4.02 – Sizing Up Your Market
Ensuring you have enough customers with sufficient spending power is crucial for creating a viable marketplace for your products or services. Additionally, understanding your competition is vital. This means conducting thorough market research.
Market research is essential, especially when seeking financial backing. Potential investors, including banks, will insist on it. This process benefits you, too, as many businesses fail due to inadequate market research at the outset.
Regardless of your business idea, comprehensive market research is necessary before investing your money or seeking external investments.
Market Research Has Three Main Purposes:
To Build Credibility For Your Business Idea
You need to demonstrate a thorough understanding of the market for your product or service. This understanding is crucial for attracting resources to build your venture
To Develop A Realistic Market Entry Strategy
A successful marketing strategy is based on a clear understanding of customer needs and ensures that product quality, pricing, promotion, and distribution methods are aligned and focused on target customers.
To Gain Understanding Of The Total Market, Both Customers And Competition
Comprehensive information on potential customers, competitors, and the overall market ensures your strategy hits the target.
Remember, “Time spent in reconnaissance is rarely time wasted” applies to business as well.
Figuring out what you need to know
- Identify what you absolutely need to know. For example, how often do people buy what you’re selling and how much do they buy?
- Decide who you want to sample and how to reach them effectively. For example, for do-it-yourself products, an Ideal Home Exhibition crowd may be ideal.
- Choose the best research method to get the results you need. Face-to-face interviews in the street may provide direct access to potential customers.
If your research involves complex multi-choice questions or a large sample size, plan to use a computer and appropriate software for data processing. Ideally, keep the research simple enough to avoid this necessity.
You can analyze raw market research data to guide decisions on pricing, promotion, location, and the design and scope of your product or service.
Figuring out what you need to know
Set clear and precise objectives for your market research. Don’t just gather interesting information about the market in general; focus on your target market segment.
Determine your target customers and what you need to know about them. For example, if you plan to open a shop for young, fashion-conscious women, your objective might be to find out how many women aged 18-28, earning at least £25,000 per annum, live or work within two miles of your chosen location.
Understand the existing market for your product and how much potential customers spend on similar products. Mintel reports are a valuable resource, although they can be costly.
Key Areas to Research
Your Customers
Who will buy your goods and services? What needs does your business meet? How many potential customers are there, and what are their spending habits?
Your Competitors
Which businesses are already meeting your potential customers’ needs? What are their strengths and weaknesses? Are there any gaps you can exploit?
Your Product Or Service
Can you tailor it to meet the needs of specific customer groups? For instance, a delivery business might offer same-day service for professional clients but a more economical next-day service for the general public.
Price Strategy
Don’t just match competitors’ prices. Understand what customers consider too cheap, good value, or overpriced, and set your pricing accordingly.
Promotional Material
Determine which newspapers, journals, or online platforms your target customers use and which are most likely to influence their buying decisions.
Location
Find the optimal location to reach your customers easily and cost-effectively.
Sales Method
Decide if telesales, the internet, catalogues, or face-to-face sales are the most effective for your business.
Market Segmentation
Market segmentation involves organizing customers into similar groups based on factors such as age, sex, education level, or location. For instance, dividing a market for clothes into segments like men, women, and children, and further by categories such as work, leisure, sports, and social occasions.
Segmenting your market helps tailor your products and services to specific customer needs, often allowing you to charge a premium.
Competitor Analysis
Categorize your competitors into direct and indirect competitors to better understand the competitive landscape.
Direct Competitors
Offer similar products or services.
Indirect Competitors
Offer substitutes or alternatives that fulfill the same customer need.
Research Methods
Research can range from desk research (using existing data) to field research (collecting new data yourself). Methods include:
- Personal interviews
- Telephone surveys
- Postal surveys
- Test and discussion groups
- Internet surveys
Sampling
Sampling involves selecting a group that represents your entire target market. This saves time and money while providing accurate insights. Ensure your sample includes all key customer segments.
Analyzing Data
Understanding basic statistics helps analyze your data. Key measures include:
- Mean: The average value.
- Median: The middle value in a data set.
- Mode: The most frequently occurring value.
Field Research
Field research involves gathering data directly from the market. It can include interviews, surveys, and observing competitors. This primary research provides unique insights that can give you a competitive edge.
Using Library and Internet Resources
Libraries and the internet offer vast resources for market research. Utilize directories, online databases, and government statistics to gather valuable information.
By conducting thorough market research, you ensure your business is well-positioned to succeed. This research informs your business strategy, helping you make data-driven decisions and reducing the risk of failure.
