For the majority of businesses starting up, market research is a cost effective method that can help produce a business plan. Market research gathers information about consumers, competitors and distributors within a firm’s target market. It is a way of identifying consumers’ buying habits and attitudes to current and future product/services. Market research data can be numerical (“What proportion of 16-24 year olds buy the Sun newspaper?”) or psychological (“Why do they buy the Sun?”).
The starting point is to discover the marketing fundamentals: how big is the market you are thinking about (market size), what is its future potential and what are the market shares of the existing companies and brands?
Market size means the value of the sales made annually by all the firms within a market. Market potential can be measured by the annual rate of growth.
When looking at a completely new market, these statistics will not be available. So research may be needed into other indicators.
Market shares are also crucial importance when investigating a market, as they indicate the relative strength of the firms within the market. In 2007, 27% of the yoghurt market was held by Muller, making it the leading brand by far. A benefit it received for its strong market share was a distribution level almost 100% – nearly every grocery store stocked Muller. If on firm dominated, it may be very difficult to break into the market.
So how can firms find out this type of information? The starting point is secondary research: unearthing data that already exists.
Methods of Secondary Research
These days most people start by ‘Googling’ the topic. This can provide invaluable information, though online providers of market research information will want to charge for the service. With luck, Google will identify a relevant article that can provide useful information.
Every major market is served by one or more magazines written for people who work within the trade. Spending £1.75 on an issue of The Grocer (magazine on the yoghurt market) provides lots of statistical and other information. Many trade magazines are available for reference in bigger public libraries.
The government-funding National Statistics produces valuable reports, such as the Annual Abstract of Statistics and Economics Trends. These provide data on population trends and forecasts (e.g. for someone starting a hair and beauty salon, to find how many 16-20-year-old women there will be in 2012).
Having obtained background data, further research is likely to be tailored specifically to the company’s needs, such as carrying a survey among 16-20-year-old women about their favourite haircare brands. This type of first-hand research gathers primary data.
Methods of Primary Research
The process of gathering information directly from people within your target market is known as primary research (or field research.
When carried out by market research companies it is expensive, but there is much firms can do for themselves. For a company that is already up and running, a regular survey of customer satisfaction is an important way of measuring the quality of customer service. When investigating a new market, there are various measures that can be taken by a small firm with a limited budget. here are some examples:
The people closest to a market are those who serve customers directly – the retailers. They are likely to know the up-and-coming brands, the degree of brand royalty, the importance of price and packaging – all crucial information.
When starting up a service business in which location is an all-important factor, it is invaluable to measure the rate of pedestrian (and possibly traffic) flow past your potential site compared to that of rivals. A sweet shop or a dry cleaners near a busy bus stop may generate twice the sales of a rival 50 yards down the road.