 Entrepreneur Quiz |
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What is market research? Market research is the process of collecting, analyzing and translating into action information about trends in the industry, activities of competitors, development of products and needs and wants of consumers. Conducting marketing research is an ongoing process that must be rigorously pursued by a company. What areas should be analyzed when performing marketing research? Area that should be analyzed include: Who is your market? (age group, marital status, gender, trend-conscious), What products do they buy? (convenience, impulse, luxury, product benefits), When do they buy?( time of day, year, during economic upswings, ongoing product requirements), Who is involved in the purchase decision? (Who initiates the decision? Who gathers the information? Who makes the decision?) Where should you sell your product? (catalogues, mail order, department stores, specialty shops). How to survey your market Research is the cornerstone of any successful marketing and sales effort. Thorough market research provides a great deal of information about potential and existing customers, competition, and the industry in general. It allows you to determine the overall feasibility of a business before making a substantial investment in the venture. Failure to conduct market research is like driving a car with a dirty windshield. You may not see what's ahead of you until it's too late. The purpose of market research is to provide relevant data that will help solve marketing problems your business might encounter. This is absolutely necessary in the start-up phase. Conducting thorough market surveys is the foundation of any successful business. In fact, strategies such as identifying specific segments within a market and creating an identity for your product or service that separates it from your competitors, would be impossible to develop without market research. Market research allows you to:
Conducting your market research and gathering the information. Analysing the data. Finally, you will need to develop conclusions based on the information gathered, and determine a course of action. How to do a market survey There are four primary research methods you can use for gathering information. They are:
Basic steps to assess market Here are the basic steps you need to take to assess your market and make a forecast:
Step 5 is extremely important. Opening your business in a particular area does not guarantee additional business volume; it may simply redistribute what is already there. How to research your customers and competitors Once you have an idea of the type of research tools available, you need to start focusing on specific areas to research. This section discusses the customer research you should conduct before starting up your business. Much of this information, however, is very valuable for the ongoing development of your business. Even after you have established your business, you should still maintain and continue to research information about your customers, for their preferences might change often. The information presented here, therefore, applies to all stages of business development. The first thing you'll need to do when you perform market research is define the customer base. By determining the characteristics of the customer base, you will narrow the scope of your research. A thorough customer analysis addresses these three areas: 1. Segmentation. 2. Customer Motivation. 3. Customer Requirements. Segmenting your target market Segmentation allows you to determine the specific attributes of your target market. There are numerous segmentation factors to choose from, but the factors most commonly taken into account are customer attributes, geographic zones and product factors. These are some commonly used customer attributes:
Occupation. The geographic zones used in segmentation may be as large as a whole state or territory, or as small as a street within a suburb. Product factors, on the other hand, concentrate on the product itself and include the following:
Customer Motivation. Once you've identified customer segments, the next step is to determine what motivates customers to buy a particular product. To find out what motivates customers to buy a particular product, you may need to form a questionnaire that you can mail to consumers, use in telephone surveys, or use in personal interviews. The questionnaire should list the attributes of your product and ask how they would affect the purchase decision. You can also include questions that ask customers if they would give up one benefit to gain another. This way, you can determine which factors are more important than others. Customer satisfaction You can conduct a "benefit structure analysis" in which you would point out the benefits of your product or service and ask respondents to rate them in terms of importance. This way, you could determine exactly what they are looking for, and tailor your business and your marketing efforts to emphasise those desired qualities. Customer Satisfaction Surveys You need to do research after you have developed your product or service, in addition to the research you used in developing it. Conducting research once you have completed the product will help you determine how it performs in the marketplace. This research takes the form of customer satisfaction surveys. When conducting a survey of this sort, make sure you do not confuse customer satisfaction with customer perception. There is a big difference between the customer or client's actual satisfaction with your product or service, and how they perceive your product or service. Competitor research You'll also need to research your competition. Researching the competition will provide you with a clear picture of potential threats and opportunities developed in response to your competitors' current strategies, weaknesses and strengths. The first step is to identify the competition. There are essentially two ways to identify competitors. 1. Customer groupings - Competitors are grouped by how intensely they contend for the buyer's dollar.2. Strategic groupings - Competitors are grouped based on their competitive strategies. Customer Groups There are several ways you can group competitors according to competition for the customer's dollar. In most industries, you can evaluate competitors based on how intensely they will compete with you. There will usually be a core group of direct competitors, other competitors who don't compete as intensely, and those who do not compete with you directly but still pose a threat. Most companies focus most closely on their most direct competitors. To determine the intensity of competition within the industry, you can send a questionnaire to prospective buyers of the product you intend to market. In the questionnaire, you can ask them a series of brand-loyalty questions:
Have them rank the different brands of products according to preference. The idea behind this type of questionnaire is to help you see the market and the competition from a customer's point of view. Strategic groupings Grouping competitors by strategies is far different from grouping them by customer viewpoint. You would group competitors by similar competitive strategies that they pursue over a period of time, uniform characteristics, or similar assets and skills. You also need to determine which barriers exist within each group - barriers that would prevent competitors in one group from moving to another strategic group. Usually these barriers include factors such as advertising budgets, distribution channels, research and development budgets, and so on. Gathering the information Whether you use customer groups or strategic groups, you'll have to gather information on your competition. Many companies communicate extensively with their suppliers, customers, distributors, government legislators and regulators, and security analysts and stockholders if they sell stock. Contacting any one of these sources can result in valuable information regarding your competitors. You should also subscribe to all relevant magazines to evaluate your competitor's adverts. The copy in these ads usually indicates the company's objectives. Trade shows are another good source of information. Many of your competitors will display their products and may discuss their objectives at such events. Industry research If you want an accurate picture of the industry you're competing in, you need to do some general research. Do not confuse this research with researching your target market, or even your fellow competitors. If your industry is going in a direction you don't want to follow, you certainly should be aware of it. Make sure your research regarding the industry is clear and purposeful. Gathering information about the industry supplies additional data which will tell you whether or not your industry is attractive and has profit potential. In addition, it allows you to identify the key success factors, trends, threats and opportunities that will point out which assets and skills you need to prosper in the industry. In addition to researching the industry as a whole, you should also research critical market segments. The following areas should be investigated:
Actual and Potential Industry Size Knowing the actual and potential size of the industry is important not only to evaluate investment decisions, but also to determine the market share of each of your competitors. You can determine the actual size of the industry by referring to several secondary research sources like the Australian Bureau of Statistics and Department of Commerce and Trade, as well as industry associations. These sources often provide market information, charting sales by product line, growth, geographic markets and major players in the industry. To gauge the potential size of the industry, you will have to look closely at gaps within the industry. Such gaps may be in product lines, distribution, usage, competitiveness or any number of other areas. By gathering research on your customers, competitors and the industry, you will be able to spot those gaps. Forecasting Growth To forecast industry growth, you can set up several growth models and examine what has to happen for each to occur. Growth models allow you to develop an idea of when turning points in growth will occur and what will cause them to occur. Gathering data on leading indicators will allow you to chart growth. These indicators will most likely be industry sales, industry segment sales, and demographic data. You can develop forecasts for new industries by taking comparable industries as examples. For example, if you wanted to forecast growth for digital audio tape (DAT) technology, you might use the market for CD or cassette-tape technology as a basis for your projections. Industry Structure A study of the industry's structure will reveal just how attractive the industry is for a long-term investment. You will need to take the following into account: 1. Competition among current firms. You will be primarily interested in uncovering data detailing the number of competitors in the industry, their comparative size, product lines, strategies, fid costs, and commitment to the industry. Much of this information should already appear in your research on your competition. 2. Threat of competition from potential entrants. 3. Threat of competition from alternate products and technology. These are products or services that are not in direct competition with you, but whose presence affects the sales growth of the industry. You can gather this data by analysing secondary competitor groups and contacting associations pertinent to them. 4. The buying power of customers. Determine the buying power of customers by looking at the amount of competition and by charting prices. If too many businesses are cutting prices because of customer pressure and do not produce a sufficient profit, investment in the industry may be unwise. 5. The negotiating power of suppliers. To determine supplier power within the industry, find out who the major suppliers are and the extent of their product lines. You can do this by looking through trade periodicals and contacting associations. Cost Structure When researching the cost structure of an industry, the first thing you'll have to do is identify the stages at which you add value to your product or service. A product-oriented business will have the following stages:
A service business, of course, would not have the fabrication and assembly steps shown above. Each stage adds additional value to the final product. Most trade associations have information regarding production and marketing costs for their respective industries. Distribution Systems This section applies mainly to manufacturers. Yours is a business that most likely relies on additional distribution systems aside from your own sales force, so you should conduct research into the best distribution system available. When researching distribution systems within an industry, you should ask yourself three strategic questions: 1. What are the current distribution channels and who controls them? 2. Are any alternative distribution channels available? 3. Have any new distribution channels emerged? Are any likely to emerge? Many large industrial companies use their own sales force to sell directly to their customers. Other, smaller firms might sell directly to retailers or through wholesale distributors, brokers or agents. Generally, companies that sell more directly to the end user have more control over their marketing efforts, but also face greater risks. If a few companies dominate a distribution channel, you may need to consider alternatives. To choose an alternative system, you need to take a close look at the channels employed by your competitors. Industry trends To spot industry trends, you constantly need to ask yourself several questions concerning your customers, competitors, and the industry in general, such as:
You need to sit down and take a close look at your market analysis up to this point to spot the most significant trends in the industry. Key Success Factors Perhaps the most important result of your industry analysis will be the identification of the key success factors of your competitors. Key success factors are assets and skills that a company within a particular industry must have to succeed. Key success factors might be:
Whatever the key success factors happen to be in your industry, the completed analysis of the industry should define them and provide you with enough information to make an educated guess about success factors needed in the future. What research do you need to do? Before you can begin any type of major investment, whether it is starting a new business or to expand an existing business, you will need to undertake market research, otherwise you run the risk of losing your investment through poor planning.When conducting your market research, you will be gathering two types of information: Primary Information, that you can compile yourself or employ someone else to gather for you. Secondary Information, or information that is already compiled and organised. Reports and studies done by government agencies, trade associations or other businesses within your industry are examples of what will already be available. There are basically two types of information that can be gathered through primary research: Exploratory Specific. Conducting exploratory & specific research Exploratory research is open-ended, helps you define a specific problem, and usually involves detailed, unstructured interviews in which you acquire lengthy answers from a small group of respondents. If you were about to introduce a new product to the market, you might ask a focus group of consumers for their opinions regarding the product’s usefulness, its design, its colour, etc. The more answers you receive at this stage, the more time you can put into modifying the product to appeal to your customers. Specific research concentrates on solving a problem once it has been defined. It usually involves more in-depth and structured questioning, with the objective being to decide on concrete courses of action to resolve a problem defined by exploratory research. Specific research tends to be more expensive than exploratory research. While many companies employ a marketing firm to acquire primary information for them, this is not always the case. When conducting primary research using your own resources, you must first decide how to question your target group. Four methods commonly used are:
If you choose to use a direct mail questionnaire, you can increase your response rate by doing the following:
Unfortunately, even if you employ the above tactics, you will probably receive a response from a fraction of your market. Only certain types of customers will voluntarily respond to a direct mail questionnaire. Make sure you take this into account when drawing conclusions from the responses received. Don't be disappointed if you receive a response from less than five percent of those to whom you mailed your questionnaire. As previously mentioned, offering a reward or special offer for respondents can dramatically increase your response rates. Mailing lists fitting predetermined specifications and criteria can be rented from a Mailing List Broker, which can be found in the Yellow Pages under the heading of "Advertising - Direct Mail Services". Mailing Lists are rented on a "per usage" basis - each time you want to use one you will need to pay for it. Don't be tempted to use a list a second time without payment, as you will almost certainly be found out. Conducting telephone interviews Telephone surveys are generally the most cost-effective kind of survey to use, considering overall response rates. The same principles of questioning are true of telephone interviews. Most people are inundated with telephone inquiries these days and have become wary of unfamiliar voices over the phone. This, combined with the fact that you are invading their time makes you an unwelcome intruder. Many people however, will give you enough time to ask a few questions. Don’t take too much time, or the respondent may become negative. Following are some phone survey guidelines: At the beginning of the conversation, the interviewer should confirm the name of the respondent if calling a home, or give the appropriate name to the switchboard operator if calling a business. Avoid pauses, as respondents can quickly lose interest. Make sure that you (or your interviewer) can make a follow-up call if you require additional information. Phone interviews can save both time and money. Some of the more experienced interviewers can get through up to 10 interviews an hour, but finishing five to six per hour is more typical. Phone interviews also allow you to cover a wide geographical area relatively inexpensively. You can reduce the costs of calling by taking advantage of cheaper rates during certain hours of the day. Person-to-person interviews There are two main types of person-to-person interviews. The group interview - Used mostly by big businesses, group interviews can yield suggestions for new products or changes in existing products. They can also help you determine which factors consumers take into account when they make purchasing decisions. The depth interview - The interviewer speaks with one person at a time and uses a small checklist and basic common sense to guide the conversation. Depth interviews are either focused or non-directive. Non-directive interviews encourage respondents to address certain topics, but use minimal questioning. The respondent, in essence, leads the interview. The focused interview, on the other hand, is based on an established, and comparatively detailed, checklist. Whether you are interviewing people in a group or one-on-one, once you have their attention and they have agreed to take part in an interview, it is easy to sit down and ask questions which can take an hour or more to complete. Interviews are usually conducted at a time that is convenient for the person (or people) being interviewed. Some interviewers offer a small gift as a token of their appreciation. It is important that your candidates are willing. Using focus groups Focus groups can be an excellent source of market research – if you know how to use them. Here are some tips for getting the most out of focus groups.
Conducting secondary research Secondary research is not as complicated as primary research. It does not require any interviews to determine problems and develop courses of action. It only requires a knowledge of where to find organisations that have already collected the information that you are looking for, saving you time and money. Secondary sources fall into three main categories:
Where to start? The following secondary research sources can save you time and money when you are compiling information. The National Bureau of Statistics. The Uganda National Bureau of Statistics publishes population density and distribution figures which will show you demographic information about your chosen area, including the number and ages of people living in specific suburbs. Some reports show the population 10 years ago, 5 years ago and currently, thus indicating population trends. Extra information that can be obtained from the Bureau of Statistics includes education statistics and qualifications, individual family and household incomes, industry sectors, dwelling types and sizes, number of vehicles and more. This information is updated fairly regularly. Declining, static or small populations in an area are not good indicators for new businesses. Increasing and expanding populations are good indicators. Councils & Business Organisations Maps of zoned commercial trading areas in cities, towns and suburbs may be viewed at your local council offices. Look at the road map of an area for information on accessibility. Access is an important consideration in determining market area limits. An example of this is a small commercial area surrounded by a major arterial road system that does not allow easy access. Council Offices can also provide you with information on the local population, home occupancy permits, health and business regulations and rate charges. Business Advisory Organisations Most towns have several advisory organisations that will be able to provide you with market research assistance. There are, amongst others: Chambers of Commerce Small Business Development organisations Business Enterprise Centres e.g. Enterprise Uganda, District Private Sector Promotion Centres Chamber of Commerce and Industry Government Departments These organisations will be able to supply you with information relating to population trends, community income characteristics, award rates and other statistical information. Other sources of information Libraries Your Local or State Reference Library will also be an invaluable source of information. The services provided by libraries vary, but usually include access to a wide range of government and market statistics, industry profiles and benchmarks, a large collection of directories including information on domestic and foreign businesses, as well as a wide selection of magazines, newspapers and newsletters. Internet access is also now available at most public libraries. Trade and Research Associations Trade and research associations are some of the best commercial sources of information. The information they gather is usually specific to the industries they serve, and is often available only to association members. Most associations charge a fee to become a member. The research gathered by the larger associations is usually thorough, accurate and worth the cost of membership. Research associations are often independent of, but are sometimes affiliated with, trade associations. They're often limited to conducting and applying research in industrial development, but some have become full-service information sources with a wide range of supplementary publications such as directories. These directories can be valuable sources of accurate and up-to-date information about your industry. Educational Institutions Educational institutions are prolific sources of research. Research projects conducted at such institutions range from faculty-based projects published under professors' bylines, to student projects, theses and assignments. Copies of student research projects may be available for free, if you obtain the permission of the faculty and the student. You can also engage faculty members or students to undertake assignments as consultants, either for free or at a cost you negotiate with them. If you work with students, they might be eager to earn professional experience for academic credit. Contact the marketing or management-studies department for further information. University libraries are additional sources of research.
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