In today’s highly competitive world, business success depends heavily on your ability to make well-informed, knowledgeable and strategic decisions. As an entrepreneur and/or a business manager, you need reliable information to develop effective marketing strategies.
Market research is essential to fully understanding your customers and competitors. To perform successfully, you must know your market, your customer’s attitudes and needs, and what your competitors are doing. Without this information, your business is at a distinct disadvantage.
One of the harsh truths in business is that few people have unfailing intuition or reliable ‘gut feelings’. Subjective thinking has been the downfall of many entrepreneurs. Fortunately you can use market research to verify your gut feelings and make better decisions.
Spending time or money on professional market research can mean the difference between a successful venture and an avoidable failure. Market research can actually save you money and identify opportunities to improve profits.
Here are four ways to use market research constructively:
1. Determine your target market
Last year, Intellectual Property Australia granted 7,115 patents. It estimates that less than 50 of those patents will result in successful products. Why the poor success rate? Sadly, while the creators had the talent to invent the items, they did not research whether there was a market for their ‘baby’.
One of the most common traps in developing a new product or service is assuming it will fulfil a market need. Customers are finicky creatures and want products that suit them perfectly. Creating a product or service you think people will want can spell disaster.
Before launching a new product or service, it is essential to know:
- Who has a real need for the product or service I intend to sell?
- How many potential consumers are out there?
- Where are my potential customers located?
- How much would they be willing to spend on my product or service?
- Will my product or service save money or make money for customers?
- Why will they buy my product or service?
By identifying your target market, you will be able to evaluate the viability of your venture and make the necessary enhancements to increase sales.
Target market definitions also feed into the development of your promotional and sales strategy. By understanding your market, you are less likely to waste your advertising dollars on promoting to the wrong demographic. And by understanding your market you will know which benefits are conducive to sales and which will facilitate more effective selling strategies.
Once your target market is defined, further market segmentation can be undertaken which is the foundation for marketing and advertising strategies.
Regularly redefine and review your market
Another common business trap is to have previously identified your market and assumed it was set in stone. Chances are your market will keep changing due to emerging industries, new technologies or even changes in company decision makers. Redefining and reviewing your market should be undertaken regularly.
By fully understanding your target audience you will have the ability to develop a relationship with it. This relationship can bring mutual and substantial benefits to both parties. From your knowledge, you will be more capable of foreseeing market trends and identifying market opportunities. This will enable you to provide further products and services to fill market gaps.
Undertake either primary or secondary research, or both
Primary research (from original sources) involves gathering actual data among those using or likely to use your product or service. Questionnaires, in-depth interviews, focus groups and observation are all used to uncover information. This usually involves commissioning a market research company or consultant to conduct research.
Secondary research (from printed sources) is data collected and produced by others such as trade associations, publications or the Government (e.g. census data). This method is less time consuming and more cost effective. However, the data may not fit your product or service accurately enough, resulting in misleading analysis and bias. In untapped or niche markets, all the secondary data in the world will be of no benefit to you.
2. Know your customer inside out
Research has found that it is five times more expensive to win a new customer than keep an old one. Typically, repeat and referral business accounts for 60-90 per cent of revenues. With this in mind, it is imperative that you spend time and energy uncovering what your customers think about your product or service (as opposed to what you believe they think).
Evaluate customer expectations
There are two separate elements that exist in your product or service. The tangible product features (positives, negatives, benefits etc) and the intangibles such as the standard of customer service and after-sales care. Ensuring that what you offer exceeds your customers’ expectations in both of these elements is imperative to your success.
Customers can be a tough lot to please. The modern consumer is demanding and makes purchase choice not just on product benefits, but also on the way they are treated. Providing the best product in the marketplace will not guarantee success if your service is poor.
If you are not in regular contact with your customers, market research is essential in evaluating their perceptions, expectations and satisfaction with your product. These factors are the heartbeat of your business.
The more you know about your customers, the better off you will be
The most crucial time to undertake this research is during an economic downturn when competition for the customer’s dollar is high. If you want to stay ahead of the competition, conduct some valuable market research. Your competitors will no doubt be curtailing their market research effort, so the more you know about what your customers (and your competitors’ customers) think, the better off you will be.
The most appropriate research to understand your customer is a ‘customer satisfaction study’ that uncovers attitudes to both your product and service.
3. Know thy competition
It sounds obvious, but it is vital to know what your competition is doing or planning to do. Competitive analysis is the only way to gather competitor intelligence, yet few businesses undertake competitive analysis on a regular basis. Competitive data is usually collected during business and marketing plan development or before the launch of a new product or service.
To be competitive, you must focus on what you do better than your competitors (such as better product quality, better price, better distribution). By sharpening your edge, you can exploit your most marketable advantage.
Competitive analysis should be regularly monitored
This does not necessarily mean big dollars. The Internet is a great resource for information. For example, the Australian Stock Exchange website (www.asx.com.au) has a company research search engine for listed Australian companies. The Dun & Bradstreet website also offers company information, both fee-based and free at www.dnb.com.au
If you need more detailed research such as what your customers like or dislike about your competitors’ products or services, you will need to implement a market research study.
4. Manage your database
As a market researcher, the most surprising thing to learn when working with companies, no matter how big or small, is how little emphasis is placed on maintaining customer databases.
Databases are a goldmine of customer information The collection of data is vital to understanding your customer profile. By using your customer data more effectively, new products can be developed more efficiently and a more cost effective direct marketing campaign can be achieved.
A comprehensive database will even end up saving money as you will not have to commission a market research agency to unearth the information for you.
If market research is needed, you can reduce the costs of recruiting participants for focus groups or interviews if you have up to date contact details for your customers. Having to find your customers by randomly ringing phone numbers from the phone book is costly.
Concluding thoughts
Many businesses avoid undertaking market research because of the perceived difficulty and expense. But research does not have to be expensive. There are many ways you can research your market in-house and you can outsource major projects to research companies or consultants.
Market research is a worthwhile venture that, if done properly, brings financial rewards and reduces costs. The cost of the research is often surpassed many times over by increased revenue from sales.
So what are you waiting for? Get those databases working, research your competition, define your market and understand your customer. Remember: what gets measured, gets managed.
But be warned. There is one main downside to consider – accepting harsh market feedback. While this is an unpleasant outcome, by welcoming and addressing criticism, your business will find success.
