AERN home > Small Business Handbook > Market Research, pt.2
Market Research, pt.2: 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 atttacting 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.
Next section: Market Research, pt.3: Where To Go