What is Market Research? How to Conduct Market Research Effectively?
Long gone are the days when you buy a domain, create a simple static website, and wait for people to flock to your store. The marketplace has changed a lot, especially in today’s ever-shifting online marketing landscape.
So, what can you do to turn your website into a place where clients won’t be able to resist?
We got only two words for you: Market Research.
No matter if you are a new entrepreneur, or you have been joining the game for a while, performing market research before launching a new business idea is an essential step to help ensure your new venture will be successful.
In this article, we will look at the definition, importance, types of market research. Besides, you will also find out 5 steps to conduct your market research effectively. And in the final section, we focus on some mistakes when doing market research that would help you avoid.
Table of contents
- What is market research?
- The importance of market research
- A better understanding of your customers
- Types of market research
- 5 Steps to conduct market research
- 5 common mistakes to avoid when conducting market research
- The bottom line
What is market research?
Market research is known as the process of gathering, analyzing, and interpreting information, which could be about the target market, customers, competitors, and the industry as a whole.
The purpose of market research is to provide relevant data of the market associated with a specific good or service to ascertain how audiences will respond to it. As a matter of fact, business strategies, such as market segmentation (identifying specific groups within a market), and product differentiation (creating an identity for a product or service that stands out from competitors) are impossible to conduct without market research.
Many organizations are carrying out market research to test out new products and services, or to get information from customers about what types of potential products they need.
For instance, let’s say a restaurant is considering launching new vegetarian items. The manager might conduct market research to test the viability of the latest products. If the market research confirms consumer interest, he can proceed confidently with the business plan. If not, he should use the results of the market research to make appropriate adjustments to bring the product in line with customer desires.
The importance of market research
Market research is a crucial tool in helping entrepreneurs make well-informed decisions. It not only takes the guesswork out of innovation but also resources into ideas and projects that can hold the most potential. Businesses at different stages of growth conduct market research for various reasons.
There is not any doubt about the importance of market research. To prove this statement, we’ve outlined the 5 following things that market research can do for your business.
A better understanding of your customers
Who will buy your products or services? Who are your ideal consumers? What do they need from you? What do they want and expect? The more details you have, the more understanding you’ll get.
Market research will help you map out the full profile of your target customers. Understanding your customers will help you determine the market size and how best to reach them. You’ll gain valuable insights into their age, gender & income, and location, which are useful for creating effectively tailored marketing and pricing plans.
Knowledge about your competitors
The rivals are taking away your customers, and to win the game, you need to do market studies ahead of them. If you can find out your customer needs and you aim to fulfill those needs, you’ve got a better chance of standing out from the rest.
Furthermore, market research will help you identify the weaknesses in the approach of your competitors. These are gaps that you can take advantage of to gain more customers. In turn, you are able to think out-of-the-box while modeling your new strategy.
Knowing about the competition as much as possible will be pivotal to the success of your business in the long run.
Product testing before launch
Before going all-in on a significant change for your business, you can test it on a smaller subset of your customers to see if the change would be suitable. For instance, if you plan to redesign your product, show the new design to the most frequent buyers. Test or ask them if they’re more likely to buy the new design or not.
By testing your new idea or product, you will reduce the risk factors, and most importantly, avoid delivering a bad quality product to the marketplace. You can never be 100% sure that your product will immediately connect with potential customers. With market research, you’ll find out what approach you should take when marketing the product.
Once you’ve done your market research, you’ll know who you want to reach out to (your target audiences), and where you can engage them (your marketing channels). Then you are able to easily spot business opportunities. For instance:
- Establish partnerships with other businesses. By researching, you will find other small businesses for joint promotions that will be mutually beneficial.
- Generate different profitable products. Knowing the other products or services that your customers tend to purchase can help you come up with add-ons, product bundles, and upsells that eventually increase your sales.
- Find new locations to sell. Spotting the geographical areas where most of your target customers live will enable you to create compelling targeted campaigns that match the needs and culture of that area.
Sustainable business growth
By gauging customer sentiment and understanding the perception of your brand, you can gain an opportunity for further business growth and development.
For any company to be competitive, accessing high-quality and reliable market research can guide everything from investments to product development. Staying ahead and adapting to changing market conditions allow companies to develop strong short term, as well as sustainable long-term strategies.
Types of market research
There are two major types of market research that your business can conduct to collect useful information, including primary and secondary research.
Primary research involves the collection of first-hand information by yourself or hiring a third-party company to do it for you. Primary research fills in the subsequent gaps in information, which a researcher hardly finds through secondary research methods.
Primary research is useful in segmenting your market and creating your buyer personas, and this type of market research tends to fall into two basic kinds of information.
- Exploratory. This kind of primary market research is general and open-ended, and typically involves interviews with an individual or small group.
- Specific. This kind often follows exploratory research to dive into issues or opportunities. The business can take a smaller or more precise segment of their audience, and ask questions aimed at solving problems.
Although it takes more time, effort, resources to conduct primary research, it is still the best or even the only way to gain authentic and fresh data. When carrying out primary research, you can use one or more of the following tools.
Customer surveys/ questionnaires
Once conducted with pen and paper, surveys and questionnaires have come a long way since then. Today, most researchers use online surveys to gather information from respondents. Customer surveys are convenient and can be done over smartphones, mails, or in person.
In order to get maximum information from participants, surveys should be simple, straight to the point, and include a good mix of open-ended and closed-ended questions. Surveys should not be too lengthy, otherwise, respondents will lose their interest and tend to leave it half-done.
It is a good practice to reward participants for their time, effort, and valuable information after filling out surveys. Most organizations or businesses often give away gift cards from famous brands that respondents can redeem later.
You can take advantage of online survey websites such as MonkeySurvey, Google Forms, JotForm Survey Maker, HubSpot, Typeform, etc. to make your surveys or questionnaires.
Conducted via phone or face-to-face, in-depth interviews are an open-ended method which involves dialogues or interaction between the interviewer (researcher) and interviewee (respondent). Interviews usually last for 30 minutes or even longer, depending on the subject of research.
This type is considered to be one of the most cost-effective forms of primary research. Besides, it helps to dig further into consumers’ problems, their psychological motivations, opinions, and perceptions.
However, the success of in-depth interviews depends mostly on the skills and experience of the researchers. They should have a detailed interview script and memorize it instead of reading it. It is also essential to make respondents comfortable to share their interests.
This popular research technique is used to gather data from a small group of 8 to 12 people, who share common characteristics and fit a demographic target. Focus groups are a great way to get feedback on a product or service idea directly from several potential customers.
Focus groups often have a moderator that stimulates discussions among members to get greater insights. Organizations and businesses can make the most of this method to identify a niche market and learn about a specific group of consumers.
As its name suggests, observation market research involves watching customers and their behaviors in action., and there is no direct interaction between researcher and consumer being observed.
Although this method is quite time-consuming, it can provide unbiased results, as consumers are not put under any pressure and will behave naturally. Then, the insights gained are more practical and reliable.
For instance, a bakery store wants to know how people react to its new cakes, and the observer will note the first reaction of consumers and evaluate collective data to draw the inference.
Secondary research is all the information and data that has been compiled, collected, organized, and published by others. It can be public reports and studies by trade associations, government agencies, or other businesses in your industry.
You can access the secondary data both online and offline. A lot of secondary research is available on the Internet, so you just need to enter keywords and phrases for the type of information you’re looking for. You can also obtain secondary research by reading articles, trade journals, industry publications, visiting a reference library, etc. Some data published by private companies may require permission, and sometimes a fee to access.
For small businesses with tight budgets, most research is typically secondary, as it can be obtained faster and more affordably than primary research. However, the downside is that the results may not be tailored to your needs, and you have no control over the investigation process.
Secondary research has two main types, which are external sources and internal sources.
These sources are the first and most accessible layer of material when carrying out secondary market research. External sources contain data from people, organizations, associations outside the business.
You can find tons of external sources nowadays. Here are some of the most popular sources of external data.
- Government reports and studies
- Trade journals, magazines, newspapers
- Academic and educational resources
- Literature reviews
- Online articles and case studies
- Television and radio
This type is the market data that your business already has in-house, which consists of annual reports or studies. Balance sheets, profit and loss statements, inventory records, average revenue per sale, customer retention rate, and other historical data can help you draw conclusions on what your consumers want right now.
Internal sources provide a massive amount of information and data in the most inexpensive, most accessible, and most affordable way. Besides, internal data is unique and exclusive to every company, so no other competitor can benefit from it.
In the concept of market research, both primary and secondary approaches have their own pros and cons. Primary research brings about precise, updated, and need-specific data, but it requires a lot of your time, effort, and resources. Meanwhile, secondary research requires is much cheaper, more time-saving, but the data may be outdated and not fit your needs.
So, to determine which types of research to use, you should first examine your business goals, budgets, and resources available.
5 Steps to conduct market research
Conducting market research can take time and a lot of effort; it’s not something you can whip up overnight. To help guide you through your market research journey, we’ve listed the 5 steps below. If you’re familiar with the basic procedures of market research, you can supervise and even carry out a reasonably satisfactory search for the information needed.
Step 1. Define the problems
The very first step for any market research activities is to clearly identify the problems you’re trying to solve. This will determine what information your business needs and how to get that information. Your business might be finding ways to best address the loss of market share, or how to launch a new product to a specific demographic, for instance.
To flesh out the understanding of the problem, it will help a lot if you brainstorm actual research questions. These are often questions about your target market or ideal buyer persona. These might include questions about demographics, such as customer’s occupation, income, education level, etc. The goal of this stage is to create a set of preliminary and big pictures that will frame your research inquiry, and clarify the research scope.
Also, two heads are often better than one, so it’s essential to share the problems and research questions with other team members to get their input and further refine your research objectives.
Step 2. Develop the research plan
Once you have identified your problems, research objectives, and a set of research questions, the next step is to develop a research plan.
Your research plan should start with the timing and budget, as well as what kind of information you need. This details how you plan to gather and analyze the information. For example, your business requires fresh, updated, and need-specific data, while your budget and timing have no limits, you can come with the primary research.
Next, you should know that not every person will be your customer. When you research the market, you need to pinpoint who your potential consumers are, by looking at things like:
- Educational level
- Marital or family status
After you narrow down who they are, find out their personalities, interests, needs, and purchasing behaviors.
And finally, your research plan also specifies who will conduct the research activities, including data collection, analysis, interpretation, and reporting on final results.
Step 3. Collect relevant information and data
This is the time when you administer your survey, run your focus groups, conduct interviews, implement field tests, and so on. Most of the data you collect will be quantitative (numbers and statistics), or qualitative (descriptive and observational data). Ideally, you will combine these two types of data.
Whatever the type of data you choose to collect, make sure that it is valid and unbiased. For example, avoid asking questions like this, “You think that we should sell the new product with a discount, correct?”. This type of question easily manipulates the way respondents answer.
Step 4. Analyze and report findings
Now when you’ve collected all of the information you need, it is time for the fun and exciting part: analyzing the data.
This step involves transforming the primary and/or secondary data into useful and practical information and insights that answer the research questions. This information is condensed into a format to be used by business managers - usually a presentation or detailed report.
Good analysis is undoubtedly crucial. Therefore, individuals with a good knowledge of the business should be involved in interpreting the data, because they are in the best position to identify significant insights and make recommendations from the research findings.
Sometimes it is necessary to write up a summary of the research, including the process of conducting, final results, and recommendations. Even if you don’t need a formal market research report, be sure that you review the research and results, so that you can articulate the recommended course of action. Sharing numbers of charts and data will be pointless if it does not lead to action.
Step 5. Take action
Your research is complete, the presentation is delivered, and recommendations are made. What comes next is arguably the most vital step of all: putting the research results into action.
You can now start developing your marketing strategies and campaigns. The business environment is constantly changing, which means that your research is never over. So, you should do market research on a regular basis. The more you know about your buyer personas and the entire industry, the more success your business will gain.
5 common mistakes to avoid when conducting market research
When it comes to effectively conducting market research, here are 5 common mistakes that your business should consider and avoid.
Have poor sampling
Many researchers start their surveys, focus groups, or interviews by asking their families and a couple of friends to take part in. This is a classic mistake that many businesses make when carrying out their market research.
Don’t entirely rely on people you know to give you honest feedback. Identify your target consumer base and then decide whether they should be divided into sub-groups that may require further analysis or cross-comparison. Just make sure that your sampling is good quality and unbiased.
Make a poor choice of reference materials
It’s important to know which sources your data and information come from. These days, you can find anything on the Internet, but do you know what the statistics you have found are based on? And do you know if the original questioning was dated and biased? So, research your research materials, check dates, and double-check the information they provide.
Ask ambiguous questions
If your questions are not clear and precise enough, your analysis and interpretation will be incorrect, which can eventually lead to wrong decisions.
It might sound basic, but designing a set of questions and measurement scales is the foundation of useful data in your research. So, make sure you follow the best practices for writing survey questions like avoiding leading and ambiguous questions.
Neglect the competition
Businesses can easily fail if they don’t know how other companies in the marketplace are differentiating themselves. This prompts you to have a comprehensive understanding of how other brands are distinguishing their offerings in both marketing and production.
Hence, get as much information about your competitors as you can, such as their brand value, pricing plans, strengths, and weaknesses. The more you understand about their business, the more effective it will be for you to create your competitive edge.
Make a wrong interpretation of data
Remember that misinterpreting statistics and failing to see the big picture will destroy your research. In this situation, make sure you have an appropriate set of skills to look at raw data before you analyze it.
Besides, no matter how much you hope your hypothesis to be true, let the numbers speak for themselves. You can have an external market research agency provide your company with an unbiased view when interpreting the data.
The bottom line
You’ve been through a complete guide of market research, including its definition, importance, and types. Besides, this article also shows 5 necessary steps to conduct market research effectively, as well as 5 common mistakes to avoid when doing.
After reading, you’ll see that conducting market research can be a very eye-opening experience. Even when you think you understand your consumers pretty well, completing the study will likely uncover new things and lessons to help improve your business performance.