As an entrepreneur you may have the best new business idea around, if you don’t understand your market and potential clients, you may struggle to promote your product effectively, make it suitable to your clients needs and know who the competition is.
Doing effective market research will help you to understand your market and support you in the process of becoming more effective and profitable with your business.
One of my favourite business related quotes is this one by Peter Jones:
“My most crucial tip of all is make sure that you research your idea thoroughly! It is amazing how many people try to pitch to me, without having looked into the market sector that they are trying to break into. Sometimes a simple internet search reveals that their idea has been done before, or that their estimation of demand is completely skewed. Look around at your competitors and see how you can offer a better and more competitive service than them.” - Peter Jones - Venture Capitalist
Market research can be thought of as a three-part process:
(1) Determine what we need to know
- Who are our customers? Where are they? How are they best reached?
- What are they buying? From whom? Why? What are their price expectations?
- How big is the market? How much is "up for grabs?"
- How intense is the competition? What are their advantages/disadvantages?
- How is the product distributed, marketed? How are prices set and changed?
Benefits of market research
By conducting thorough market research, entrepreneurs will be able to obtain valuable information about starting their new businesses. First, market research will enable the business owner to learn of industry trends and which products/services will be in demand. Second, they will be able to see how the general public responds to their business ideas. This step is extremely important because if a business manager cannot show investors (venture capitalists or angel investors) that his/her great business idea(s) has/have potential, they may not be able to secure proper funding for their venture.
Another advantage of market research is customer feedback. Through surveys, literature, and questionnaires, business owners will be able to determine the overall satisfaction of customers, and based on customer response, they can hone any imperfections to make the product more marketable. Thorough market research can also be beneficial in devising a viable business plan. Many investors will not even consider investing in a company without a well-prepared business plan. These detailed business plans are often flexible and can change throughout the development of a business. There are also several formats
of business proposals, which can range from mini-plans to full length presentations. The latter type of business plan outlines the business proposals as well as the financial outcome of the company. This is the format that investors and financial institutions
prefer the most.
In order for any great business idea to succeed in the market, business developers need to learn about their leading competitors. By keeping track of market behavior and the competition at hand, the business owner can develop great business ideas targeted towards winning over new customers and increasing their profitability.
Types of market research
There are two distinct types of market research.
A. In secondary research, the business owner meticulously gathers already published data, which is easily accessible and nearly free to obtain. Information such as consumer demographics, major competitors, and general usage of products is often collected by government agencies and organizations, and made available online and in books and publications. One disadvantage of this type of market research is that the data collected may be difficult to validate and may even contain biased information.
B. Primary market research is more specific in nature. It contains information regarding a specific product that is brought forth by a company. Focus groups, field studies, and simple observations of customer behavior are some ways in which companies obtain primary market research. Many businesses that are planning to launch new products rely on this form of research since they produce more specific results. However, primary market research can be quite costly. Using both types of research can certainly allow business owners to have accurate information regarding the market and in making wise investment
decisions.
Types of customers
There are three main types of customers that every business will encounter. Depending on the product, its cost, and position within the sales cycle, they may or may not be influenced to purchase a particular product or service. It is up to the sales person or business owner to understand their customers' thinking in order to successfully win them over and make a sale.
A. The financier or "purchaser" is primarily concerned with the cost of a product, not how effective a particular product may be. These types of customers are aware of all the prices offered by major competitors and will often purchase a product if they believe it is a good bargain. To target this type of customer, the business owners should show how their prices are competitive. If the product offered costs more than that of the major competitors, it is always good to reason with the customer, show how the cost will be less throughout the life of the product, or even how they will eventually break even.
B. The expert or "influencer" is not concerned by the cost of a product but rather if the product being offered will be considered a good purchase. They tend to be very knowledgeable about every characteristic of a product, including technical features that the product offers. Their level of expertise may even influence the buying behavior of others, especially if they believe the product is exceptional. To target this type of customer, the business owners should be aware of every aspect of their product and present to potential buyers what the product can do for them.
C. The end-user will not only be glad to purchase the product but s/he will actually use the product bought. When enticing this type of customer, it is always a good idea to relate to them with their frustrations on their current situation and convey how their new product will alleviate many of the limitations that they may have encountered.
Overall, market research tests the customer response to a product. When developing a great business idea, business owners first need to think how their great business ideas will benefit customers. Shortly after developing great business ideas, entrepreneurs are encouraged to analyze the market in order to determine if their product is similar to what they are considering to develop and if it is already available on the market. If there is already a similar product, business developers then need to determine how they will place their new product to differentiate it from the product already available on the market. The placement of products born out of great new business ideas need to be carefully chosen to attract the maximum attention of customers. In addition, it is product placement that will differentiate this product from other similar products on the market.
