Market Research: Knowing Your Customer Inside and Out

There are so many things you have to do to start a business: develop your product or service, find office space, hire staff and finally, open your doors to the public. It's such a crazy time that you might overlook one very important detail - just who will your customers be?

You can't sell anything until you know who will want to buy what you're offering. Every small business owner must conduct market research in order to learn who their customers and potential customers are and discover if their business will offer them the kinds of goods or services that these customers want, for the right price.

Market research deals with people and their constantly changing opinions and actions. To conduct market research, you must gather facts in an orderly, specified way in order to find out if people want to buy what you want to sell them.

This type of research is an important way to determine the possible success of your proposed business idea. By knowing how and why your potential customers will spend their money, you will reduce your risk of failure, spot potential problems in your business and identify sales opportunities that you didn't even know existed. All this information, taken together, allows you to plan your strategy for success.

Market research is absolutely necessary during your start-up phase and is the foundation of any successful business. In fact, creating an identity for your product or service that separates it from your competition would be impossible without market research.

You will need to gather two types of data for accurate market research. The first will be primary information that you gather yourself or hire someone to gather. Already gathered information, called secondary data, will also be needed. This includes reports and studies completed by government agencies, trade associations, chambers of commerce, etc.

When you are conducting your primary research, you will be gathering information in an exploratory manner. Exploratory research is open-ended and helps you define a specific problem. This usually involves detailed, unstructured interviews with a small group of people. Specific research has a broader scope and is used to solve an already identified problem. For this you would conduct a structured and formal interview that is geared towards finding a specific answer to your problem.

There are several ways to gather your primary research: direct mail, telemarketing or personal interviews. The one you choose to use will depend on how you want to question you target group of people.

Direct mail is the least invasive way to gather the information you need, but the response rate is often poor. This method uses a written survey that you send out and ask for it to be mailed back when completed. If you choose this method, make sure your questions are short and to the point and limit the length of the survey. If the survey is perceived to be too difficult or too long, your customer is less likely to complete it for you. Also include an introductory letter which explains what you need and include a postage-paid return envelope for their reply.

Phone surveys are usually the most cost-effective way to do market research and they allow you to cover a wide area relatively inexpensively. When using this method for your research, always make sure that your interviewer gets to speak with the proper person in the household and keep the conversation moving along, as pauses can cause your customer's interest to quickly drop. Always use the same list of questions for each different customer and have this prepared and fine tuned long before you start making calls.

A third way to conduct market research is through the personal interview. This can be done with a group survey or the in-depth one-on-one interview. The group survey, or focus group, is useful as a way to come up with possible modifications to your existing product or to develop new product ideas. This will also give you insight into how you customer likes to buy and how they make their purchasing decisions.

A one-on-one interview can either follow a set selection of questions or be more open ended, where the customer basically talks about what they like or don't like about a product. Either way works, depending on what information you wish to gather.

When you are finished gathering your primary research, it's time to move on to secondary research. Public sources, such as public libraries and governmental departments, tend to be the most economical. If you're willing to spend some money, you can purchase information from commercial sources such as Dun & Bradstreet or trade associations. Information gathered by trade associations is usually confined to a certain specific industry and available only to association members. However, the information available is often worth the price of your membership. Educational institutes, such as universities and business schools, are also excellent sources for information and both offer extensive libraries as an additional research source. For a relatively small fee, you can even have the students do your primary research for you, as part of their class curriculum.

If you aren't comfortable doing your market research yourself but you can't afford to use a full-service market research firm, there is another route you can take. An independent market research consultant who works out of their home can do the legwork for you. This includes designing your surveys, organizing a focus group and analyzing results. These consultants cost between $75 to $150 per hour but their assistance will be less expensive than paying a firm.

You can also hire a data collection firm to recruit people for focus groups or conduct interviews. This is also more affordable than a full-service firm, but it won't organize your results for you.

Market research is absolutely necessary before you start selling. It teaches you what you need to know to develop a business that the public wants and will tell you whether your current business idea is even worth developing at all. Conducting effective market research allows you to make critical decisions. When it's all done, you'll know whether or not you should invest the next few years of your life in this business idea.