How to do market research
When you’re getting ready to start a business, one of the most important steps is market research. By doing market research, you’ll have a much better idea of the validity of your product. Ideally, market research will tell you who your audience is, where you’ll find them, and how to sell to them.
So, what is market research, and how do you do it?
Market research definition
Market research is the term for everything a business does to learn about the audience for their product or service. You need market research to determine if there’s a demand for what you’re selling.
Market research is something businesses of any size can do. You don’t need lots of money or a think tank at your disposal. Just visiting local businesses and searching for information online is a good start.
You’ll likely find yourself using a mixture of quantitative and qualitative data when you’re doing market research for a new product, as market research is a big task that covers a lot of areas. To make it easier for yourself, split your research into specific topics. Good market research will cover:
Competitors in your market
Projected market growth
Your market size is the number of potential customers you have. Estimating your market size means having a good picture of your target demographic. How old are they? Where do they live? How educated are they? How much money do they make?
To assess market trends, look at the pattern for your industry. When is there the most demand for your type of product? Does it fluctuate seasonally? How do customers in your industry tend to purchase products? Are there social or socioeconomic trends that could affect your market?
This is the amount of money you’re likely to make from your business. You need to figure out the costs associated with your product and the sales you’re likely to make. How much does your product cost to make? How much of it will you buy or manufacture at once? How many sales do you expect? What can you charge for your product?
Competitors in your market
To get an idea of your position, you’ll need to know who your competition is and how their businesses work. Who is their audience? What kind of marketing do they have? How much are they charging for their products? How are their resources and structure different from yours?
Projected market growth
If you want to be able to plan for the future, it’s a good idea to look ahead at how your market is likely to develop. Market growth rate is the speed at which the market expands. The future of your market depends on demand and number of competitors.
Is your product filling a need or is it a temporary fad? Are you unique or are there many businesses like yours?
When you’re starting a business, you need to know how much it costs to enter the market. That means considering startup costs as well as recurring costs.
Are you paying rent? Do you need to cover utilities? How much will getting the decor for your shop cost? How often do you need to buy new inventory? How much will you spend paying staff if you have them?
Now that you know the areas to research and the kinds of questions to ask, let’s take a look at ways you can get these answers.
Types of market research
There are two main types of market research that you can conduct, regardless of the methods you use. They are primary and secondary market research.
Primary market research
Primary market research means that you’re looking for first-hand information about your market and customers. In other words, you’re going straight to the source for your data. Primary research helps with your market segmentation, which is the process of separating customers into groups.
This type of market research helps you create buyer personas. A buyer persona is a fictional portrayal of your ideal customer. These personas mention:
Knowing the persona you’re marketing towards is a key step towards figuring out a strategy for appealing to them. Businesses aren’t always limited to one persona either; sometimes there will be multiple buyer profiles interested in a product.
Primary market research tends to be one of two things. It can either be:
Exploratory research. This is commonly a first step before doing any more specific market research. The goal of exploratory research is to identify potential problems rather than looking at customer trends or market data just yet. You might conduct this kind of research with open-ended interviews or small surveys.
Specific research. After your exploratory research, it’s time to delve into the issues you identified as important. Specific research focuses on asking questions that are more targeted. You’ll question smaller samples of your audience that are more relevant to those questions.
Secondary market research
Whereas primary research is more abstract and qualitative, secondary research focuses on analysing things that are concrete and measurable. It relies on data to help you analyse things like customer preferences, market trends, and your competition.
Secondary research utilises three main types of sources. They are:
Public sources. These are the easiest to find and usually available for free. They include any kind of public market data, such as industry data from government websites.
Commercial sources. These are reports commissioned by private organisations, such as business analysts, research centres, or think tanks. You may have to pay to access some of this data, but it covers a broad scope of industry information.
Internal sources. Sometimes it’s easy to overlook the data you already have as a source, but that data gives you the most personalised picture of your business you’ll find. Your average revenue per sale, number of sales, customer retention rate, and existing customer demographics are all internal sources.
There are a lot of market research methods you can use when you’re conducting primary and secondary research. Some will be more appropriate for your business’s aims than others.
Market research methods
Interviews are a good way to establish buyer personas and understand what customers want. When you select people to interview, remember to keep the interview groups small and relevant. Ideally, your interviewees would be people who have already interacted with your business, but looking for people who have bought from a competitor works too.
Remember to always ask open-ended questions. You don’t want to lead the interviewee towards certain answers by prompting them to say ‘yes’ or ‘no’. Also, you never know where conversations will lead when you give customers room to elaborate.
A focus group is more than just a group interview. If you gather a few people in a room, you can give them a preview of your product and even have them try it out. That way, you can see how easy your product is for your market to understand.
Also, having people try out your product in person allows for feedback. You can learn what’s convenient, what’s difficult, and what’s unique about your product. That feedback leads to you making a better product and figuring out how to differentiate your marketing from similar products.
Traditional focus groups are usually a bit expensive to set up, but you can offset the costs in several ways. First of all, keeping the group as small as possible – around 4 people would be the smallest size that makes sense – helps cut costs. Also, focus groups are cheaper when they’re shorter. The ideal length is 60 - 90 minutes.
You’ll need to pay people for their time, which is one reason to keep sessions shorter. If people are travelling, that cost grows, so recruiting people locally also helps reduce the amount you have to spend. You can even run your focus group online if it makes sense for your business.
Research your competitors for insight into your industry. Find out who the major players are that sell similar products to yours, and how they talk about their product. Pay attention to their pricing so you get an idea of how much to charge for your own products.
You should look at competitors’ social media accounts as well as their websites, so you can see how they interact with customers. What kinds of questions is their audience asking? What tone do competitors use when they interact with people? What other pages do people who like your competitors follow?
None of this is to say that you should model yourself after other businesses in your field, because originality is essential. But looking at how competitors behave can help you understand what your audience wants and how they’re used to being addressed.
One of the most useful market research methods involves learning what customers look for in products similar to yours. You want to find out why people look for these products, what they use them for, and if they’re satisfied.
Other than interviews and focus groups, a great way to do this is by analysing product reviews. Go on Amazon or other similar sites and read what people are saying about relevant products. What motivated them to buy what they bought? Is there a common issue they face?
Even better, look on forums dedicated specifically to your product. There, you’ll find more informed voices talking more in-depth about its pros and cons. In addition to sharing reviews, people on these forums are more likely to recommend alternatives.
Knowing how to do market research is essential to make sure you’re getting the most out of your products. Learning who your audience is and why they’re searching for what you’re offering helps you effectively reach out to them.
There are many aspects of your market you’ll need to consider, from its size to its competitiveness. And you’ll likely find yourself using a mix of quantitative and qualitative market research methods to find that information. Construct your buyer persona based on the data you find, and that way your marketing can be as targeted as possible.
Because market research is everything a business does to learn about its target audience, it can be a long process. But the more information you have, the easier time you’ll have running your business later.
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