Market Research
Armed with your business idea, you need to ask fundamental questions – is there adequate demand for the the product (or service) that I am going to market and is it big enough to support my business?
Analyzing the market
The market are those people or businesses who might be your potential customers. Analysis gives you an inside picture of the trade you are thinking of entering, the trends both nationally and locally and an understanding of the needs of potential customers.
Being aware of trends – keep upto date with the business pages in newspapers and read relevant current affairs magazines. Copy, print out, or cut out useful information and start to compile a file. Keep adding to it even if you have started trading – it will help keep you abreast of how trends change over time. Beware however of excessive media coverage due to a temporary trend.
Local research – Once you have built up some knowledge about the national/state situation and relevant trends you need to find out much more about the trade at the local level. To this end there is no better source than the trade itself. Speak to the sales representatives of your likely suppliers – they can provide good information if asked the correct questions. Try to find out from them about consistent long term sellers as well as what is popular right now.
Your target market – Next you need to consider your target market – that section of the population who could potentially be using your product or service. Aim to define in detail who your customers are, their needs, and how they will benefit by using your product or service. They are obviously surviving without you at the present so why will they use your product in the future? Also are there enough potential customers within the reach of your business.
Using Questionnaires
Keep it short and simple – Ask yourself what are you really trying to find out. Concentrate on the most important questions and avoid fringe issues.
Avoid loaded questions – For example asking the question “Would you buy any items from shop XYZ?” is a reasonable question but asking the question “would you shop at XYZ is it is cheaper?” is a loaded question and calls for a positive response.
Minimize open questions – The purpose of the questionnaire is to pose specific questions that you have thought out carefully so that the answers allow you to draw firm conclusions. So avoid asking open ended questions that can be debated in any number of ways.
Approach the right people – Finding the right people might involve house to house interviews, phone interviews, or if you are surveying a street stopping only people who you think will buy your product or service.
Approach enough people – The more people you ask the more accurate your survey result will be. Try to ask 50 to 100 people- more if possible. To make analysis of the data easier. Use a fresh questionnaire for each person.
Analyzing competitors
A great deal of useful and interesting information can be derived from close observation of potential competitors. In one sense they are doing today what you are planning to do tomorrow!
Market share – When researching competitors consider the issue of market share. Try to work out how the market is currently divided up between competitors and how you can start to gain a share of the market.
Direct observation – If your intended business is retailing, then walk around the area that you are thinking of opening up a shop and check out potential competitors. Talk to local surveyors who usually have a good idea as to the retail business in the area.
Researching information – You can also use less direct means of finding out more about your competitors. If you have a potential supplier ask their sales reps who else they supply in the area. Read trade magazines and attend the relevant trade or consumer exhibitions.
Testing the market
Test marketing can be thought of in terms of putting your toe into the water! This is not always possible or necessary but is useful if your market research is not conclusive. The function of test marketing is simply to test the market reaction to a new product or service with the minimum of investment.
| Method | What to do |
| Advertising | Place an advertisement offering information to customers who respond |
| Samples | If you are making a product to sell to the trade, take samples to potential buyers and take the orders before starting production. |
| Mailshots | Send a letter to a potential customer asking whether they are interested in what you have to offer. |
| Leaflet drops | post through letter boxes house to house or insert into newspapers and magazines. |
| Exhibitions or trade shows | Rent a stand in an exhibition or a trade show. |
| Focus groups | Invite selected people to a showing of prototypes of new products or a description of new services. |
Assessing your idea
Once you have completed your market research (which may be several weeks or much longer) you will need to face the situation that you will be faced with trying to make some sense of a large amount of information. Some of which may be contradictory. If you so not carry out the assessment in a objective and rational manner you run the risk of basing your decision on your own feelings or someone else’s chance remark.
Apply the banker’s test
A clear headed way to assess your business idea is to take the position of a completely independent person. A banker will look for three distinct features of any potential business.
Difficult market entry – This seems to be contradictory – but it is a measure of a company’s ability to avoid competition of me-too imitators
High margins – This is fairly obvious were high margins convert into high profitability.
Longevity – Once the business is launched will continue to operate without substantial change and with no significant new investment required.