chapter 7
IF YOU BUILD IT, WILL THEY COME?
Conducting Market Research
So you have a great idea for a product—something that’s bound to capture the hearts and minds (and wallets) of consumers everywhere. Or perhaps you have stumbled on a service that isn’t being offered by anyone else—one that is desperately needed. This is your opportunity! Don’t hesitate ... don’t look back ... jump right into it and ...
Wait! Before you shift into high gear, you must determine whether there really is a market for your product or service. Not only that, you need to ascertain what—if any—fine-tuning is needed. Quite simply, you must conduct market research.
Many business owners neglect this crucial step in product development for the sole reason that they don’t want to hear any negative feedback. They are convinced their product or service is perfect just the way it is, and they don’t want to risk tampering with it.
Other entrepreneurs bypass market research because they fear it will be too expensive. With all the other startup costs you’re facing, it’s not easy to justify spending money on research that will only prove what you knew all along: Your product is a winner.
“There’s only one
boss—the customer.”
-SAM WALTON, FOUNDER
OF WALMART
GOOD QUESTION
Whether you hire a professional market research firm or take on the task yourself, your market research should clearly answer the following questions:
• Who will buy my product or service?
• Why will they buy it?
• Where will they buy it—specialty shops, department stores, mail order?
• What do I need to charge to make a healthy profit?
• What products or services will mine be competing with?
• Am I positioning my product or service correctly? (In other words, if there’s a lot of competition, look for a specialized market niche.)
• What government regulations will my product or service be subject to?
Regardless of the reason, failing to do market research can amount to a death sentence for your product. “A lot of companies skim over the important background information because they’re so interested in getting their product to market,” says Donna Barson, president and owner of Barson Marketing Inc., a marketing, advertising and public relations consulting firm. “But the companies that do the best are the ones that do their homework.”
Consider market research an investment in your future. If you make the necessary adjustments to your product or service now, you’ll save money in the long run.
What It Is, What It Does
What exactly is market research? Simply put, it’s a way of collecting information you can use to solve or avoid marketing problems. Good market research gives you the data you need to develop a marketing plan that really works for you. It enables you to identify the specific segments within a market that you want to target and to create an identity for your product or service that separates it from your competitors. Market research can also help you choose the best geographic location in which to launch your new business.
Before you start your market research, it’s a good idea to meet with a consultant, talk to a business or marketing professor at a local college or university, or contact your local SBA district office. These sources can offer guidance and help you with the first step in market research: deciding exactly what information you need to gather.
As a rule of thumb, market research should provide you with information about three critical areas: the industry, the consumer and the competition.
1.
Industry information. In researching the industry, look for the latest trends. Compare the statistics and growth in the industry. What areas of the industry appear to be expanding, and what areas are declining? Is the industry catering to new types of customers? What technological developments are affecting the industry? How can you use them to your advantage? A thriving, stable industry is key; you don’t want to start a new business in a field that is on the decline.
TIP
When doing any type of survey, whether it is a focus group, a questionnaire or a phone survey, pay attention to customers who complain or give you negative feedback. You don’t need to worry about the customers who love your product or service, but the ones who tell you where you’re going wrong provide valuable information to help you improve.
2.
Consumer close-up. On the consumer side, your market research should begin with a market survey. A thorough market survey will help you make a reasonable sales forecast for your new business. To do a market survey, you first need to determine the market limits or physical boundaries of the area to which your business sells. Next, study the spending characteristics of the population within this location.
Estimate the location’s purchasing power, based on its percapita income, its median income level, the unemployment rate, population and other demographic factors. Determine the current sales volume in the area for the type of product or service you will sell.
Finally, estimate how much of the total sales volume you can reasonably obtain. (This last step is extremely important. Opening your new business in a given community won’t necessarily generate additional business volume; it may simply redistribute the business that’s already there.)
3. Competition close-up. Based on a combination of industry research and consumer research, a clearer picture of your competition will emerge. Do not underestimate the number of competitors out there. Keep an eye out for potential future competitors as well as current ones.
Examine the number of competitors on a local and, if relevant, national scale. Study their strategies and operations. Your analysis should supply a clear picture of potential threats, opportunities, and the weaknesses and strengths of the competition facing your new business.
When looking at the competition, try to see what trends have been established in the industry and whether there’s an opportunity or advantage for your business. Use the library, the internet and other secondary research sources described later in this chapter to research competitors. Read as many articles as you can on the companies you will be competing with. If you are researching publicly owned companies, contact them and obtain copies of their annual reports. These often show not only how successful a company is, but also what products or services it plans to emphasize in the future.
KNOW THY ENEMY
There are two ways to define competitors. One is by strategic groups—competitors who use similar marketing strategies, sell similar products or have similar skills. Under this definition, you might group Toyota and Nissan as competitors within the car industry.
The second, less obvious way to group competitors is by customer—how strongly do they compete for the same customers’ dollar? Using this method gives you a wider view of your competitors and the challenges they could pose to your new business.
Suppose you’re considering opening a family entertainment center. If there are no other family entertainment centers in the area, you might think you have no competitors. Wrong! Any type of business that competes for customers’ leisure time and entertainment dollars is a competitor. That means children’s play centers, amusement parks and arcades are all your competitors. So are businesses that, on the surface, don’t appear similar, like movie theaters, bookstores and shopping malls. You could even face competition from nonprofit entities, like public parks, libraries and beaches. In short, anything that families might do in their leisure time is your “competition.”
Don’t limit yourself to the obvious definitions of competition. Start thinking out of the box ... and you will be less likely to get sideswiped by an unexpected competitor.
WARNING
Do you know what your competition is up to? If not, you could be headed for trouble. A study by professors at UCLA and Stanford University showed most business owners are clueless about the competition. Almost 80 percent were blind to their opponents’ actions—which can lead to lost customers and market share.
The answer? Role-play. Put yourself in the competitors’ shoes and analyze their strategies. Visit their stores. Use the internet to dig up as much information as you can about them, their tactics and their goals.
One of the best websites for researching the competition is Hoover’s Online (
hoovers.com), which, for a fee, provides indepth profiles of more than 43,000 companies. However, there is also free content available, plus you can try a free trial subscription. You can also gather information on competing businesses by visiting them in person. Take along a questionnaire like the “Sample Market Research Competition Questionnaire” on page 97. This one is for a bar/club, but you can customize it for your particular business.
Market Research Methods
In conducting your market research, you will gather two types of data: primary and secondary. Primary research is information that comes directly from the source—that is, potential customers. You can compile this information yourself or hire someone else to gather it for you via surveys, focus groups and other methods. Secondary research involves gathering statistics, reports, studies and other data from organizations such as government agencies, trade associations and your local chamber of commerce.
Secondary Research
The vast majority of research you can find will be secondary research. While large companies spend huge amounts of money on market research, the good news is that plenty of information is available for free to entrepreneurs on a tight budget. The best places to start? Your local library and the internet.
Reference librarians at public and university libraries will be happy to point you in the right direction. Become familiar with the business reference section—you’ll be spending a lot of time there. Two good sources to look for:
ThomasNet (
thomasnet.com), an online resource that connects industrial buyers and sellers, and the
Harris InfoSource All-Industries and Manufacturing Directories (
harrisinfo.com). Both sources can be found at most libraries, as well as online, and can help you target businesses in a particular industry, read up on competitors or find manufacturers for your product.
To get insights into consumer markets, check out the Statistical Abstract of the United States, which you can find at most libraries. It contains a wealth of social, political and economic data. Ask reference librarians for other resources targeted at your specific business.
Associations
Your industry trade association can offer a wealth of information such as market statistics, lists of members, and books and reference materials. Talking to others in your association can be one of the most valuable ways of gaining informal data about a region or customer base.
Look in the Encyclopedia of Associations (Gale Cengage Learning), found in most libraries, to find associations relevant to your industry. You may also want to investigate your customers’ trade associations for information that can help you market to them. Most trade associations provide information free of charge.
e-FYI
In the business of e-commerce? ComScore (
comscore.com) is a market research company that will evaluate your e-commerce site. They offer a variety of options, from web-based marketing strategies to custom research. Even if you’re not ready for professional advice, exploring the site will give you an idea of the questions you should be asking in your own research.
Read your trade associations’ publications, as well as those aimed at your target customers, to get an idea of current and future trends and buying patterns. And keep an eye out for more: New magazines and newsletters are launched every year. If you’re not following all of them, you could be missing out on valuable information about new products and your competitors.
Government Guidance
Government agencies are an invaluable source of market research, most of it free. Almost every county government publishes population density and distribution figures in widely available census tracts. These publications will show you the number of people living in specific areas, such as precincts, water districts or even ten-block neighborhoods. Some counties publish reports on population trends that show the population ten years ago, five years ago and today. Watch out for a static, declining or small population; ideally, you want to locate where there is an expanding population that wants your products and services.
The U.S. Census Bureau (
census.gov) turns out reams of inexpensive or free business information, most of which is available on the internet:
• The Census Bureau’s State and Metropolitan Area Data Book offers statistics for metropolitan areas, central cities and counties.
• The
Census Product Update is a monthly listing of recently released and upcoming products from the U.S. Census Bureau. Sign up for a free e-mail subscription at
census.gov.
• County Business Patterns is an excellent Census product that reports the number of a given type of business in a county by ZIP code and metropolitan and micropolitan statistical area.
• For breakdowns by geographical area, look to the Economic Census, which is published every five years.
Most of these products should be available online or at your local library. If not, contact your nearest Census office for a list of publications and ordering information, or write to the U.S. Census Bureau, 4600 Silver Hill Rd., Washington, DC 20233, (301) 763-INFO or (800) 923-8282. Many Census Bureau reports are also available on CD or DVD, or are free on the internet.
Sample Market Research Competition Questionnaire
When you visit the competing bars in your area, you want to use the information you gather to develop a competitive strategy for your own establishment. Improve on their strengths and capitalize on their weaknesses. Fill out this questionnaire for each of the bars you visit to help you assess your competition and your customers.
The U.S. Government has an official web portal that is another good source of information. For instance, at the
USA.gov website (
usa.gov), you’ll find a section for businesses that is a one-stop link to all the information and service that the federal government provides for the business community. Tax questions? Wondering about how best to deal with all the regulations and red tape? Chances are you’ll find your answers at
business.gov by clicking the “Finance and Taxes” link.
“You must be the
change you wish in this
world.”
—MAHATMA GHANDI
Or you might try the Commerce Department’s Economic Indicators web page (
economicindicators.gov). Curious if the world is ready to spend money on your exercise equipment for goldfish? Then the Economic Indicators site is for you. Literally every day, they’re releasing key economic indicators from the Bureau of Economic Analysis and the U.S. Census Bureau.
If you’re planning to get into exporting, contact the Department of Commerce’s International Trade Administration (ITA). The ITA publishes several thousand reports and statistical surveys, not to mention hundreds of books on everything American entrepreneurs need to know about exporting. Many of the reports and books are available for downloading immediately from the ITA’s press and publications department (
ita.doc.gov). Here you’ll also find information on how to order printed copies, including archived publications. Or if you prefer, call the Trade Information Center at (800) USA-TRADE.
NETTING INFORMATION
If your market research budget is limited, try CenStats. A free service from the Census Bureau that’s available on the internet, CenStats allows you to access the bureau’s most popular databases and information.
Search by county or ZIP code under “County Business Patterns,” and you’ll get business profiles for an area that include payroll information and business size by industry. Click on “USA Counties” to get counties’ economic and demographic information, including personal income per capita, population size and more.
Maps
Maps of trading areas in counties and states are available from chambers of commerce, trade development commissions, industrial development boards and local newspaper offices. These maps show the major areas of commerce and can also help you judge the accessibility of various sites. Access is an important consideration in determining the limits of your market area.
SURVEY SAYS ...
“A recent survey shows ...” just might be the most overused, misused and abused phrase in modern life. Try hard enough, and you can find a survey to prove that four out of five Americans have been aboard a UFO, think they can flap their arms and fly to the moon, or believe Elvis is alive and living in their spare bedroom. With all the half-baked surveys out there, how do you know what to believe?
First, consider the source. Many surveys are conducted by trade associations, which inevitably are biased in favor of good news. This doesn’t mean trade association surveys are necessarily inaccurate; just keep in mind that they are likely to play up positive results and downplay negative ones. When looking at any survey, consider what the source has to gain from the information presented. Then you’ll have a better idea of whether to take the information with a grain of salt.
Meaningful surveys generally share the following characteristics:
• Short-term focus. In general, respondents are more likely to be accurate when they make predictions about the next three to six months. When it comes to predicting the long term (a year or more ahead), they’re usually guessing.
• Adequate sample size. What constitutes adequate size depends on the topic you’re surveying. In general, the broader the topic, the larger the number of respondents should be. If the survey talks about broad manufacturing trends, for example, it should survey 1,000 companies or more. Also consider where the respondents come from. If you’re starting a small regional business, a large national sample may not be relevant to your needs because the sample size from your area is probably too small to tell you anything about your region.
• Knowledgeable respondents. Asking entrepreneurs in the electronics business to forecast the future of the industry obviously carries more weight than asking the same question of teachers or random people on the street.
• Continual replication. The best surveys are repeated regularly, using the same methods, so there is a good basis for comparison from survey to survey.
• Specific information relevant to your business. In a nutshell, the best surveys are those where respondents answer questions that are narrowly targeted to your region and niche.
Colleges and Universities
Local colleges and universities are valuable sources of information. Many college business departments have students who are eager to work in the “real world,” gathering information and doing research at little or no cost.
Finally, local business schools are a great source of experts. Many business professors do consulting on the side, and some will even be happy to offer you marketing, sales, strategic planning or financial information for free. Call professors who specialize in these areas; if they can’t help, they’ll be able to put you in touch with someone who can.
Community Organizations
Your local chamber of commerce or business development agency can supply useful information. They are usually free of charge, including assistance with site selection, demographic reports, and directories of local businesses. They may also offer seminars on marketing and related topics that can help you do better research.
TIP
In addition to surveys conducted by trade organizations, businesses and D&B, universities are an excellent source of objective survey information. Another place to look for survey data: Many large newspapers and radio stations do surveys to learn about their markets. These surveys are usually easy to obtain and packed with up-to-date information about demographics and potential customers.
D&B
Financial and business services firm D&B offers a range of reference sources that can help startups. Some of the information they offer as part of their Sales & Marketing Solutions are directories for career opportu nities, consultants, service companies and regional businesses. Visit their website at
dnb.com, or call (866) 503-0287 for more information.
• D&B’s Regional Business Directories provide detailed information to help identify new business prospects and assess market potential. Besides basic information (telephone number, address and company description), the directories also tell when the company was started, sales volume, number of employees, parent company (if any) and, if it’s a public company, on which exchange it’s traded.
•
D&B’s Million Dollar Database can help you develop a marketing campaign for B2B sales. The Million Dollar Database lists more than 1.6 million U.S. and Canadian leading public and private companies and includes information regarding the number of employees, annual sales and ownership type. The database also includes biographical information on owners and officers, giving insight into their backgrounds and business experiences. For more information, go to dnbmdd.com.
e-FYI
Zoomerang.com makes market research easy: You can create surveys online using a variety of templates. And if you don’t know who to send your survey to, you can purchase a list off the site. Another option is to post your survey on your website. Zoomerang will even calculate the results for you.
Going Online
These days, entrepreneurs can conduct much of their market research without ever leaving their computers, thanks to the universe of online services and information. Start with the major consumer online services, which offer access to business databases. You can find everything from headline and business news to industry trends and company-specific business information, such as a firm’s address, telephone number, field of business and the name of the CEO. This information is critical for identifying prospects, developing mailing lists and planning sales calls. Here are a few to get you started:
•
KnowThis.com’s (
knowthis.com) marketing virtual library includes a tab on the site called “Weblinks” that contains links to a wide variety of market research web resources.
•
BizMiners.com (
bizminers.com) lets you choose national market research reports for 16,000 industries in 300 U.S. markets, local research reports for 16,000 industries in 250 metro markets, or financial profiles for 10,000 U.S. industries. The reports are available online for a nominal cost.
•
MarketResearch.com (
marketresearch.com) has more than 250,000 research reports from hundreds of sources consolidated into one accessible collection that’s updated daily. No subscription fee is required, and you pay only for the parts of the report you need with its “Buy by the Section” feature. After paying, the information is delivered online to your personal library on the site.
All the sources mentioned earlier (trade associations, government agencies) should also have websites you can visit to get information quickly. For instance, the Census Bureau offers many helpful websites:
• The
American Factfinder website (
factfinder.census.gov) provides excellent access to census information, including a “Maps” feature.
• The Statistical Abstract of the United States (census.gov/compendia/statab/) has statistical information from government and private sources complied by the Census Bureau. It can be downloaded for free at the website.
• The Census Bureau’s International Database (census.gov/ipc/w w w /idb) furnishes data on foreign countries.
If you don’t have time to investigate online services yourself, consider hiring an information broker to find the information you need. Information brokers gather information quickly. They can act as a small com pany’s research arm, identifying the most accurate and cost-effective information sources.
“The time when you
need to do something
is when no one else is
willing to do it, when
people are saying it
can’t be done.”
—MARY FRANCES BERRY,
GERALDINE R. SEGAL PROFESSOR
OF AMERICAN SOCIAL THOUGHT
AT THE UNIVERSITY OF
PENNSYLVANIA
To find information brokers, look in the Yellow Pages or ask the research librarian at your local library. Many research librarians deal with information brokers and will be able to give you good recommendations.
Primary Research
The secondary research you conduct should help you focus your niche and get a better idea of the challenges facing your business. To get a complete picture of your target market, however, you’ll need to do some primary research as well.
A market research firm can help you if you feel that primary research is too complicated to do on your own. These firms will charge a few thousand dollars or more, but depending on the complexity of the information you need, you may feel this is money well-spent. Your local chamber of commerce can recommend firms or individuals who can conduct market research for smaller businesses on a budget.
If you need assistance but don’t want to spend that kind of cash, you can go to your SBA district office for guidance, and counselors can help you figure out what types of questions you need to ask your target market. As with secondary research, the SBA, SBDCs, colleges and universities are good sources of help with primary research.
20 Questions
Whether you use students, get help from the SBA, use a market research firm or go it alone, there are simple ways you can get primary research information.
•
Focus groups. A focus group consists of 5 to 12 potential customers who are asked their opinions in a group interview. Participants should fit your target market—for example, single men ages 18 to 25, or working mothers. To find participants, just go to your local mall or college campus and ask people fitting your customer profile if they would answer a few questions. Focus groups typically pay $75 to $100, or more.
Although focus group interviews are informal, you should have a list of questions to help you direct the discussion. Start by asking whether your product or service is one the participants would buy. If so, what is the highest price they would pay? Where would they shop for such a product? Do they like or dislike the product’s packaging? Your questions should center on predetermined objectives, such as determining how high you can price your product or service or what to name your business. The “Sample Focus Group Questionnaire” on page 109 is for a mail order chocolates company, but you can customize it for your business.
If you’re going the do-it-yourself route, you will probably act as the focus group moderator. Encourage an open-ended flow of conversation; be sure to solicit comments from quieter members, or you may end up getting all your information from only the talkative participants.
• Telephone interviews. This is an inexpensive, fast way to get information from potential customers. Prepare a script before making the calls to ensure you cover all your objectives. Most people don’t like to spend a lot of time on the phone, so keep your questions simple, clearly worded and brief. If you don’t have time to make the calls yourself, hire college students to do it for you.
• Direct-mail interviews. If you want to survey a wider audience, direct mail can be just the ticket. Your survey can be as simple as a postcard or as elaborate as a cover letter, questionnaire and reply envelope (for an example of the latter type, see pages 111 and 113). Keep questionnaires to a maximum of one page, and ask no more than 20 questions. Ideally, direct-mail surveys should be simple, structured with “yes/no” or “agree/disagree” check-off boxes so respondents can answer quickly and easily. If possible, only ask for one or two write-in answers at most.
•
E-mail interviews. Many of the principles used in direct-mail interviews also apply to these surveys. Give clear instructions on how to respond, and be appreciative in advance for the data you get back.
AHA!
Small fries have big ideas that could help your business grow. If you are starting a child-related business, consider using children as marketing consultants. Kids think creatively—a big asset for entrepreneurs trying to reach this market. Companies like Microsoft and MTV hire kids to learn their views. But you don’t need to be so formal: Just try polling the kids you know. Get their responses, and ask them for suggestions.
Making a List
How do you get the names of potential customers to call or mail questionnaires to? You can get lists from many places, including your suppliers, trade associations or a list-rental company. List-rental companies can give you access to a mailing list of a group of people who fit into your desired market. Refer to your local Yellow Pages for the names of list-rental companies. If none are listed, contact the Direct Marketing Association. (For more information on mailing lists, see Chapter 30.)
A less sophisticated approach to finding potential customer names is picking them at random from the phone book. If you’ve developed a latex glove for doctors, for example, you can get doctors’ names out of the Yellow Pages. Whatever method you use to gather your information, the key to market research is using what you learn. The most sophisticated survey in the world does you no good if you ignore the information and the feedback customers provide.
Sample Focus Group Questionnaire
Sample Direct-Mail Cover Letter
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