Market Research - A Powerful Business Tool
By Marcia Kaplan
Published in Women In Consulting Newsletter, July 2004
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Few people would climb a mountain blindfolded. Yet company executives
routinely pursue markets with blinders on—ignorant of market
characteristics, the competition, and barriers to entry. Good ideas and
good products aren’t enough; a variety of factors can prevent
first-class concepts from becoming profitable businesses. Opportunities
need to be carefully investigated through objective market research.
Investing in research can both save a business from making costly
mistakes and increase its long-term profitability.
It’s a common misconception that only large companies can afford market
research. Just the opposite is true; small companies cannot afford not
to invest in research. When resources are limited, mistakes are more
damaging. Many small businesses fail because their owners don't do their
homework—before starting the business and during the first crucial
months. By performing a comprehensive market investigation—on their own
or by enlisting the services of professional researchers—business owners
can avoid pitfalls, increase revenues, and differentiate themselves from
their competition.
Types of Market Research
Customer satisfaction is probably the most common form of market
research but other kinds of research are equally important. The main
categories are:
- Competitor analysis – identifies who it is, pinpoints the
strengths and weaknesses of other firms in the same market, shows where
they are having success, and what they plan to do in the future. The
objective is to stay a step ahead by taking advantage of their
weaknesses, or at least keep up with them.
- Market opportunity assessment – size, growth rate, trends,
barriers to entry.
- Product analysis – features, price points; determined by
talking to potential customers to assess their desires before the
product is introduced.
Research can be primary or secondary and quantitative or qualitative. A
business needs primary research—which involves direct contact with
sources of information—if it is trying to determine very specific,
detailed information or is dealing with a technology, product, or
service so new that there is a very limited existing body of literature.
Customer satisfaction also requires primary research.
Secondary research involves the review of a body of existing literature
about a topic. It is most suitable when a company wants a general
overview of a broad topic, analyst opinions, and high-level quantitative
information of an existing market.
Primary research is usually more expensive than secondary. Costs vary,
depending on:
- Sample size
- How the survey will be administered – by mail, by telephone, online,
focus groups
- Whether just raw survey results or analysis and recommendations are
desired
If resources are limited, a company can do secondary research in-house,
provided in-house staff knows what resources are available, where to
access the information, and how to interpret it. The Internet makes
secondary research much easier and less expensive, because so many
agencies have made information available for free. For example,
government agencies worldwide furnish a wealth of quantitative
information. Company Websites offer much valuable information, such as
press releases, annual reports and financial filings, job openings, and
product data sheets.
IT analysts and management consulting firms often make a limited number
of reports and white papers available for free. Some companies also
furnish free white papers, but these seldom are objective assessments.
Syndicated research reports are also available. These reports consist of
long-term market forecasts, often segmented by geographical regions or
vertical markets. Many businesses rely heavily on quantitative market
forecasts to determine whether it makes sense for them to enter a new
market or develop a new product. For established markets and products,
syndicated research can be quite useful, but in the case of new products
or technologies, such reports are less reliable.
Make the Most of Market Research
A business can dramatically improve its chances of getting valid results
by clearly defining its objectives. Asking the right questions is
crucial—a company should be able to clearly state what it wants to
determine. It is not the responsibility of an outside research firm to
identify what the client wants from a study. It is the research firm's
responsibility to clearly explain its methodology and how it will
approach a study.
Additionally, a research request should not be biased in favor of a
particular result. Frequently, individuals who commission research have
vested interests in a particular outcome. If the results are not to
their liking, they try to discredit the study and ignore its results. It
is best to have high-level decision-makers who have the best interests
of the entire company at heart involved in the research process.
Research should not be based on an untested assumption. For example, a
company should not assume there is demand for its new widget and ask a
research company to find out how the product should be priced. Before
developing the widget, the company should determine if there is a market
for it.
Like any other investment, market research should be measured by the
return it delivers. Return can be measured both by increased
profitability and cost savings derived from not making mistakes. To
receive any benefit, a company has to make a commitment to act on the
results of a reliable research study. Market research can be a powerful
business tool for those companies willing to remove their blindfolds.
© 2004. All rights reserved
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