This guide shows you what market research is and how you can use it to answer your toughest business questions:
Should we expand our product line?
Is there a market for our product idea?
Are people going to be interested in this service?
Primary and Secondary
There are two methods of collecting research: research that you collect yourself (primary), or research that you acquire from someone else (secondary). Primary research is often the best fit to your business because you designed it. However, it can be costly, and unless you have some experience, it could be conducted incorrectly.
Secondary research can be bought or borrowed from others. It might not be tailored to your exact business need, but it might be approximate enough to warrant its use over primary research. Quality secondary research is often less expensive and more reliable than primary research. The question is: does it fit your need?
This type of research is more exploratory in nature. It is usually conducted at the outset of a business problem. Before proceeding to purchasing inventory or designing a website, the business could conduct focus groups or interview a small sample of people. These results are not statically significant, but can help gain some general insight.
The DIY Focus Group
Caution: many people might not be tempted by a few dollars for their time. For this reason you might find lower income brackets for respondents. If your product or service is geared towards a higher income bracket, you may want to consider option 2.
The goal for any focus group is to discover the Needs, Attitudes, and Habits of your potential customer.
1) Focus Group: Be as anonymous as possible by using a moderator, someone that is not tied to you. This can help avoid any bias respondents might have. Try to gather a group of people you do not know, and from different backgrounds. The key is diversity. Offer a reward for their time. This could mean budgeting some considerable money, for example $50 per person and for ten people. Eight to twelve people is plenty for a focus group. Post ads at a variety of demographic cross sections like a local college, a church, and grocery store in a particular neighborhood.
2) Trade shows or Events: This method can be a great way to interact with a wide spectrum of people, however the drawback is that you will not get the in-depth discussion that you will with a focus group. Track details such as who showed the most interest in your product and make note of any trends. Make an effort to collect business cards, email addresses, and make Facebook friends, because you will want to follow up with these people and ask them a few more questions after the event.
A Real-life Example
I recently approached an idea with a friend of mine for novelty magnets. Our initial plan was to sell online and grow sales to eventually convince retailers like Urban Outfitters to give us an in-store channel. Before we made initial investments in inventory and costly online ad campaigns, we wanted an approximate answer as to interest in this product, and from whom it would come.
How we did it
We purchased a small amount of “prototype” inventory and built a small vendor display booth. The local beach in our home town offers cost free vendor space along its boardwalk on a first come, first serve basis. All it took was about four hours with the public to answer our question: who, if anybody, is going to be interested in our product?
We guessed completely wrong on everything. We initially guessed that teens to early twenties, both male and female would be interested in our novelty magnets. These age groups scored the lowest on interest. Not only were they shy to approach our stand, but they were not interested in learning more about our product. When asked what they were looking to buy that day on the boardwalk, the answer was overwhelmingly “jewelry” or “just hanging out”.
These responses align perfectly with what quantitative market research would suggest about the teen to early twenties market. Both male and female are on a tight budget. Females spend more on beauty products such as clothes, makeup and jewelry. Males spend the majority of their income on food and entertainment (Mintel Reports).
It turns out that middle-aged men, followed by middle aged women were our highest respondents. 100% of our sales for the day were made to middle age men – not that our objective was to even make sales, it was to collect data.
After four hours of spending time with a very diverse cross-section of the public, we determined the following:
- Our product is favored by middle aged men and women
- It is perceived as a gift or gag item
- It is an impulse buy and must be available in retail. Online purchase is unlikely.
Collecting this information completely changed our business model. Instead of trying to make online sales to teens, we found that our product would need to be offered in retail outlets where fun-loving middle-agers with disposable income shop.
These results can be considered statistically significant because they should involve a large number or respondents and only aim to answer a few questions. Always collect age and gender information. Use relaxed grammar and try to make the questions as simple as possible. Give the respondent choices like “Yes” and “No”. Consider options like “Once per week, twice per week, three or more times” instead of “sometimes” or “never”.
For more tips on writing a good survey, consider this article from Info Poll or check out the free resources at survey hosting sites like Survey Monkey and Zoomerang. Facebook and Wordpress also have basic survey tools once you’re ready to try a survey.
If you are attempting a survey on your own, a general understanding of statistics is necessary to truly understand the results.