CONDUCTING MARKET RESEARCH

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1 CONDUCTING MARKET RESEARCH The importance of good research Once you have determined your target market, you now have to obtain as much information as you can about them through research. Your advertising and promotion strategies as well as many other business and marketing considerations will be based on the outcome of your research. In doing your research, you should clearly define your research objectives, determine your time frame, estimate the amount of money that you should allocate for research, select the appropriate information sources, determine the methods of research that you are going to follow, obtain the information, analyse it and draw your conclusions. Many small business owners may feel that they already know the market well enough and no research is necessary, or they may feel that they have already done research and do not need to do any more. You may have a general idea about your customers, but the market is constantly in a process of change and evolution. These changes are influenced by factors such as age, change of job, losing a job, retiring, having a family, moving, getting married and developing different attitudes, tastes and needs. Businesses, as well as organizations and communities are also in constant change. They are therefore going through various phases and stages that could influence your marketing approach. Factors involved would include changes in the economy, nationally, regionally, or locally; changes in the population mix, or changes in municipal, provincial / state or federal government regulations. These factors could impact on needs, priorities and buying habits. Good research is crucial to planning and establishing a successful business. You have to get well informed about your industry, product or service, competition, and customers. However, research is no easy task; to make the most of your time and effort, first plan and focus your research carefully. Answering the questions: Why? What? Where? Who? How? They are explained as follows: Why: be clear about the purpose of the research. What: Identify the specific information you need. Where: find out where the information is located. Who: choose your target group and sample. How: choose your research method. Conducting market research involves systematically gathering records, and analysing data that relates to marketing for a specific product or service. The bulk of your information will come from published (secondary data/sources) and (primary data/sources); as well as any other information you have as a result of your previous operations or experience in the business. Secondary data is information that already exists in print or electronic form. This information has been previously collected for another purpose or by an agency like a statistics bureau. Primary data is original information gathered for the current market research project. When conducting research, always begin by exhaustively searching all secondary data sources before attempting to gather primary data. Primary data collection requires more time and more money than secondary data collection, so it is important to thoroughly search all existing secondary materials. This ensures that you are not wasting time and money by repeating investigations already performed.

2 Secondary data sources One thing that many entrepreneurs do not take advantage of is the free information available. Secondary data is information that will already be gathered and organized for you and you should be able to access it fairly easily and inexpensively. To obtain secondary research, all you need to know is where to search for agencies or organizations that have already gathered the information. Keep in mind that there is no single source for this type of data; some will originate from government and business reports, newspapers, magazines, trade associations, and university studies. Trade associations are excellent sources of information about trends in your industry. General business newspapers and magazines and trade newspapers and magazines (those covering a specific industry) often report industry wide trends as well. Many research and university libraries carry various trade publications and newsletters; you will probably want to make your local business research library your first stop. Libraries have a wide range of government and market statistics; a selection of directories with information on all types of businesses; and a variety of newspapers, magazines and newsletters. Many, also have access to online business databases that can be quite expensive to subscribe to. Research librarians are one of the great un-tapped resources for small businesses. They will likely be able to point you in the right direction for the market and competitive data you require. Many directories are published by commercial companies, and are therefore expensive to purchase so you might want to use them in a library. As you can see, there are a number of excellent free sources of information. Continuing on, the government regularly makes industry studies available. Colleges and universities are another excellent source since faculty and students regularly conduct research. Many of these studies are available through university libraries, or through business / management departments. Utility companies and electrical companies are also trying to encourage building business. They are going to be helpful, they are going to give a lot of information. If you are in a city or town that has a college or university, often that university, particularly the business department, has a lot of information. You can get market research, which you might have to hire an outside firm and pay a lot of money to perform, relatively inexpensively by a business professor. You can even have research done as a class project. The main sources for secondary data are as follows: Industry associations: Trade associations usually offer a wealth of information on the industries they serve, such as market statistics, lists of members, books and reference materials, and discounts on purchases from certain suppliers. There is a lot of data published in the trade presses that include market trends, new products and services, and how to articles. See if your industry association produces a regular magazine or bulletin. Find out if other industry publications are available. Subscribe to the best ones and look for back issues at libraries or from other subscribers. Most associations offer up to date studies on their particular industry along with plenty of, market and supplier information, newsletters and networking opportunities. Trade associations often conduct

3 specific industry research, but this data is usually distributed only to members, although sometimes they will make parts of their report available to non-members and the press as well. Use a library or business information center to find industry associations in your field. Contact them to ask for industry information (you may have to join first). Government statistics: Almost every federal, provincial or state government publishes population density and distribution figures in widely available census tracts. These documents will show you the number of people living in specific areas. Statistics collected from government range from national aggregates to small area data covering only a few blocks of a single municipality, and from broad economic studies to specific patterns. Data is published monthly, quarterly and annually, depending on the topic. Find out which information is produced for your industry. Arrange to receive current or future releases if they contain information you can use. City Hall or RM offices: Your local city hall or town office may have an economic profile and demographic information pertaining to a trading map area describing population, labor, market, business services, financial services, transportation, tourism data, housing, sports recreation, cultural education info, media, industrial land, etc. Generally, these statistics contain too much raw information and too little analysis for the small businessperson. Still they may tell you about the number, size, and characteristics of industry members, and general market trends. Chamber of Commerce & Utilities: Also contact your local chamber of commerce or economic development authority. Since they are looking to encourage businesses to locate in their areas, they can provide you with information on population trends, payroll statistics, income characteristics, etc. Utilities (the gas and electric company) and banks may also have this kind of information available. Retain the best possible marketing consultants to assist in documenting the market. Too many entrepreneurs balk at paying the fees necessary to do a marketing feasibility study that is usually the real key to difficult start up financing. Primary data sources An effective way of identifying your market and their needs may be to hire a company that specializes in customer surveys and questionnaires. They would be able to assist you in the type of interviews or questionnaires that would obtain the most reliable results based on your type of business. While many businesses hire marketing firms to acquire primary data for them, you do not have to do so. In fact hiring a marketing firm might not be the best use of your start up capital. When conducting primary research using your own resources, you must first decide how you will question your target group of individuals. The surveys should be carefully designed to get as much specific information as possible. The best way to get the right information, and as much as possible is to keep your questionnaire or survey short and simple. This will encourage your customers to spend some time and fill it out. Some of the most frequently used methods of primary data collection include: in depth personal interviews, focus groups, telephone surveys, mail surveys, and tradeshows. They are described as follows:

4 Interviews: can provide you with a great deal of information from a small number of people. Interviews are often the best way to obtain primary data. Interviews can give you very specific information on customers needs, product design, and pricing. Once you have someone s attention and they have agreed to participate in an interview, it is easy to sit down and ask longer questions that will require detailed responses. Unlike direct mail and telephone surveys, which impinge on the respondent s time with little or no warning, you would usually conduct an interview at a prearranged time that is convenient for the interviewee, making you less intrusive. Many interviewers offer an incentive for agreeing to an interview. This might be a small payment such as $10. It is important that you deal with a willing candidate. Interviews can be very expensive and drawn out; so when conducting interviews, you must draw up a clear list of things you want to know about your industry. Try to talk to someone in a like (similar) business in a non-competitive area. Talk to them, ask them what their sales are, how did they develop sales leads, what were some of their sales their first year? Also look at similar businesses that are for sale to get necessary information. If there is a similar kind of business but not exactly the same in your area, go sit in it; and sit outside and observe all day for about 3 days. To get effective market research, you have to talk to other businesses. You may be saying to yourself that this is great to know, but how receptive are other businesses going to be to talk to you? But keep in mind that a lot of successful business owners can be fairly open, especially if they don t feel threatened. If you re just thinking about being in small business a lot of them feel like disciples of the religion of entrepreneurship and they get excited to help someone else about starting their own business. Many entrepreneurs are happy to share with you key information (some pit falls, opportunities, successes and things to avoid). It is important to learn from their mistakes and take their suggestions on what to do if they had to do it all over again. Remember some entrepreneurs will be open and some will close the door. All you need is one or two businesses to sit down and talk to you and you will get a lot of information. How you ask the questions is very important to get the most effective results (you don t want to catch them in their busy hours). Also visit a trade area that will not be directly in competition with you. Folks will tell you what they have done right, done wrong, and recommend doing differently and they don t want you to make those same kinds of mistakes. In conducting research it is also recommended that entrepreneurs spend some time working in the industry before striking out on their own. You also need to find out if you are going to enjoy being in that business, and you have to develop some expertise in the field. Suppliers can also be a good source of general sales data and of merchandising information in your area. Because the sales representatives of the supplier probably serve other businesses and your competitors, you can obtain valuable information on the current scene. Use a business directory or industry association membership list to find out who might have the answers. If possible, phone for appointments, and conduct the interviews in person. If you must, do the interview over the phone. Be business-like but

5 friendly with each contact. Try not to waste their time; explain your situation; and indicate that you know how busy they are, but you would really appreciate the benefit from their experience. Let them decide how much time they can give you. In conclusion, thank your contacts for their assistance and ask them to suggest others you could talk to. Focus groups: is an effective method of data collection. Focus groups involve using an individual or moderator who attempts to generate discussion among a group of six to twelve people. The group session is video taped and analysed at a later date. Telephone surveys: are effective when performed by a telemarketing or polling firm specializing in such research, and when it is for a large group, and the questionnaire is short and simple. However, refusal rates are often very high on the part of the potential participant. You should expect a response rate of 10-20%, depending on the effectiveness and professionalism of the surveyor. Most people are bombarded with phone solicitations and have become wary of unfamiliar voices on the telephone. When you combine this resistance with the invasion of their free time, you can see why the people you call might view you as an intruder. Many people however will give you a little bit of their time if your questions are few and concise. Mail surveys: are effective for a large group of people and a long complex questionnaire. The survey should be mailed complete with instructions, and a self addressed stamped envelope. However due to the glut of junk mail, response rates tend to be very low, 10% is exceptional, 1-2% is common. If you choose to use a direct mail questionnaire, keep your questions short and succinct. Most people do not like to be bothered with questionnaires and your chances of receiving a strong response will drop if yours is too long. Trade Shows: are excellent sources as well. Find out if your industry has trade shows or conventions; when and where they are held, and what it costs to attend. Such events can be an excellent source of contacts, new information, and even orders. How to determine what method to use Information in the business world is vitally important. Obtain as much information as possible then sort out the useful information. Make use of knowledgeable and experienced sources only, such as: (business & statistical reports, accountants, bankers, chamber of commerce / board of trade, business consultants, economic development officers, lawyers, trade associations, publications, suppliers, etc). Preparing a business plan is an exact science. But keep in mind that information that would be useful may not be available for a variety of reasons: perhaps people who have the information don't want to give it to you; perhaps the information that is available is out of date and the new data has not been compiled yet; perhaps the information is available to you but the cost, effort, or timing involved in getting access to is prohibitive. To determine what method of market research data collection to use, you must consider and weigh many factors including: Need: are you trying to find broad demographic

6 information, or in specific areas? Cost: what budget is available to perform the research? Speed: how quickly must the research be collected? Response Rate: how high must the response rate be to complete the research project? Remember to be thorough in your market research; it can be one of the most important steps on your businesses road to success. How to conduct a consumer market survey 1. Take a sample of your product or a description of your services to at least 20 people, the more the better. Do not include people like your mother, brother, sister or best friend. Instead, take the sample to people who will be objective and who will not say things just to make you happy. 2. What are their first reactions? If most of them like the idea or the product, respond positively, and say something like "Wow, why didn't I think of that? You are probably on the right track. 3. It is now time to survey a larger sample of consumers. Ask the same questions in the same way to all people you interview; this makes your survey results more reliable. The kinds of questions to ask are: - Would you definitely, maybe, or not buy this product or service? - Would you be more likely to buy it if something about it was changed? What might make you more likely to buy it? - Do you buy something similar to it now? Are you satisfied with it? Do you experience any problems with it? - How much do you pay for the comparable product/service now? - How much would you pay for this product/service? - How many times a year would your buy it? - Would you buy this product/service if it was sold in the way being considered (e.g. on a local grocery shelf, at a fair, by mail order, etc)? 4. Ask the people you interview for demographic information (i.e. age range, occupation, marital status, where they live, education and income level) so that later you can complete a profile of your most likely customers. 5. Take all your information and organize it so that you can see the general picture. Across each of your questions, you will have a range of information. Add up the number of Yes/No answers. Organize number information (i.e. the price people would pay from the lowest to highest, this is called the range or spread). 6. You want to know what price you can charge, whether that price will provide a profit, and whether or not the idea is worth pursuing. Take the spread of answers about how much your possible customers would pay. Drop the top 10% and the bottom 10% and average the rest of the responses. This gives a rough idea of what potential

7 customers think your product is worth as well as a possible price range marked by the lowest and highest prices. 7. Once you have a price range set, you have to figure out total costs of getting the product to the buyer. These include costs such as advertising, warehousing and transportation, administration, interest and salary. Compare those costs with the information you have gained about the market through your test market survey. 8. At this point, you can decide whether or not a product or service is worth pursuing any further. If it is the next steps of the test market are worth finishing. You need to determine how many people might buy your product or service, what the sales volume might be. Go back to the "Would you buy this product/service?" responses. Take all of the "definitely" and half of the "maybes" and average these two numbers. A good rule of thumb is: if the number is over half (50%) of the total number of people surveyed, you have a small fighting chance, 65% is okay, 85% or over is great. If the number is under 50%, the recommendation is to forget it, for that product or service, and for the target represented in your survey. This may not mean starting again from scratch; consider whether the group of people you surveyed represents that market that you plan to target. If you have a certain target market in mind, make sure your target market survey is representative of that group.