Section Four: Market Research
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:
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:
- Define the problem
- Prepare a research plan
- Collect data
- Analyse the data
- 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|
|Specific Market Research Objectives||
Click on Worksheet 2.4 (Word Document) 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:
3. Time frame you wish to research
Click on Worksheet 2.5 (Word Document) 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.
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.
4. 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.
5. 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.
6. Competitor Information
It is important to know details about your competitors. By analyzing 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 competitors are those who offer the same products or services as you do.
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:
• Who are your competitors?
• How many competitors are in your market area? Is the number increasing or decreasing?
• Are your competitors profitable?
• Is the market growing or contracting?
• Are your competitors strong/solvent?
• What are their price structures?
• What is the total dollar and/or unit volume of the industry?
• How does this relate to the need potential? (Is there a shortage or surplus?)
• How are competitors likely to respond to your company’s entry? What will be your response?
• What are the sales and market shares of each of your competitors?
• How are your competitors positioned? (ie. Who is their target market? What is the image they project?)
• Where and how do your competitors advertise?
• How many customers do they have?
• Is your industry seasonal?
• 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
Table 10: American Demographic Sources
|Statistical Abstract of the United States||
|County and City Data Book||
|Survey of Current Business||
|U.S. Census Bureau||
|State and Local Department of Commerce||
|Local and National Media||
Table 11: Statistical Sources
Table 12: Major Publications
|Articles by topic or carat||
Table 13: Competitor/Supplier/Distributor Sources
|Lists of companies by product supplied can be obtained from the following directories:
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||
|Canadian Business Disc||
|Interlibrary Services Other Libraries||
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:
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.
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
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.
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
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:
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.”
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.
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:
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.
Some survey methods are more expensive that others. Cost out all factors before making your final decision.
Click on Worksheet 2.6 (Word Document) to complete the sources and steps for collecting your data.
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?
**** 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?
(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 (Word Document) 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 (Word Document)
Analysis has to be objective and pertinent so that it can form the basis of an effective strategy.
Analyze 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:
Click on Worksheet 2.8 (Word Document) to analyze your data.
STEP FIVE: PREPARE RESEARCH REPORT
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:
Click on Worksheet 2.9 (Word Document) to complete your research report.