada Catalogue
  • Statistical Reference Source
    • Statistical publications from commercial publishers, associations, business or commercial organizations, university research centres and some state sources

Table 12: Major Publications

Source Description
Publications
  • Canadian Advertising Rates and Data 
  • Standard Rates and Data (U.S.)
  • Oxbridge Directory of Newsletters (U.S.)
  • Ulrich’s International Periodicals Directory (World)
  • Ayer Directory of Periodicals
    • Lists 21,000 newspapers and magazines published in the United States and Canada
  • Mathews Media Directory (Canada)
  • Gale Directory of Publications and Broadcast Media (U.S. and Canada)
Articles by topic or carat
  • Canadian Business Index (Canada)
  • Business Periodicals Index (U.S.)
  • Canadian Periodical Index (Canada)
  • Canadian News Index (Canada)
  • Reader’s Guide to Periodical Literature (U.S.)
  • Canadian Magazine Index (Canada)
  • Social Sciences Index (U.S.)
  • Canadian Business Disc
    • Newspaper articles
    • Includes actual text
  • Dialog on Disc
    • Lists magazine article and source by carat

Table 13: Competitor/Supplier/Distributor Sources

Competitor/Supplier/Distributor Lists

Lists of companies by product supplied can be obtained from the following directories:

  • Regional Business Directory
  • City Directory
  • Made in Ontario
  • Canadian Trade Index
  • Scott’s Directory
  • Fraser’s
  • Thomas Directory
  • MANA Directory 
  • Manufacturers’ Representatives

How to Collect Secondary Data

Table 14 outlines some steps you might want to follow to identify and collect secondary data.

Remember to make photocopies of everything that looks interesting as you’ll invariably want to refer to it again at some point.

Make notes as you go. This helps you concentrate. Organize your notes under a few categories on separate sheets of paper. Suggested categories might be market information, competitors, and key players.

Table 14: How to Collect Data from Secondary Sources

Source What to Do
Dialog on Disc
  • Enter the topic you want to research
  • Print out list of articles
  • Read each listing
    • Title of article
    • Author
    • Magazine
    • Issue date
    • Page numbers
    • Any photograph, illustration or chart
    • Descriptors
  • Look for keywords
    • Refer to last line in listing, called descriptors
  • Obtain actual articles
    • Will need to obtain from library
Canadian Business Disc
  • Refer to your expanded list of keywords
  • Identify specific newspaper articles in selected Canadian newspapers on these topics
  • Read text of articles on computer screen
  • Print out hard copies of those you want to keep
Public Library
  • Consult the U.S. and Canadian Directories
  • Look for relevant publications, newsletters, associations, competitors/suppliers/distributors and specific articles using your keyword list as a guide
  • Photocopy each listing page you find with article titles of interest
  • Make sure to cross reference carefully as there may be duplication between different directories
Interlibrary Services Other Libraries
  • Collect articles
  • Ask a librarian about interlibrary services with other city, regional, university or college libraries
  • Request relevant magazines
  • Find and scan the articles
  • Photocopy all those of interest
Association Directories
  • Find all associations involved in your target markets, product or service, and note
    • Association name
    • Address
    • Contact name
    • Telephone number
    • Any publication issued
Trade Directories
  • List all applicable suppliers, competitors and customers

Conduct Primary Research

Once you have covered the secondary sources to the best of your ability, it’s time to fill in the holes by conducting some primary research.

Primary research may include discussions with association directors, suppliers or distributors regarding the market in general, or formal surveys of consumers and/or potential customers.

As mentioned earlier, this will help you to refine and focus information you have gathered from your secondary sources. You may even turn up more reports, statistics and background information.

Primary Data Sources

There are three predominant methods of conducting primary research:

1. Observation

Observation involves investigating how your potential customers and competition behave.

Check the yellow pages to see who your competitors are, then visit these businesses as if you are a customer.

Make observations on some or all of the following:

  • Service
  • Products
  • Salespeople
  • Location
  • Promotion
  • Image
  • Types of customers (e.g. age, gender, ethnic background)
  • What customers are buying

2. Focus Groups

A focus group is set up to bring a representative group of potential customers together in one room. A group of 6 to 12 seems to be best to promote discussion.

Ask the members of the group about their needs. Probe to get their reaction to your product or service, promotion, packaging, pricing, etc.

3. Surveys/Questionnaires

Surveys or questionnaires are the major tool in market research. These surveys or questionnaires can be simple or complex. In most cases, a simple survey is more than sufficient.

A well-designed survey is an excellent means of collecting precise market information. It can capture demographics and attitudes used to segment markets into similar groups of potential customers.

The key to getting good results from a survey is to carefully decide before you start exactly what information you need to know and who you’re going to ask.

There is a trade-off between cost and control. Three standard ways to take a survey are by mail, in-person, or by telephone. Table 15 compares these three survey types.

Table 15: Survey Types

Survey Type Advantages Disadvantages Comments
Mail Survey
  • Respondents can answer at leisure
  • Answers may be well thought out
  • Percentage of returns very low (about 10% on average)
  • Motivation devices often used (e.g. enclosing a dollar or offering a premium)
  • Most effective motivation is a covering letter describing a specific benefit to respondent
Personal Interview
  • Most intensive and valuable
  • Can be pre-arranged in office or conducted on the street or in malls
  • Interviewers must be carefully trained to deal with respondents
  • Relatively expensive in terms of both time and cost
 
Telephone Survey
  • Can be done by non-professionals, if questions kept simple and few in number
  • Allows comprehensive coverage of large and/or geographically diverse markets
  • Easy to control administration and adjust if necessary
  • Lowest cost
  • Reluctance of some people to answer questions over the phone
 

Deciding on Sample Size

You don’t have to talk to everyone in a target market to predict the behaviour of people in that market. For larger groups, it’s best to sample the group for an indication of their future behaviour and opinion.

An appropriate sample size can be determined in many different ways. Most companies use a simple random sample based on the fact that a certain number of completed surveys are needed for a statistically reliable result.

The sample size does not vary with the size of the total population. Instead, the actual number of surveys needed depends on the degree of accuracy desired.

Deciding Who to Survey

People to be surveyed are chosen at random from a prepared list such as a telephone book or trade directory.

The recommended sample must be taken from each section of the population that the survey is to draw conclusions about.

For example, if you take a survey of a sample population throughout a larger geographic region to predict behaviour, you can’t expect the same degree of accuracy for individual predictions for a specific city, town or village.

Questionnaire Design 

A poorly constructed questionnaire can do more harm than good. When constructing your questionnaire, try to keep the following suggestions in mind:

1. Avoid bias

In order to generate valid results, each question must be carefully designed and tested to avoid bias (leading the respondent to a particular answer).

2. Have a reason for asking each question

You should know why each question is being asked and what purpose the information will serve.

3. Pay attention to appearance and language

The questions should be well-formulated, using concise, clear language.

Table 16 outlines two basic styles of questions which you can use when you are preparing your questionnaire.

Table 16: Question Styles

Question Type Purpose Suggestions
Closed
  • To select a specific response from a prepared list
  • Try to provide a series of ranges rather than asking for a direct response when dealing with issues such as age or income
Open
  • To spark discussion and provide responses that might not have been expected
  • To capture opinions and attitudes
  • Begin with questions that are simple and require little personal involvement
  • Place questions covering sensitive issues, such as age or income, near the end

Designing a Survey or Questionnaire

There are several decisions that you will need to make in the planning stages of designing your survey or questionnaire to ensure that you get the information you need and that the information is useful and objective.

You must consider:

  • What is the purpose of the survey?
  • Who will you survey?
  • How will you conduct the survey?

Questionnaire Objectives

Without an objective or purpose for conducting the survey, you may lose focus and ask questions that you don’t need the answers for. Alternately, you may forget to ask questions that are important in your analysis. Keep your objective simple.

In the start-up phase of business operations, you will probably be most interested in determining if there is demand for your product/service.

For example, the objective for a market survey for a variety store may read:

“To determine if there is sufficient market demand for a variety store to provide fresh produce, deli and baked goods and other general goods in the downtown areas of Anywheretown.”

Sample Size

Once you have determined your survey objective you will need to decide how many surveys you will conduct and exactly who you will survey.

It is important that you conduct a sufficient number of surveys to give an accurate reading of the market place. For example, a minimum sample size of 300, if you are surveying the general population of a city, would be sufficient. If you are conducting a survey of local businesses you would not need to complete 300 surveys but would want to ensure that enough surveys are conducted to get unbiased results.

Questionnaire Factors

When deciding on how you will execute the questionnaire you must consider what the easiest way is to reach your sample to allow you to get the information you need. Some factors that may affect your decision are:

1. Time.

The amount of time you have to conduct the survey may restrict you from using some methods such as mail surveys.

2. Geographical Area.

If you are conducting a survey over a large geographical area it would not be cost or time efficient to do interviews in person.

3. Nature of Product or Service.

If questions on your survey are designed to get feedback on a uniquely designed product you will want to show interviewers a sample to get their response. Subsequently, you would want to conduct personal interviews.

4. Length of Survey.

Short surveys are recommended but if you have designed a survey that will take over ten minutes, you will have better results in getting all the questions answered by using the interview method.

5. Money.

Some survey methods are more expensive that others. Cost out all factors before making your final decision.

Click on Worksheet 2.6 to complete the sources and steps for collecting your data.

Sample Questionnaire

This sample questionnaire is a simple survey regarding a new automotive-related service.

A prepared introduction and a series of qualifying questions to eliminate respondents who do not fit the prospective market are included in this questionnaire.

SAMPLE QUESTIONNAIRE OUTLINE

Good evening, Mr./Ms. ______________________________________.  This is __________________________________ calling from Eric P. Jones and Associates Inc., a marketing consulting company in Anywheretown.  We have been asked to conduct a survey concerning the public’s opinions regarding a new concept in automotive service and repair.  Your name was selected at random and I was wondering if you might have 5 minutes to answer a short questionnaire.  Do you have a moment or would there be a more convenient time for me to call back?

1. Do you own a car or van?

_____ YES _____ NO

**** IF NO, CONCLUDE SURVEY ***

2. How old is your vehicle?

______ YEARS

**** IF LESS THAN 3 YEARS, CONCLUDE SURVEY ****

3. Is your vehicle covered by warranty at this time?

_____ YES _____ NO

**** IF YES, CONCLUDE SURVEY ****

4. Have you had any repair or maintenance work completed within the past two years?

_____ YES _____ NO

**** IF NO, CONCLUDE SURVEY ****

5. Do you do any of your own repairs?

_____ YES _____ NO

6. What types of repair work have you had done in the last two years?

Source

(a) ___________________________________________________     _____________

(b) ___________________________________________________     _____________

(c) ___________________________________________________     _____________

(For each source, did you have the work done at a dealership, a franchise or an independent repair shop?)  Please indicate beside each source above.  

7. What do you like most about your current auto repair outlet(s)?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

8. What do you dislike about your current auto repair outlet(s)?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

Our client has developed a new concept where through a new automotive outlet, you would receive free towing services and major savings on parts and labour for your mechanical repairs and autobody needs.

9. If you were to receive an automotive repair estimate of $1,000.00, what kind of discount off that price would attract you to be our customer?

_____ 20% _____ 30% _____ 40%         Other _____

($200 saving) ($300 saving) ($400 saving)

10. What would you be willing to pay as a monthly membership fee to receive this discount?

_____ $10 _____ $15 _____ $20           Other _____

11. Would you be willing to purchase a membership for this outlet?

_____ YES _____ NO

That concludes our survey.  Thank you for taking the time to answer our questions.

Source: Eric P. Jones & Associates.

Click on Worksheet 2.7 to draft your own survey.

STEP FOUR: ANALYSE DATA

Purpose of Analysis

The purpose of analysis is to obtain meaningful information. You have undertaken your market research in order to be able to make better business decisions.

Review Your Objectives

Before analysing the data you have collected, go back to your original research objectives to focus on what you’re looking for. (See Worksheet 2.4)

Analysis has to be objective and pertinent so that it can form the basis of an effective strategy.

Analyse Your Primary and Secondary Data

Analysis provides concrete results about your product or service, the market, and the future.

Combine your primary results with secondary research to:

  1. Find out if there are enough customers for your product or service to make a profit
  2. Identify weaknesses in the competition
  3. Ensure you are offering what people want

Click on Worksheet 2.8 to analyze your data.

STEP FIVE: PREPARE RESEARCH REPORT

Contents

As you are aware, each research project is different. The research you undertake depends on the type of product or service you intend to offer.

While your emphasis may be somewhat different from another entrepreneur’s, your report will still address the same issues:

  1. A definition of the problem
  2. Research plan, including the objectives for the research
  3. Method of data collection and the sources used
  4. An in-depth analysis of the data collected as it pertains to your product or service

Click on Worksheet 2.9 to complete your research report.

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