Market Research

Why Do Research?

A small business must know its market in order to be successful. The process of learning about its market is called market research. As defined by the American Marketing Association, marketing research is “the systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services.”

Simply put, it is a business’ attempt to answer who will buy its product or service, what price will the buyer pay and how will the buyer be reached. These are very important questions for someone starting a new business or trying to sustain an existing one. The answers provided to these questions should become the basis for the company’s pricing plans, advertising strategies, product offerings and even determining the location of the business. Asking the right questions can also uncover key information about your competitors-and perhaps reveal ways to out perform them.

Useful market research for a small business must be simply obtained, timely, accurate and inexpensive. Fortunately, small businesses have a built-in advantage. They are close to their customers. They watch them drive up, talk to them one-on-one and answer their questions. A small business is not encumbered with layers of management. As such, timely market data is just a conversation away for many businesses. A small business needs research that delivers what “is” needed, does not bury the business with reams of data and does not waste time or money on informational “fishing expeditions.”

The Basics

There are a few basic steps associated with any market research project. They are:

1. Define the problem or opportunity

What do you want to find out? If you own a downtown yogurt shop you may want to know how many people in a one mile area eat yogurt or how many people walk by your store every day before lunch. And if they do eat yogurt, where do they buy it and at what price?

To get the right answers, you must have a clear understanding of the issues you want resolved by the research.

2. Plan the project

How will you collect your data, how much will it cost and how long will it take? Market data is available in two very broad categories; primary and secondary. Primary is original data collected first-hand by the researcher. Obtaining primary data can be, but is not always, time-consuming and expensive. And the more sophisticated techniques of data collection can require a significant level of technical expertise beyond that normally found in a small business. However, the information revealed through primary research is usually quite specific and provides precise answers to the questions asked.

Secondary data is information that has already been collected. It is more readily available and less expensive. It can be obtained from a variety of places including government sources, area libraries and industry associations. Please note that secondary data is usually not as precise (remember, the research used was not conducted just for you) and may be aged.

3. Collect the data

In most cases, data collection for a thorough market research process will combine the acquisition of secondary data with primary data. The yogurt shop example illustrates the point. To answer the questions posed (i.e., number of people in area who eat yogurt, people walking by the store, where do they buy and what do they pay?) a number of techniques could be used.

Census data ... population and income figures could be obtained from government sources for the area. That information could then be combined with data obtained from yogurt industry association and industry publications, such as percentage of persons eating yogurt in the general population, to provide an estimate of potential yogurt buyers in the area. Perhaps not precise, but remember, the data was not created specifically for you.

Street intercepts ... post an employee on the street near the store to count the persons walking by. Establish beforehand the number you would like to talk to and politely stop them and ask them a small number of questions. Do they eat yogurt, how often and where? Also ask them, generally, where they live. You are not looking for an exact address, just a ballpark estimate. And if they don’t eat yogurt, ask them why-you might learn something you can use to attract them for the first time.

Talk to customers ... the most precise and important source of market information. Your customers have proven they know where you are and what you sell. Talk to them. Ask them how they heard about you, checkout their license plates if they drove up or ask them to fill out a card making them eligible for a later prize drawing. Success in business depends on information, so take every opportunity to obtain it easily.
Visit competitors ... you should be your competitors’ best customer. On a non-routine, but consistent basis, visit other yogurt shops, buy their product, chit-chat with other customers and keep abreast of their pricing and promotions. Maintain a notebook with information on each competitor and update it on a regular basis. Rest assured, they are keeping track of your activities.

Through a combination of secondary (census data and industry publications) and primary (street interviews and visiting competitors) sources, information can be gathered to answer the questions posed at a relatively small cost.

4. Using the Information

Recall that market research is used to answer questions such as who are your customers, what do they like and how do you reach them. The ideas outlined above can generate a large amount of information. That information needs to be organized and assessed, logically, to address the questions asked. For example:

From information obtained from an industry association publication, you learn that the typical yogurt shop can expect the following:

• to attract customers from a 1.5 mile diameter.
• the average yogurt customer is 31 years old.
• the average purchase per customer, per visit, is $3.26.

Your own primary research uncovers that:

60% of the customers, as indicated on the birthday surprise drawing cards, have telephone numbers over five miles away from the store location. The birthday surprise drawing card also shows that the average customer is 42 years old.By observing foot traffic in front of the store for 2-3 weeks, it is determined that 12:30 until 1:15 is the busiest time of day for the location. (Please note that information cited is for illustrative purposes only.) A number of decisions and choices, plus more questions, present themselves based on the information uncovered.

... Why does the store draw customers from such a distance-and how can they keep those customers while attracting customers nearer to home?

... Is the image of the store discouraging younger patrons?

...A study of store receipts shows that customers spend, on average, $2.56 per visit. Should prices be raised? Or should volume be increased by offering specials before noon and after 2:00 P.M.?

There is no right answer to any of the choices revealed by the information gathered. And of course, no decision could be made based on the information presented-more would be needed.
The key point is the relative ease with which useful data can be obtained and used to guide the business.

Small businesses operate close to the ground. They can respond quickly to changes in customer attitudes and preferences-if they stay abreast of the market around them. Up-to-date market information plays a crucial role in their ability to respond. Timely and inexpensive market research ideas; like the ones outlined above, will help firms remain competitive. But only if they consistently gather new data, use the data in an intelligent manner and follow-up their actions to determine the success or failure of their decisions.

Where To Go

A comprehensive list of marketing research sources would fill a book. However, there are a few titles and sources that are good starting points for any market research process. And don’t forget your local librarian, who is trained to find information.

U.S. Bureau of the Census Publications.
U.S. Government Printing Office, Washington, DC 20402

Encyclopedia of Business Information Sources.
Gale Research Inc. Detroit, Michigan.

Encyclopedia of Associations.
Gale Research Inc. Detroit, Michigan

Sales and Marketing Management Survey of Buying Power.
Bill Communications, Inc. Sales and Marketing Management, New York, NY 10017

Thomas Register of American Manufacturers and Thomas Register Catalog File.
Thomas Publishing Co., New York, NY 10119

The Source Book of Zip Code Demographics.
CACI Marketing Systems. Arlington, Virginia

The Official Guide to Household Spending.
New Strategist. Ithaca, New York

Internet Web Sites:

The Chamber of Commerce of West Alabama
www.tuscaloosachamber.com
Excellent source for consumer and community data.

www.fedstats.gov
Comprehensive site for all federal agencies and statistics such as census data.

Official site of the U.S. Small Business Administration.
www.sbaonline.sba.gov
Contains information about lending and sources of help.

Information provided by the University of Alabama Small Business Development Center