How to do market research for your business

January 23, 2024 | 5 minute read

Market research is the process of gathering and analyzing information to determine whether there is a demand in your target market or a desire among potential customers for a product or service you hope to introduce — before you invest time and money in rolling it out.

 

Usually, conducting such research involves going directly to potential customers (which might include existing customers and prospects) for their input and feedback. “The most basic market research is through networking — talking to everyone you can in the market you work in,” says Alec Foege, founder and director of Brookside Research, an investment research and due diligence firm in Westport, Connecticut. “Ask simple, direct questions and see what kind of answers you get.”

 

Why market research is important even for small businesses

Market research allows you to make data-driven decisions about where to invest your time and money. Here is what it can help you do:

 

  • Assess demand. You can learn if consumers or businesses in your target market are looking for whatever you’d like to sell, how many customers are likely to buy it, what gaps exist in the marketplace and other factors that are critical to your success.
  • Uncover how to sell more to customers you already serve. For instance, if you run a successful restaurant that serves breakfast and lunch, maybe there’s demand for providing takeout dinners as well. Or if you sell T-shirts with creative designs, perhaps your customers would also be interested in buying hoodies. You won’t know unless you ask.
  • Determine how much competition you’re facing and what differentiates potential rivals. You can use market research to learn if a given market is saturated, what similar offerings already exist within it, how much advertising and marketing your potential rivals are doing, and if new players are likely to enter the market after you launch.
  • Plan the rollout of your new offering. Market research will help you make educated decisions about factors such as timing, which markets to test and where to buy supplies — and take into account external factors, such as new regulations or seasonal considerations.

 

Primary vs. secondary market research

When you undertake market research, you’ll need to decide if you want to do primary research — in which you go straight to customers or prospects — or secondary research based on research conducted by others, such as trade groups or market research firms.

 

Primary research

You can often do informal primary research for free by talking regularly with customers and pursuing ideas they’ve suggested. Requests from customers — like “Do you happen to offer those shoes in boys’ sizes?” — can also point you to new opportunities.

 

Primary research relies on direct contact through methods such as focus groups, interviews and observation. Ultimately, it can help you to gather both qualitative data, such as customers’ likes and dislikes and emotional reactions, and numerical (quantitative) data. This can include anything from social media “likes” to numbers of abandoned shopping carts on your website.

 

Secondary research

This type of research, based on already compiled public or private data, can be a quicker route to gathering insights on your target customers and their interests than doing the legwork yourself. However, you must often pay others for access to the data they’ve gathered on your target market, whether it is packaged in company or industry reports, white papers or analysis of data from government agencies. The methods used to prepare this type of market research tend to be more formal and structured and can range from online surveys to in-person focus groups that are facilitated by a market research firm.

 

11 methods of conducting market research

There are many ways to conduct market research, from administering simple surveys to commissioning elaborate data-gathering studies with the help of a market research firm. Choosing the right method for your business — and then weighing what you learn in the context of what you already know about your customers — can increase the likelihood that you’ll get results you can trust. “Data can be great, but being alert to trends and considering your own experiences is the edge most small businesses have,” Foege says.

 

There are market research methods to suit every budget, time frame and question you’d like to address. Here is a look at some you might consider.

 

1. Interviews.

Speaking with target customers in face-to-face meetings or over a videoconference can provide more nuanced insights than you’ll get from a survey. Options include formal, structured interviews with set questions and unstructured interviews, which are more free-flowing and open-ended conversations that will help you gather both general and spontaneous reactions to your ideas.

 

2. Campaign research.

Before you invest in rolling out an ad or branding campaign, you may want to determine how effective it will be. Campaign research involves taking a look at pre- and post-campaign performance to determine how it is perceived by your audience. Pre-campaign data will help you find out if your message is resonating with a test group before you roll out the entire campaign, and post-campaign data can help you fine-tune your message going forward.

 

3. Surveys.

Carefully worded questionnaires can help you gather information about what your target audience cares about. You can use surveys to learn about factors such as their beliefs, priorities, challenges, preferences, habits and motivations. Surveys can be conducted in person, by phone or online using free or inexpensive tools such as Google Forms or SurveyMonkey. A market research firm can help you to word the survey questions and analyze the data in a way that ensures greater accuracy. Or if you’re designing the survey yourself, you can learn how from Harvard University’s Tip Sheet for questionnaire design, which includes links to helpful resources.

 

4. Competitive analysis.

This is a method of comparing your business to both direct and indirect competitors. It may help you discover new strategies or give you fresh ideas on pricing, operational efficiency, marketing, target audiences or building better relationships with customers.

 

For more information, see “Competitive analysis: What it is and how to do it.”

 

5. Pricing research.

Pricing your product or service appropriately can increase the likelihood your ideal customers will buy. A pricing study can help you determine the right price range to achieve your business goals — making sure your offering isn’t too expensive for your target buyers or priced so low that it seems inferior to competing products. Pricing research methods can range from asking existing customers what they would be willing to pay to more sophisticated studies, which use a variety of methodologies, from a market research firm.

 

6. Buyer personas.

This is a process in which you create profiles of your target customers — such as “Ellen the engineer” or “Tom the tall shopper” — based on their pain points, wants and needs, and behaviors. It will usually include demographic information such as their age, gender, career status, goals, challenges and interests and may include quotes to illustrate who they are.

 

7. Market segmentation research.

Dividing potential customers into groups based on similar characteristics — such as age, gender, geography, income or buying habits — in what is known as market segmentation research, can enable you to gather data that lets you customize your product development and marketing. By creating more personalized marketing, you may be able to achieve higher conversion rates and lower your customer acquisition cost.

 

8. Brand awareness.

Even the smallest business can build a valuable brand. Just think about the best pizzerias and bakeries in your community and the following they have among your friends and neighbors. Most consumers are aware of brands like Apple or Nike because of their multimillion-dollar ad campaigns, but achieving high brand awareness is more challenging for a small business. Using brand awareness research can help you measure how many customers know about your brand and their recall of your brand name, which can help you assess your current brand awareness and improve upon it in the future.

 

9. Focus groups.

Bringing together a group of target customers for an in-person, moderated discussion is known as a focus group. Often focus groups are preselected based on shared characteristics — for instance, busy working moms in the local area or avid fly-fishing enthusiasts — so that the discussion can be targeted and produce details on their preferences and concerns. Even if a formal focus group is beyond your budget, you may be able to benefit from the general approach that is used in this type of research. For instance, if you run a bakery and are thinking of adding gluten-free muffins, you might ask a group of regulars who meet there for coffee if anyone would buy them at their next meetup.

 

10. Loyalty.

This type of research tells you how much customers trust and value your brand and how likely they are to keep purchasing it, even if the price or convenience of doing so changes. It can also tell you if they are willing to buy your brand and nothing else or prefer your brand but are willing to try something else.

 

11. Customer satisfaction.

One of the most important things to measure in a small business is how happy your customers are with your products and services and the experience of buying them — or even returning them. Some methodologies, such as the Net Promoter Score, indicate whether customers are happy enough to rave about you to other potential shoppers like their friends and family, asking them to rate the likelihood that they will spread the word on a scale of 1 to 10. If you would like to generate more free word-of-mouth marketing, this can give you an idea of whether your customers are satisfied enough to make referrals. If you use a customer relationship management (CRM) software system, it may also have built-in tools you can send out when a customer buys something from you to get their feedback on what you sold them and the purchasing experience. Note, however, that overuse of surveys can decrease customer satisfaction.

 

How to do market research for your small business

To launch your own market research project, it’s important to consider a few factors:

 

  • What are you trying to find out?
  • What is your time frame?
  • What is your budget?
  • What will you do with the information you gather?

 

Once you’ve answered those questions, it’s time to do your market research. Here is how.

 

Step 1: Choose a method for conducting market research

Generally, it’s best to start with the simplest, lowest-cost and speediest methods to answer your questions. Then, if you can’t find the answers you need, build on what you’ve learned with more elaborate research, taking into account your time frame and budget. If, for instance, you are looking to find out if residents of a neighboring city would be willing to switch to your pest control business, will you buy mailing lists of customers from other noncompeting home improvement businesses so you can send out a survey? Will you interview random shoppers outside a local strip mall? Many methods will give you insights, so it’s important to choose the one that fits your other requirements.

 

Step 2: Decide how big a sample of current or potential customers to include in your research

There are a variety of sample size calculators online to help you determine a statistically valid sample size for the population you want to study. If your sample is too small, you may not gather accurate data. If it’s too large, it may cost you more time and money than necessary.

 

Step 3: Gather your data

It’s a good idea to start this phase early because it may take prep work. If you’re emailing out a survey, for instance, you’ll need to formulate your questions before you begin and prepare a digital form where recipients can respond before you begin. If people don’t respond immediately, you may need to follow up. Similarly, if you’re doing in-person research by interviewing potential customers outside the storefront of a competing business, you might find you need to return for several days to hit your target sample size.

 

Step 4: Analyze the information you’ve gathered

There are many ways to package the information you’ve collected, from spreadsheets to graphics. Make sure you organize your data or findings in a way that provides easy visibility. There are many free and low-cost online tools to help analyze survey data, create buyer personas and otherwise package what you’ve found out so you can more easily consider what it all means.

 

Step 5: Make your decision

Once you’ve analyzed the information you’ve gathered, it’s time to make a decision: to launch the product or service or not to launch. Ideally, the research will definitively tell you to move forward or to back off. If the light is blinking green as in go, then you must ready your go-to-market strategy. And if you’re selling a product, you’ll need to figure out manufacturing and distribution tactics.

 

Step 6: Test, learn, modify and repeat

Market research doesn’t end after you’ve launched your product or service. You will want to continue to ask questions, note reactions and refine your offering based on feedback from customers, vendors and prospects.

 

Market research FAQs

Choosing the right type of market research for your needs will help you get the most out of it. Here are two major types to consider:

 

  • Primary. This involves collecting data directly from the source through interviews, surveys or focus groups.
  • Secondary. This type of research entails tapping into secondhand data others have gathered, such as reading market research reports, doing internet research, listening to podcasts or attending online webinars and educational events held by trade associations.

 

Once you choose what type of research to do, you will need to decide what type of data to collect. Here are two main types:

 

  • Qualitative. This type of research assesses the sentiments and feelings of your target customers. It’s done through interviews, focus groups, observation, case studies, asking target customers to journal and other similar methods.
  • Quantitative. Generally more complex, quantitative research involves gathering data from experiments, studying correlations between different behaviors, taking surveys and other fact-based approaches.

 

Markets can change rapidly due to fast-evolving market conditions, new trends and technologies that are transforming how work is done. It’s now more important than ever to do market research to know what you’re getting into. This is why it’s beneficial to conduct market research any time you are considering starting a new business, developing a new product or service, or entering a new market. Even if your gut instincts tend to be right, getting validation from your target audience can help you avoid wasting money on offerings that fizzle.

 

There are many questions you can address through market research. Common ones include:

 

  • What is your initial reaction to this idea, product or service?
  • Is this something you would buy?
  • Is there anything we could add to or subtract from this product that would make it more appealing to you?
  • How much would you be willing to spend on this product?

 

If you do the legwork yourself, market research may not cost you anything beyond your time. If you hire a market research firm to help you with primary research, it will likely run you from $5,000 to $10,000 for basic market research, estimates Foege. While that is an investment in your idea, he notes, “it’s a small amount compared to what you’ll lose if you get it wrong.” Sometimes secondary research can be less expensive, but not always. MarketResearch.com, a provider of industry intelligence for businesses, estimates that high-level market research reports providing a broad overview of an industry will run you from $100 to $1,000. More detailed versions will generally cost from $3,500 to $4,000. A product detail market report — which describes the market and its subcategories, market trends and performance of specific products or services within an industry — will generally cost from $15,000 to $35,000.

 

One of the most cost-effective ways to conduct market research is to interview customers and prospects you already have. That group could include close friends or family members as long as their affection for you does not prevent them from giving you candid feedback. You can run ideas past your existing customer base when they come to your place of business or by visiting a local shopping center or mall to interview shoppers. For a B2B product, you could send out survey using a free or inexpensive tool such as Google Forms or SurveyMonkey.

 

The bottom line

Whether you’re starting a new business, thinking about manufacturing a new invention or looking to put down a stake in a new geographic area, market research can be a powerful secret weapon, helping you stay a few steps ahead of a fast-changing business environment. Gathering insights from your target customers can help you avoid wasting valuable time and money on ideas that don’t pan out — and make it easier to turn your best brainstorms into healthy new revenue streams that can help you grow your business rapidly.

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