The Best Ways to Do Market Research for Your Business Plan
Showing that you know the state of the market and understand what you need to do to succeed is critical in a business plan. Here's how to gather the facts you need.
In their book Write Your Business Plan, the staff of Entrepreneur Media, Inc. offer an in-depth understanding of what’s essential to any business plan, what’s appropriate for your venture, and what it takes to ensure success. In this edited excerpt, the authors discuss the whys and hows of conducting market research.
Market research aims to understand the reasons consumers will buy your product. It studies such things as consumer behavior, including how cultural, societal and personal factors influence that behavior.
Market research is further split into two varieties: primary and secondary. Primary research studies customers directly, whereas secondary research studies information that others have gathered about customers. Primary research might be telephone interviews or online polls with randomly selected members of the target group. You can also study your own sales records to gather primary research. Secondary research might come from reports found on the websites of various other organizations or blogs written about the industry. For your plan, you can use either type of research or a combination of both.
The basic questions you’ll try to answer with your market research include:
Who are your customers? Describe them in terms of age, occupation, income, lifestyle, educational attainment, etc.
What do they buy now? Describe their buying habits relating to your product or service, including how much they buy, their favored suppliers, the most popular features and the predominant price points.
Why do they buy? This is the tricky one, attempting as it does to delve into consumers’ heads. Answers will depend on the product and its uses. Cookware buyers may buy the products that offer the most effective nonstick surfaces, or those that give the most pans in a package for a given amount of money, or those that come in the most decorative colors.
What will make them buy from you? Although some of these questions may seem difficult, you’d be surprised at the detailed information that's available about markets, sales figures and consumer buying motivations. Tapping information sources to provide the answers to as many questions as you can will make your plan more convincing and your odds of success higher. Also, the business plan software programs have detailed research included and online research available. Utilize this functionality if you're using such software, and add additional data you find elsewhere. The reason to add some of your own unique material is that everyone using the software program is tapping into the same database and you want your business plan to differ from that of the last entrepreneur in your field.
You can also find companies that will sell you everything from industry studies to credit reports on individual companies. Market research isn't cheap. It requires significant amounts of expertise, manpower and technology to develop solid research. Large companies routinely spend tens of thousands of dollars researching things they ultimately decide they’re not interested in. Smaller firms can’t afford to do that too often.
For companies of all sizes, the best market research is the research you do on your own. In-house market research might take the form of original telephone interviews with consumers, customized crunching of numbers from published sources or perhaps competitive intelligence you’ve gathered on your rivals through the social media. You can gather detailed research on customers, including their likes, dislikes and preferences, through Facebook, and use Google Analytics to sort out the numbers as they pertain to your web visitors. People are researching and making their opinions felt through their actions on the web, so you can gain a lot of marketing insight by looking closely at what is going on electronically.
You'll also want to do your due diligence within your industry. When looking at comparable businesses (and their data), find a close match. For comparative purposes, consider:
1. Companies of relative size
2. Companies serving the same geographic area, which could be global if you are planning to be a web-based business
3. Companies with a similar ownership structure. If your business has two partners, look for businesses run by a couple of partners rather than an advisory board of 12.
4. Companies that are relatively new. While you can learn from long-standing businesses, they may be successful today because of their 25-year business history and reputation.
You'll want to use the data you've gathered not only to determine how much business you could possibly do but also to figure out how you'll fit into and adapt to the marketplace.
Follow these steps to spending your market research dollars wisely:
1. Determine what you need to know about your market. The more focused the research, the more valuable it will be.
2. Prioritize the results of the first step. You can’t research everything, so concentrate on the information that will give you the best (or quickest) payback.
3. Review less-expensive research alternatives. Small Business Development Centers and the Small Business Administration can help you develop customer surveys. Your trade association will have good secondary research. Be creative.
4. Estimate the cost of performing the research yourself. Keep in mind that with the internet you should not have to spend a ton of money. If you’re considering hiring a consultant or a researcher, remember this is your dream, these are your goals, and this is your business. Don’t pay for what you don’t need.