“There’s only one boss – the customer.”
– Sam Walton: Founder of Walmart
So, you have a great idea for a product. Your gut tells you that it’s something that is bound to capture the hearts and minds of consumers everywhere – and their wallets too. Perhaps you’ve stumbled on a service that isn’t being offered by anyone else – one that is desperately needed.
This is your opportunity!
Don’t hesitate and don’t look back, jump right into it and…Wait!
Before you shift into high gear, you must determine whether there truly is a market for your product or service. Not only that, but you also need to ascertain what fine-tuning is needed, if any at all. Quite simply, you must conduct market research.
Many business owners neglect this crucial step in product development for the sole reason that they don’t want to hear any negative feedback. They are convinced that their product or service is perfect just the way it is, and they don’t want to risk tampering with it. This is a fatal flaw that you need to do your level best to avoid. You can’t sell things to people that they don’t want, need, or consider valuable, no matter how much you believe it and no matter the number of marketing dollars you throw at it.
Now, some entrepreneurs, on the other hand, bypass market research altogether because they fear it will be too expensive for them. With the mammoth mountain of startup costs you’ll be facing, it won’t be easy to justify spending money on research that will only prove what you knew all along: your product is a winner.
Regardless of the reason, failing to do market research can amount to a death sentence for your product. “A lot of companies skim over the important background information because they’re so interested in getting their product to market,” says Donna Barson, President and Owner of marketing, advertising, and public relations consulting firm, Barson Marketing Inc. “But the companies that do the best are the ones that do their homework.” (1)
Consider market research an investment in your future. If you make the necessary adjustments to your product or service now, you’ll save money in the long run, not to mention discouragement and heartache.
What is Market Research & What Does it Do?
Simply put, market research is a way of collecting information that you can use to solve, or avoid marketing problems. Think of it this way: launching your business is like a final exam. You wouldn’t walk into the exam room, expecting to ace it without having studied up beforehand, would you?
No? I thought not.
Your market research is your study time. It’s what prepares you for that final exam – or in your case, for setting up shop. Good market research gives you the data that you need to develop a marketing plan that really works for you. It enables you to identify the specific segments within a market that you want to target, allowing you to create an identity for your product or service that separates it from your competitors. Market research can also help you choose the best geographic location in which to launch your new business.
As a rule of thumb, market research should provide you with information about three critical areas: the industry, the consumer, and the competition. Believe me when I tell you that these areas are critical. They will inform your every move as you move towards your end goal.
Industry information
In researching the industry, look for the latest trends. Be certain that they are trends because many entrepreneurs tend to mistake fads for trends. A fad is a general interest that is very short-lived, while a trend is a general change in behavior – more importantly for you: buying behavior.
Compare the statistics and growth in the industry. What areas of the industry appear to be expanding, and what areas are declining? Look for dying giants and areas that are being phased out by new developments in as much as you focus on those new developments. Take note of newer generations and whether the industry catering to new types of customers.
We are fully within the grips of the Fourth Industrial Revolution, so consider what technological developments are affecting the industry. Try to find a way to use those developments to your advantage. A thriving, stable industry will be the key to your success. You don’t want to start a new business in a field that is on the decline.
Consumer close-up
On the consumer side of things, your market research should ideally begin with a market survey. A thorough market survey will help you make a reasonable sales forecast for your new business.
To do a market survey, you first need to determine the market limits or physical boundaries of the area to which your business sells. Next, study the spending characteristics of the population within this location. Estimate the location’s purchasing power, based on its per-capita income, its median income level, the unemployment rate, population, and other demographic factors. Determine the current sales volume in the area for the type of product or service you will sell.
Finally, estimate how much of the total sales volume you can reasonably obtain. I want you to really focus on this last step because it is extremely important. Be reasonable and realistic when you’re benchmarking this type of information. Don’t overshoot your estimates. Opening your business in a given community won’t necessarily generate additional business volume; it may simply redistribute the business that’s already there. A great way to look at this is to determine the absolute bare minimum amount of the sales volume that you can tap into. If that figure doesn’t sit anywhere near your projected overheads, you’re walking on dangerous ground.
Competition Close-Up
Based on a combination of industry research and consumer research, a clearer picture of your competition will emerge. I’ve got to warn you, underestimating the number of competitors out there is a slippery slope to disaster. Keep an eye out for potential future competitors as well as current ones. There is always someone watching and waiting for their own opportunity. Just as soon as you’ve launched, you’ll fall into another entrepreneur’s competition research pool. Examine the number of competitors on local land and, if relevant, on a national scale. Keep in mind that the scale of the internet is both a beautiful and an intimidating thing. If you’re selling digital products or services, your target market could broaden a lot further than the just local or national arena.
Study your competitor’s strategies and business operations. Your analysis should give you a definitive framework of potential threats and opportunities, as well as the weaknesses and strengths of the competition.
When looking at the competition, try to see what trends have been established in the industry and whether there’s an opportunity or advantage for your business. Find a gap and leverage it. Use the library, the internet, and other secondary research sources to research competitors. Have a look at their websites, their social media pages, and scour complaint forums for potential shortcomings which may be in their blind spot.
Read as many articles as you can on the companies you will be competing with. If you are researching publicly owned companies, contact them and obtain copies of their annual reports. These often show not only how successful a company is, but also what products or services it plans to roll out in the future.
When you’ve done your homework and you have a good sense of the market you’re breaking into, you can focus on defining your product in elaborate detail. That’s coming up in the next newsletter.
