Market Research 101
Thorough market research is the foundation of any successful business. Strategies such as market segmentation (identifying specific segments within a market) and product differentiation (creating an identity for your product or service that separates it from your competitors') would be impossible to develop without market research.
The information you gather will drive every other aspect of your business: advertising, marketing, financing, sales, etc. Anyone you approach for financing will want to know that you have made an accurate assessment of your market share. You must know who you want to target before you can put together an effective advertising campaign or choose a magazine or television time slot in which to run it. Remember: You don't want to reach everyone-just the people who will buy your product.
Now that you understand how vital market research is to your business's health, how do you obtain information about your market and potential customers? Through extensive research. That doesn't mean you'll have to spend all your free time in the library. A lot of research is already compiled and waiting for you to take advantage of it. Here's how to gather the firsthand responses and secondhand statistics that will help you build strong marketing strategies:
When conducting primary research using your own resources, you must first decide how you will question your target group of individuals. There are basically three avenues you can take: direct mail, telemarketing or personal interviews.
If you choose a direct-mail questionnaire, be sure to do the following in order to increase your response rate:
- Make sure your questions are short and to the point.
- Make sure questionnaires are addressed to specific individuals and are of interest to the respondent.
- Limit the questionnaire's length to two pages.
- Enclose a professionally prepared cover letter that adequately explains what information you want.
- Send a reminder about two weeks after the initial mailing. Include a postage-paid, self-addressed envelope. Postage-paid envelopes are available through the post office and use special reply-permit indicia.
Unfortunately, even if you employ the above tactics, response to direct mail is always low, sometimes less than five percent. Phone surveys are generally cost-effective and yield a higher response. Speed is another big advantage of telephone interviews; More experienced interviewers can get through up to 10 interviews an hour, although five to six per hour is more typical. Phone interviews also allow you to cover a wide geographical range relatively inexpensively. Phone costs can be reduced by taking advantage of cheaper rates during off-peak hours. One-on-one, personal interviews are the most effective way to survey consumers, although they cost more to organize and conduct. But once you have the person on the phone or in the interview room, what will you ask him?
Your questions will depend largely upon the product or service you offer. It is typical to note the interviewee's age, sex, levels of education and income and marital status. You may want to know whether the prospective customer owns a house or rents. Ask how knowlegeable they are about your product or service, and what features are most important to them.
Asking what publications your targeted consumers read and what radio or television stations they tune in to can help you form your advertising strategy. And people are usually eager to tell you what new products or services they'd like to see offered in their communities.
Secondary research has already been compiled in books and association reports. The benefits are obvious: you save time and money, because you don't have to develop survey methods or do the interviewing. There are three main categories of secondary sources:
1. Public Sources. Public sources, such as government offices and the business departments of public libraries, usually provide free useful information. Helpful government publications include:
State and Metropolitan Area Data Book ($26). Offers statistics for metropolitan areas, central cities and counties.
Statistical Abstract of the United States ($37 paperback). Contains statistics from both government and private sources.
U.S. Global Outlook ($19). Traces the growth of 200 industries and gives five-year forecasts for each.
These items are available from your local U.S. Government Printing Office or at your local library.
The Small Business Administration (SBA) sponsors programs such as SCORE (Service Corps Of Retired Executives) and Small Business Development Centers (SBDCs), which can provide free counseling and a wealth of business information. The Department of Commerce provides information on both domestic industries and foreign markets through its International Trade Administration (ITA) branch. Contact the U.S. Commerce Department Library at (202) 482-5511 for more information.
The business section of public libraries usually includes a wide range of government and market statistics and directories, and magazines, newspapers and newsletters.
Most county governments publish population density and distribution figures in accessible census tracts. City chambers of commerce or business development departments will supply you (usually for free) with information on population trends, community income characteristics, payrolls, industrial development, and so on.
Most major banks offer advisory services to businesspeople on finance-related problems. Bank-generated research is also sometimes available. Services are usually free to existing customers.
Publicly owned companies' annual reports often reveal how successful the company is and what products they plan to emphasize in the future.
2. Commercial Sources. Commercial sources are equally valuable, but usually involve costs, such as subscription and association fees. This is still far cheaper than hiring a research team to collect the data firsthand.
Among the best sources are research and trade associations. Their information is usually confined to a certain industry and available only to association members, but that gathered by the larger associations is usually thorough, accurate and worth the cost of membership. To locate a trade association in your industry, consult the Encyclopedia of Associations (Gale Research) at your library and Business Information Sources, by Lorna M. Daniels (University of California Press, $39.95, 800-822-6657).
Research associations are often independent, but are sometimes affiliated with trade associations. They often limit research to industrial development, but some have become full-service information sources with a wide range of supplementary publications.
Contact the sales departments of various newspapers and magazines for copies of the business profiles used in their sales efforts. They will help determine the financial situation of your potential customers. Managers of local broadcasting stations routinely conduct research that can help you determine whether there is a valid market for your product or service.
Many of the resources listed above also appear online. There are several consumer online services to which you can subscribe for less than $20 per month. They offer access to many business and government statistic databases, as well as Dun & Bradstreet research.
3. Educational Sources.There is more research conducted in colleges, universities and polytechnic institutes than virtually any sector of the business community. Educational research ranges from faculty-based projects, often published under professors' bylines, to student projects, theses and assignments. Copies of student research projects may be available for free with faculty and student permission; Contact the university administration department and marketing/management-studies departments for further information. Some University libraries are open to the public, although borrowing privileges are typically restricted to students and alumni. Call to find out.
This article was excerpted from Entrepreneur Magazine Group's Small Business Encyclopedia ($149). For more information, call (800) 421-2300 to order.
The Resource Connection
- The Entrepreneur & Small Business Problem Solver ($29.95 paperback), by William A. Cohen, (John Wiley & Sons Inc.), 605 Third Ave., New York, NY 10158, (800) 225-5945
- Marketing Research Association, 2189 Silas Deane Hwy., #5, Rocky Hill, CT 06067, (203) 257-4008
- Business Marketing, 740 N. Rush Street, Chicago, IL 60611, (312) 649-5260
- Journal of Marketing Research, 250 S. Wacker Drive, #200, Chicago, IL 60606, (312) 648-0536
- Marketing News, 250 S. Wacker Dr., #200, Chicago, IL 60606, (312) 993-9517
- Quirk's Marketing Research Review, 8030 Cedar Ave., S., #229, Bloomington, MN 55425, (612) 854-5101