Talk to any business professional and they’ll stress the importance of market research. Before you start a firm or launch a product, it’s essential to test if the market will be receptive to your idea or you may find it impossible to make any sales.
What is market research?
Market research involves collecting and analysing information that helps build a picture of the ideal marketplace in which your products will sell most successfully, and a ‘target customer’ on which to focus marketing resources. Most often it will be used to test which demographic will be most likely to purchase a particular product or service so that business decisions can focus resources most heavily on that market. Market research uses data from the past to judge future performance, helping to give companies a competitive edge.
Why is market research important?
When making critical business decisions, it’s important to base your choices around facts or you risk failure. Market research provides objective data on a range of important metrics that allows you to make informed decisions on what products to sell, who to sell them to and much more. One of the most important reasons for conducting market research is establishing a target demographic. This maximises your chances of selling your products and services, directly impacting the bottom line.
Types of market research
There are two main types of market research: primary and secondary. Primary market research is data collected directly by the business analysing the marketplace, perhaps in the form of surveys or questionnaires. Secondary research uses third party sources, such as newspapers and industry magazines, to reveal important information. Combining these two types of research can help build a very detailed picture of the buying habits of a particular demographic, and how these may wax and wane over time. The internet has made secondary research far easier and allows companies to cover a huge amount of material in a shorter space of time, increasing the relevancy of their research.
How can market research influence business decisions?
Market research provides raw data about consumer spending habits and how these change over time. This will include statistics on what type of person buys the products you’re interested in, based on metrics such as age, gender, geographic location, income level and relationship status. It can also provide data on the success of your competitors, the degree of demand for your product and growth trends in your industry and whether these follow a pattern. These factors can be used to drive future business decisions; for example, if you know that demand for your product peaks around Christmas then you can expand the festive marketing budget in order to increase sales when customers are most likely to buy from you.
Market research tips
- Make sure your sample size is large enough when conducting primary research to ensure the results are representative of the market and show as little bias as possible
- Conduct both quantitative and qualitative research – the former is statistical whilst the latter provides more in-depth data, perhaps including personal responses to questions
- Market research shouldn’t stop when you decide on a target customer. This customer may shift over time as the market changes and new products emerge – think of market research as an ongoing task that constantly drives business decisions
- Keep all your market research in clearly labelled folders – you may need it to make your business case when applying for a bank loan