Module 2: Market Research Contents: Section 1: (a) Why is Market Research Important?

Secondary Research

Section 2: Primary Research

Section 3: Market Research Summary

Section 4: Types of Market Research Questions

Section 5: Market Analysis

Section 6: Market Share

Section 7: The Marketing Research Review

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Section1: Why is Market Research Important?

Up until now we have looked at how you view your business, how you want it to work, and what you want to provide. However, unless you consider what your customer wants, your ideas and plans may not be enough to guarantee your business succeeds. Your business will only succeed if your customers have the need or desire to buy your product or service at a price they are prepared to pay. Market research enables you to move your perception of the market towards the reality of the marketplace. Market Research is essential for all businesses not just new ones. It is the way businesses establish if you can find and sell to enough customers to enable them to keep trading. The key to market research is learning to ask questions to help you build a picture of the type of customer you will have, who else is after your customer and what the customer wants. Start with three key questions is your answer yes, no or dont know? Customers: Will I be able to attract enough people quickly and will they pay enough to ensure I made a profit? Competitors: Will I be able to compete with those businesses already in the Market? Resources: Do I have the ability, equipment and the funds to meet the needs of my potential customers? If you answered dont know to at least one of these questions, you will need to find more information. If you answered yes to a question, how could you prove it? If you answered no to a question then you may need to re-think your business idea since you need to be confident that each of the three questions can be answered positively. From these initial questions, others will follow.

What do You need to Know?

Before launching a new product or service you need to be able to:

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Define your position in the market place. Define your product or service. Identify your potential customers, their needs and expectations. Determine the price your customers will be prepared to pay. Identify the level of quality and service your customers require. Describe how best to communicate your message to your prospective customers. Estimate your potential market share. Describe how and where you will promote your business.

Finding the Answers

Take a moment to thing about the things you do when you need to find the answer to something, it probably involves... Deciding on a question e.g. how many businesses similar to yours are in the area? Deciding what you will use to find the answer e.g. Telephone Directory Deciding on how you will work out the answer. Getting the answer Effective planning of your market research depends on this process. In order to find the information you want, you need to decide on the questions you need answered, what source is best to use and then what method you will use. By efficiently planning your market research you will avoid unnecessary work and gathering too much information. Types of research a) Secondary Research information already gathered by other people. b) Primary Research Information gathered by you

1a:

Secondary Research

Time spent at your local library and/or using the Internet will provide you with a great deal of information already gathered by other people. The DTI (Department of Trade and Industry), the population census, periodicals and trade reports will also give you useful information on national activity in your selected market. Even though you may be trading in a small geographic area, an appropriate Trade Association can provide you with crucial information into whether your market is growing or shrinking. (See Organisations later in this module for helpful websites).

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Study local newspapers and business magazines to discover which of your competitors advertises regularly and how. Magazines, newspapers and trade journals will also provide you with information on new developments, opportunities, and changes in technology, fashion trends or financial matters which could affect the way you plan to run your business. The quantity of information is enormous so it is best to keep your research in perspective. Decide the questions you need answered from your secondary research and write them down on a Research Action Plan. For example: Question How many people aged 2550 are there in your catchment area? What technological changes are there that I have to be aware of? Source Population census Method Library visit Answer

Trade Journals MINTEL Report

Library, Chamber of Commerce and magazines

Section 2: Primary Research

Published information cannot answer all your questions. Most small businesses are unique or specialised in some way and the only way to get useful answers to some of your questions will be to go to your potential customers or competitors and ask them! However, it should be noted that people do not always do what they say they will do. A survey that attracts the interest of 80% of those questioned does not means that 80% will buy from you. Equally, positive letters of intent to buy do not count as orders that you can depend on. You should take all responses with a pinch of salt and use them as a guide only on which to base your assumptions for forecasting. When planning your primary research, you need to consider: c) How to identify and select a representative group (your potential customers). d) What is the best way of conducting the survey with the selected group (for instance, by phone, e-mail or a personal visit)? e) The best way of choosing and phrasing the questions.

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f) How to analyse and interpret the results. There are four basic methods you can use to conduct primary research:

Personal Survey:
This takes the form of a market research questionnaire. It is important to think carefully about what information you are hoping to obtain before finalising your questionnaire. Keep your questions short and simple and try out your questionnaire on friends or colleagues before you carry out research on prospects. Some people leave questionnaires in premises that are visited by the target market. For example, a questionnaire to research a mini-motorbike racing venue would gain most benefit if delivered where motorcyclists congregate such as Motorcycle shops.

Telephone Survey:
This can be expensive; however, there are times when it is the only effective way to collect the information you need. Organise a checklist of questions you require answers to and use them as a guide for your conversation. It is especially useful when researching competitors and pretending to be their potential customer.

Postal/E-mail Survey:
This is possibly the least effective method for primary research, as people dislike completing and returning questionnaires even with a pre-paid envelope, It may be worthwhile considering an incentive to encourage completion.

Test Marketing:
This is a method of selling your product or services to your chosen market with the minimum financial risk. The level of success of this action should allow you to make important decisions about how to proceed with your planning. We will now look at some of the advantages and disadvantages of these techniques. In most situations, a mix of research techniques will be more effective than using one source alone.

Questionn aire Technique s

Personal Survey

Advantages

Disadvantages

(b) Greater flexibility and control opportunity to clarify misunderstanding (c) Can ask supplementary questions

(g) Time consuming (h) You need a lot of self-confidence (i) Respondents have little time to think

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(d) High response rate (e) You can watch body language as well as listen to verbal responses (f) You can do your survey where you want to place business Telephone More flexibility and often a higher response rate than post Reach people who wont give personal interview Fast

(j) They may say what they think you want to hear

Interviews must be fairly short Respondents have little time to think May give inaccurate responses Possible low response rate No flexibility to clarify answers Limited information obtained

Postal/E-mail

Cheap (email) Respondents have time to think Objective there is no interview interface Useful when the respondent is difficult to contact Captive audience Greater flexibility and control opportunity to clarify misunderstanding Can ask supplementary questions High response rate Can watch body language as well as verbal response

Test Marketing

Time consuming Can be expensive Respondents have little time to think

Section 3:

Market Research Summary Primary Research Sources Secondary Research Sources

Information Required On
Your Product or Service Does it need development?

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 Do the customers like it? Is there a demand for it? Your potential customers Are they commercial and/or domestic? How old are they? How much spending power do they have? What do they want from my product/service? Where are they located? How much would they be likely to spend? How will I let them know about my product or service? How will they buy from me? (mail order, shop) How will they pay? Are there enough of them? Is this situation likely to change?

Asking potential customers via personal, telephone or postal survey. Reference Books Questionnaires Trade Journals Test Marketing Test Advertising Asking friends or relatives Research done by other small businesses Latest census for your area Libraries Chambers of Commerce Trade Associations Business Clubs Environmental Health Departments Trading Standards Council

Section 4: Types of Market Research Questions

Before you use your questionnaire, it is important to test that the questions are easily understood and that the responses are going to give you the information you need. Closed Questions: Where the only answers are yes/no/dont know. For example: Have you had a holiday in the last year? It is possible to anticipate the answer and results can be easily summarised. Open Questions: Where the respondent is given the chance to answer freely. For example: What is your opinion about the service you received from your supplier? This produces more realistic information, but it is harder to interpret.

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Multiple-Choice: Where a series of set answers is given, and the respondent chooses one. They are easy to summarise, but it is hard to design these questions without missing out other alternatives. For example, If you had a choice of restaurants, which would be your first choice? (Indian, Chinese, Mexican or another type?) Direct Questions: Relating to the respondents own behaviour. For example: Which TV channel do you watch most? Indirect Questions: By asking questions about other people, the respondents own attitudes are revealed. For example: Where do you think the average [arent would prefer to buy disposable nappies? (A chemist, a supermarket, delivery service or other method?) Indirect questions should be used in cases where people might mislead the researcher about their own behaviour; for example, they may say that The Sun is the most popular newspaper but might not admit to reading it themselves.

4a:

Setting Market Research Questions

Ask your questions in a logical order. The first question you ask should tell you whether it is appropriate to continue with the respondent. For example, if the target group is coffee drinkers, Do you drink coffee? could be asked first. Put the easy and interesting questions at the beginning of your questionnaire. Confidential, personal and complex questions should be listed at the end. Make the working of questions as simple as possible, and clearly define all regional and technical terms. Questions should be precise, related to time, place, type, etc. Avoid double-barrelled questions like What do you think about the colour and design of this product? These can be confusing to answer and difficult to analyse. Avoid leading questions which imply an answer for example most people choose Brand X for its quality, why do you buy it? or biased questions for example, would you buy this record it a percentage of the price went to charity? Be careful how you phrase questions relating to age, income or status. For example, instead of Can you afford a holiday? ask your respondent Will you be going on holiday this year? Avoid asking questions beyond the respondents span of memory, for example, What TV programmes were you watching this time last year? Rather, ask the respondent a question that they can answer with confidence.

Section 5:

Market Analysis

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In this section of the business plan you need to set out systematically, the main results of your market research. The purpose of market analysis is to draw together the information you have gathered to demonstrate the market need for your proposed venture. Your outline may consist of a number of key points 9e.g. the characteristics of the customer and the current market trends) that indicate a viable business opportunity or a gap in the market. There are a few things to consider when analysing your research:

Market Led or Product Led

Market Led Filling a gap created because potential customers cannot get the product or service elsewhere or at least not enough of it, or not in the exact style that they want. Product Led Is your business doing something you are good at and enjoy doing? Other people offer the same or similar product of service and you will have to take customers from existing business and find new ones? Traditionally, UK businesses have been product led i.e. they made/do something and send people out to sell it. Success is more likely of your business is market led, as the demand already exists for the product or service. This does not mean product led businesses will fail but you will have to spend much more on marketing and promotion to get your share of the customers.

TASK 7: Go to the Workbook and complete that Market Research

Action Plan and the Market Analysis. Product/Service Benefits Customers dont buy just for the sake of it! Products and services allow them to do the things they want to do. In short, what does your product or service provide? This is not the same question as What does your product/service do? For example, the features of a certain kind of car can be interpreted as benefits to the user:

Features
5 speed gear box Hatchback

Benefits Which means that

Improved fuel economy when cruising Easy access to luggage space

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Split fold down back seat Heated window

the customer gets?

Flexible passenger and luggage space according to load Easy to keep window clear in bad weather and assist with safe driving vision

Your market research should have shown you what benefits are most important to the customer. This gives you an indication of what you should highlight in your marketing. This will also highlight your unique selling point or USP. What your potential customers have told you are most important to them may not be the same as you think is important to them.

TASK 8: Go to the Workbook and complete the Features and Benefits

Table. Competition A unique business idea may mean that you have little or no competition, but demand may be uncertain. A number of competitors show that there is a market for your product or service but makes you ask the question How can I compete? If there is no competition it is worth asking why not? It could be that there is no market! It could also be that no one has thought of selling what you want to in a way that you want to. It is essential to the success of your business that you now as much as possible about your competitors. You have to be better have a better product, offer a better delivery time, give better value and supply a better range the list goes on and on, Knowledge is the key to success, not luck. Spend time finding out all you can about your competitors and complete the next task. Try to think outside of the box when thinking about who your competitors are. One of the biggest competitors to Indian restaurants are the supermarkets.

TASK 9: Complete the competitor analysis in the Workbook PEST Analysis

There are forces, inherent within the environment, which are likely to affect every business. Political force refers to current and possible future pressures brought about by local, national or international political influences. An example, being new legislation to limit fat,salt and sugar from processed food.

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Economic issues can be closely linked to political issues and can also vary within countries as well as internationally. A change in interest rates or public spending could cause an impact for the business. Social forces can be one of the most difficult to assess but are often the most influential since most of the market drivers that determine what products and services people want to buy, and why, fall into this category. Technological development trends are not only relevant to directly related industries. A common example could be the government expecting every business to self assess its tax liabilities online.

Section 6: Market Share

Sometimes you may need to make assumptions on your market characteristics such as the total potential revenue. This is usual when you cannot find the information you are looking for. For example, there may be many aroma therapists in your area, but since they have their own customer base and sometimes work from home it would be difficult to find out who all of them are. In making the calculation on the total market share you would be likely to have as an aroma therapist, you could make the following assumptions... Total target population Number of competitors and you 99 + 1 Potential customer base Each paying 10, once a month Potential annual turnover = = Therefore 20,000 100 20,000 100 200 200 x 10 x 12 24,000

Therefore

The question to ask now is Could I find and cope with 200 clients every month? But thats a business operational problem!

Section 7:

The Marketing Research Review

Now you need to pull together all of the information that your research has provided and develop a plan. Try to put as much information down as possible and if you genuinely dont know the answer, perhaps you should consider finding out. Your Market Research will affect the success of your business, whether you are a builder, a dressmaker or a caterer. The more thought and planning you do now, the more successful your business will be.

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