DEFINITION OF MARKET RESEARCH. MARKET RESEARCH OVERVIEW Market research is the systematic collection and analysis of information relating to the market for your business. Successful businesses can no longer be launched and operated "by the seat of the pants" approach. You must develop a broad range of knowledge based on as many facts you can obtain before you start. Hunches, guesswork and wishful thinking can only lead to failure. There are many types of information gained from good market research: Market location and size. Market demographics. Market receptiveness to your product. Industry trends and outlooks. Industry structure and lines of distribution. This list is by no means complete. Seasonality of your industry, trade practices as to credit, distribution, lead time for orders, And so forth all must be understood before you attempt launch. PURPOSE OF MARKET RESEARCH. Good market research gives you basic information to allow intelligent decisions to be made about your business. The key is to define what you need to know. It cannot be haphazard. Good research questions are those with answers that lead you to better judgement about your overriding question : Will you succeed? Good research does not guarantee success. The best it can do is give probability. Be careful not to waste time gathering minor variation of same data. You must plan your questions and research process carefully. Remember: Business begins with sale, not idea. Sales cannot be made unless there is a customer. If there are not enough customers, you won't be in business long. And the best time to find this out is BEFORE you start the business, before you take on any debt, before you mortgage the house and cash in your life insurance policies and do whatever you have to do to launch the business. If you are going to go broke, the best time to find that out is at the kitchen table, with a yellow pad and calculator! WHY MARKET RESEARCH IS OFTEN NEGLECTED. Many excuses are given as to why market research is avoided. Entrepreneurs are independent by nature and don't like having someone tell them that they need to know something. Most feel they already know enough. Some fear of the science of Market Research and feel its too difficult. Others are in a hurry and fear
it is a waste of time. They may have recently been downsized and feel the financial pressures of needing an income. Many fail to understand its role and fail seeing it as insurance. But ultimately, most avoid market research because they fear it will prove their ideas are not marketable! TYPES OF MARKET RESEARCH INFORMATION NECESSARY FOR NEW BUSINESSES. Industry Information. Short term: is product a fad? Long term: has industry experienced history of steady growth? Who are the major players in the industry? What are the sources of supplies and the channels of distribution? What do industry analysis say about the long term growth of the industry? Is there any pending governmental legislative impediments looming on the horizons? Customer Information. Who is the target market? Will they purchase your product? How much will they pay for your product? Where should you locate your business? Competitors Information. Where are they located? Who are their customers? What is their sales volume? What is their product or service? What kind of advertising/marketing do they use to attract target market? MAIN AREAS OF INFORMATION TO LOOK FOR. Industry information. What is going on in your industry? What are the developing trends? Are there any potentially devastating regulations? What economic factors will affect your industry? What do the industry experts say? Where do you find this type of information? The Library is the best place to begin your research as well as the Internet. Trade associations do a great deal of market research for their members (and potential members can get it from them). Start with the Encyclopedia of Associations, which list the name, address and phone number of every association in the United States as well as giving a profile as to what the association does, what trade journals and other publications they publish and so on. Find the likely association for your business and call them. Don't want to call? Well, many also maintain web sites you can look at and you can contact them by e-mail for free. Thomas Register is a list of manufacturers in the U. S. This is also located at the library all 22 volumes. Need to find a 1 3/4 ounce plastic bottle with a green screw on top? A stainless steel tube 3 meters long with a diameter of 1.33 cm?? Check Thomas Register. If its made, someone listed here makes it. Need to know about industry financial standards? Let's say your cost of materials to produce your version of a widget is 11.5% of your anticipated sales price. Or your projected labor cost is 22%. Is that good? You have no way of knowing unless you compare yourself to others in the industry. Robert Morris and Associates publish "Annual Statement Studies". You can compare your numbers with the industry averages. Are your numbers above or below industry averages? For a new venture you can expect to be a bit higher than the businesses who have been doing it a while. (Economy of scale, practice, etc.) If you find your cost of production is significantly lower than the industry average, I would recheck you
calculations to make sure you didn't leave something out! Dun and Bradstreet will be able to give you some insight as to the reliability of the manufacturer or supplier you are dealing with. Publicly traded companies are required to file quarterly reports and financial statements with the Federal Government's Security and Exchange Commission. These are published on the World Wide Web at the SEC's Edgar Database website. Customer/Consumer/Client information. Who buys your product or service? How many potential buyers? How much will they spend for your product/service? How far will they travel for it? Where do they live? How much do they make? What do they read, listen to, like to do? These are all questions you must learn about the target market for your product or service before you can even begin developing a strategy for turning the target market in customers. Industry associations and their trade journals can help you here. Also don't forget the Census Bureau information that you can get either at the library or over the world wide web at www.census.gov. In your local area, the Chamber of commerce has access to demographic information that may be of help. If all else fails, go out and look at the traffic pattens and buying habits of people in your area. You will have to consider asking members of your target market what they think about your product and what they would pay for it. It is impossible to know too much about your potential customers! Competitor information. Who else is selling to your target market? What product/service can be substituted for yours? How do they market their products? What do they charge? How will they react to your entering the market place as competition? Competitor information can be as complicated as doing research in the Census Bureau web site and County Business Patterns to as simple as going to the yellow pages and counting the number of competitors that are already in the area. How much do they charge for their goods or services pick up the phone and ask them! How do they advertise to their customers? Look in the paper and watch for their ads, keep an eye out for tv commercials, listen to their radio spots. Who is your competitor buying his products from? Visit their store and look on the boxes. There is always ways of getting the information. If all else fails, don't over look the Dempsy Dumpster method.check out their trash! CONDUCTING MARKET RESEARCH. There are three varieties of data that you will need. The first are raw statistics. Second, diagrams, pictures, descriptions that describe the raw data and statistics so you can understand and communicate them to others. And finally there are opinions, both from potential customers and industry experts. There are two attributes of good research questions. First, they must reflect what you really need to know. Second, the answers must be in the form of statistics, diagrams, or opinions. There are two types of Market Research. The first of these is Primary research. This is actual field research
comprised of things like opinion surveys either conducted in person or, if you know what you are doing, by phone. Do not attempt to conduct surveys by mail. Since you have no control over who responds and because the response rate is so low for mail surveys, the information gathered is usually untrustworthy. There are other forms of primary research such as taste test, trial marketing and de-briefing. and focus group studies. Essentially, the earmark of primary research is asking the potential customer what they think about your product and service. Usually, primary research will require expenditure of some resources, time and/or money. Secondary market research is information gathered from published sources. Basically, its other peoples primary research. Its easier and less expensive than primary research but it is limited in what it can tell you. It can be dangerous to rely solely on secondary data, since it is probable that no one has every asked your specific target market about your specific product or service Sources - usually found in public or university libraries. Governmental: Population Census - Data on age sex, income, etc. Government Information Sharing Project U.S. Patent and Trademark Office Census of Manufactures. Census of Wholesale and Retail Trade. Standard Industrial Classification Code (SIC). County Business Patterns. IRS Corporation Source Book of Statistics of Income. Trade Associations: Research reports. Statistical forecast. Consumer reports. Market trend studies. Encyclopedia of Associations. Magazines and Journals: Business periodical index. Sales and Marketing Management. Chamber of Commerce. Thomas Register of American Manufactures Dun and Bradstreet's Million Dollar Directory. Standard and Poor's Register of Corporations. Moody's publications. ANALYSIS OF INFORMATION. Now that you have gathered the information, what do you do with it? You must make judgement on two levels.
First level: How much of the potential market can be captured? From that you should be able to take a pretty good estimate as to your sales over the first year. Although many lenders want to see your projected financials for three years, spend most of your time developing the numbers for your FIRST year. Why? Well, quite simply, if you don't make it through the first year, there won't be a year two or three to worry about. It is best to prepare three estimates: a best case scenario; a worst case scenario (What is the absolute least you can to do and still keep the doors open?); and then a moderate scenario that falls between the two. On the first, absolute best case scenario, its ok to dream. Pretend that absolutely nothing is going to go wrong and your target market beats a path to your door and everything is absolutely on track. Go ahead and get it out of your system. If you plot it on a graph, the line is almost straight up and everyone will be rich in 36 months. Call it your dream curve. Hang it all the wall as your goal! Next you want to throw some cold water on your face and get back to the real world. Prepare another scenario which illustrated the absolute minimum you can do and still keep the doors open. Be pessimistic. This plot on a graph will produce a much flatter line on the graph. This is the line you must never cross if you wish to survive and have another day to fight. This graph, too, should not only be hung on the wall but burned into you brain so you are constantly aware of it. Only now that you are properly back in the real world should you produce a moderate case scenario based on the information you have gathered from your research. If you are luck, it will fall between the other two lines on the graph. In all likelihood it will be closer to the second, fatter line than the first, but that's ok. You can launch and still make a profit. If it falls below the second line, then its time to step back and reconsider your idea. Is there a better way to approach your target market? If there are simply not enough people in your area to support your idea, can you realistically expand your area to include more people? Do you need to add another product line or service to support your original idea? If the answer to these is an honest yes, they do it. If the answer is no, then DO NOT LAUNCH. Be thankful you discovered it before you committed your time, resources and future to a losing idea. On a second level you should compare your estimates with industry averages. Secondary research will give you an average of expenses and profits in typical businesses in your industry. Are you in line or do your numbers exceed industry averages? If they do, why? The industry has been doing this for some time and have economy of scale, etc, so what makes you think you can outperform them? Double check your numbers to make sure you didn't make a mistake. Maybe you have come up with a new method of production or a new twist on a service that will allow you to do better than they do.but be very careful. SUMMARY: Plan questions for data needed. Test the questions. Make sure the questions give you the data you need. Be objective in your analysis. Be aware of bias. Take adequate samples.