By Jonathan T. Scott

(All rights reserved. The following material is copyrighted.)

Ever on the lookout for new business opportunities, the owner of a small gift shop in the United States noticed that most stores in his area did not sell affordable tableware. Two local retailers sold high-priced items, but neither sold anything designed for everyday use. After mulling this fact over the shop owner decided to offer low-cost tableware to his customers. Subsequently, he invested tens of thousands of dollars in a new product line. Unfortunately, it took over a year to discover that there was no demand for it.
Regrettably, a straightforward investigation into local demographics would have revealed that there were a high number of retirees in the area (who did not need new tableware), marriage licenses were on the decrease, income levels had been dropping, and there were fewer families with children. If that wasn’t enough, the shop owner’s high-priced competitors boasted installment plans, credit purchases, and other incentives he could not afford to offer. The tragedy in all this is that he could have obtained this information beforehand and saved himself a lot of time and money. Instead, he relied on a hunch and a misplaced notion of local buying habits (Halloran, 1992).

Defining Market Research
The word market is often defined as a collection of buyers (or potential buyers) of a particular product or service. The purpose of market research, therefore, is to gather information about a product and its demand because knowing this information is a good indicator of how potentially lucrative a product might be. As the owner of X-Pak S.A., in Verviers, Belgium says, there is no end of finding new ways to make life easier, to innovate existing products, to improve a service, or to sell something. The challenge is to determine if a product idea has good profit potential and if its demand will sustain a steady income. A thorough investigation into these areas allows an entrepreneur to:

1. learn more about his or her product idea including its costs
2. discover how the product should be sold (and how much of it people might buy)
3. determine the optimal location where the product should be sold
4. find the best price at which to sell the product.
5. learn to speak more intelligently about the product
6. connect with the paying public
7. gather information about the size and abilities of the competition
8. collect data on the demographic make-up of a potential customer base
9. discover ways to modify the product or service to maximize its potential
10. determine if it’s time to let go of an unsuitable product or idea and find another one

The Main Objectives of Market Research
The main purpose of market research is to examine the potential profitability of a market. For example, if someone plans to make a living selling ice cream, he or she first needs to know:

1. how much it costs to sell ice cream (including equipment, raw materials, licenses, etc)
2. how many scoops of ice cream will have to be sold per week to cover costs
3. if the ice cream market is sustainable (i.e.: if customers will buy the product year after year)

The goal of market research is therefore to (a) identify who is going to buy the product, (b) determine how many are going to buy it and, (c) come up with a good estimation of how long demand for the product will last. Don’t be tempted to take shortcuts when obtaining this information. The more research that is done, the less uncertainty you’ll face. Just as important, it is mandatory that you commit everything to writing when conducting market research. The honing of goals, your seriousness as a businessperson, as well as solutions to obtaining what you need, will emerge through the process of defining, writing, and clarifying research.

Tools for Conducting Marketing Research
Undertaking market research is a four-stage procedure. In the first stage, a question or opportunity is defined in regards to the business or product the entrepreneur wishes to introduce (for example, can the local market support a new ice cream parlor?). In the second stage, decisions are made as to the tools needed to investigate the question or opportunity (i.e.: surveys, demographic studies, income analysis, etc.). The actual collection of information occurs in the third stage. The fourth stage analyzes the information that has been gathered.
Two types of data collection fulfill the second stage. Primary Data consists of obtaining information firsthand, at its source, for a specific purpose. Methods include questionnaires, personal interviews, interviews with groups of people (focus groups), and mail and telephone surveys. Secondary Data is information that has already been collected – usually for another purpose. Examples include previously conducted surveys, college and university studies, magazine reports, books, government data, the Internet, and so on. In the USA, secondary information can be found in libraries, Small Business Administration (SBA) offices, the Service Corps of Retired Executives (SCORE), local Small Business Development Centers (SBDC), a local Chamber of Commerce, or even a community bank.

Sources of Primary Data Collection
Primary data requires courage and time to collect. Questions need to be thought up and written down, the right people need to be approached, and answers must be analyzed in an unbiased manner. Don’t be afraid to ask for help. Knowledgeable people can greatly add to the research process. Examples of primary data collection include:

1. Observing the Behavior of People.

1. Posing as a customer to see what a competitor is doing
2. Counting the number of customers that walk into a business or stop in front of a display
3. Showing preliminary ads or samples to customers in order to gauge their reaction
4. Investigating vehicular traffic flow patterns and/or the location of competitors

2. Telephone Interviewing
Phoning potential interviewees is a fast, efficient way to speak to large numbers of people. Numbers obtained from regional phone books can provide a rich source of contacts because people of similar income brackets usually cluster in the same area. The drawback to phone interviews is that many people use answering machines to screen their calls and/or are offended by unsolicited phone calls (especially during mealtimes).

3. Group Interviews (Focus Groups)
Bringing a number of people together (or visiting a group that already meets) can be a convenient way to gather opinions, explore issues, and further probe for information. A good focus group can act like a brainstorming session in that the input of different people working together usually produces more than what one individual can provide on his or her own. Drawbacks include the fact that preexisting groups may not paint an accurate picture of the community as a whole. Groups can also be harder to control than a one-on-one interview and may expect something in return for their time.

4. Questionnaires
A questionnaire is a written set of questions designed to obtain and focus a targeted participant’s response (which is harder to do than it sounds). Questionnaires can contain open-ended questions (in which the respondent provides a short answer) or closed-ended questions (in which the answers are already written and the respondent chooses the most appropriate response). Each has its advantages and disadvantages. Close-ended questions can be answered easily and quickly, but because the answers are limited they do not allow for unforeseen options. Open-ended questions can reveal more than closed-ended questions, but can turn people off if they are too personal or require long answers. Whether open or closed, all questions should be simple, clear, concise, and purpose-driven. Learn how to construct a great questionnaire as you go through the process. If your questions don’t produce meaningful responses, play around with them until they do.
Questionnaires should avoid: (1) biased wording, (2) words, terms, or phrases unfamiliar to the general public, (3) poorly phrased questions, (4) difficult, uninteresting, or personal questions, and (5) too many questions. Take a look at the following examples developed to explore the potential market for a new restaurant – as well as the corrective comments below each:

1. Do you enjoy eating out? Yes ( ) No ( )
   Why ask this question? Unless you’re speaking to shut-ins, the answer is obvious.
2. What is the most conspicuous and elemental factor in your choice of an eating establishment?
   Huh?
3. Would you be interested in a new restaurant if it opened in this area?
   This is a biased question. Most people would probably say yes, but that doesn’t prove anything.
4. How much money do you make in a year?
   Whoa! Too personal!

Following are some better questions to ask:

1. On average, how many times a month do you eat out?
2. What features, foods, or services in restaurant make you want to return?
3. Which restaurants do you hear good things about and/or like to frequent? Why?
4. Do you believe that there are too many restaurants in this area?
5. Where is the most convenient location for a new restaurant to open?
6. On average, how much money do you feel is a reasonable amount to spend when eating out?

Some experts think that questionnaires are overused, nevertheless, their versatility makes them popular and easily administered in the following ways:
One-on-One Interviews allow for a longer time to be spent with an interviewee and offer the ability to both demonstrate a product and gauge a reaction. Most trained individuals can administer a questionnaire so a group of trained people can therefore spread out over a wide area. Additionally, interviewers can interact directly with interviewees, making the answering of questions difficult to ignore. The downside is that one-on-one interviews are usually time consuming.
While the human element is lost with Mailed Questionnaires, a mass mail-out can contain descriptive photos and be relatively inexpensive to print and send. Unfortunately, the return rate for mail-outs is notoriously low (sometimes below one percent) unless some type of incentive is used (i.e.: money or a gift is offered or the completed questionnaire becomes part of a prize drawing).
E-mailed Questionnaires are cost-efficient and easy (and can include photos), but a list of addresses is needed beforehand. Moreover, most people hate unsolicited e-mail and have adopted protective measures to prevent receiving them. There is also the possibility of multiple returns from a single source, which will skew any results.
Lastly, a Website Questionnaire has all the advantages of e-mail, but the target audience must be Internet savvy and first be aware that the website exists. Equally, having participants answer questions on a website offers no control over who responds. Anyone from Alaska to Zaire may submit an opinion – or a hundred opinions – thereby skewing the results.

Application: Putting It All Together
Following is a list of steps and questions designed to aid you with your business research:

Step #1. Define what you or your business has and what you wish to do.
This includes identifying current resources as well as short-term goals and long-term goals. Once again, commit everything to writing. The honing of goals, as well as solutions to obtaining what a business needs, will emerge through the process of defining, writing, and clarifying.

Step #2. Evaluate your idea (or product) and the industry to which it belongs.
Gather as many opinions as possible. Understanding how customers interpret an idea, product, or business is more significant than the entrepreneur’s (or business’s) interpretation. Among the many questions to ask when conducting research are:

1. What is the history of the industry (in general and locally)? Is it on the rise? Is it declining? Why?
2. What are the benefits of my product or service?
3. Who uses the product?
4. What are the product’s uses?
5. Is there a real need for my product? How long will that need last?
6. Can our idea be measured against an existing product? How?
7. Can the idea be adapted for other more profitable uses? How?
8. Do I have the ability to provide what is wanted, when it’s wanted, and how it’s wanted?
9. Does the product require a previously unforeseen special license, insurance requirement, distribution system or other expense?

Step#3. Know your customers

1. Exactly who will use the product? (Be specific. No product can be sold to everyone. A good customer profile takes into consideration: sex, age, ethnicity, religion, income level, education level, stage-of-life [singles, students, parents, retirees], etc. In the USA, visit www.census.gov for nationwide details of this information).
2. Where are the most ideal customers located?
3. Why will customers use the product?
4. How will they use it?
5. What benefits will they derive from it?
6. How much will they use? Can it be sold in the right amounts?
7. Can prospective customers afford the product – and afford to keep using it?

Step #4. Demographics.

1. Is the population of the targeted customer base on the rise or is it decreasing?
2. What is the current (and projected) economic situation of the area?
3. What are the local purchasing trends?

Step #5. Research the competition.

1. Is there a business that currently provides a similar product?
2. Can another business produce the product cheaper or better?
3. Will local stores carry the product?

Step #6 (For existing businesses)

1. What do our customers think of our current business, products, and service?
2. Are our marketing programs working?
3. How many customers do we know on a first name basis? Have we asked their opinion?
4. Are we using credit records to build customer profiles and data bases? Do we use this information to determine what our current customers might want to buy in the future?
5. Do we offer incentives for return visits?

Step #7 Analyze your research

1. Do the demographics support a sustainable market?
2. Does the information gathered from steps 1-5 fit into the demand needed to sustain my idea?
3. Do any changes need to be made to my idea or product?
4. Will providing/producing the product require more capital (or time) than was originally thought?

Making Adjustments
Don’t be put off if your research doesn’t reveal what you want it to. Almost every business idea or situation needs a bit of tweaking or requires an outright alternative somewhere along the way. In other words, says the owner of Arpi Holding in Oslo, Norway, don’t be put off by negative results. For example, if more money is needed than was originally envisioned perhaps the product idea can be sold to an existing company. Or maybe the business will have to start small and stay small for a longer period of time then previously envisioned (there is nothing wrong with that). Perhaps suitable work space can be rented or leased instead of purchased – or maybe working from home is more expedient (if licensing laws permit it). If your research shows that people don’t want to go out and buy your product, might they consider having it delivered instead? For example, if a restaurant is anticipated, but no one seems interested, would customers take to a specialized food service in its place? The point here is to investigate all the alternatives. Stay open-minded and be honest. Determining whether an idea should be doggedly pursued, modified, or abandoned, is one of the most difficult decisions an entrepreneur has to make.

For Existing Businesses: Conducting Internal Research
Assessing a business’s internal environment should be done on a regular basis and requires honesty, openness, and criticism. Don’t rely solely on the judgement of one person. Whether a business is in the design stages or has been up and running for years, regular internal research evaluations should address the following subjects:

1. Skills. How well can (or will) the business and its people do what is supposed to be done?
2. Systems. How efficiently does the business serve its customers?
3. Structure. Does the set-up of the business promote peak performance?
4. Values. What are the priorities of the business?
5. What are the strengths and weaknesses of the person or people behind the business?
6. What are (or will be) the overhead costs (below)?

SWOT Analysis
Much of the information resulting from external and internal research can be graphically represented by what is known as a SWOT analysis (SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats). The point of a SWOT analysis is to graphically depict internal and external environments. A clear picture of the opportunities and challenges faced by a business makes it easier to identify areas that need to be addressed. Following is a quick example of how the start-up of an ice cream parlor can be portrayed by a SWOT analysis (strengths and weaknesses refer to internal factors, while opportunities and threats correlate to outside environmental influences).

STRENGTHS
Owner has experience in food service
Owner has many connections in the industry
Owner willing to take an educated risk
Owner willing to work long hours

WEAKNESSES
Owner has never run a business
Owner unsure of tax and accounting practices
Help from family is not forthcoming
Must buy (not lease or rent) all equipment

OPPORTUNITIES
Local areas has lots of tourists
No portable ice cream vans (deliveries) in vicinity
potential market for catering to parties/functions

THREATS
A nearby restaurant offers ice cream service
Local government frowns on small businesses
The ice cream market is highly seasonal

The more honest and thorough an entrepreneur is with his or her SWOT assessment, the better the chances are of realizing all a business’s challenges and tackling them head on. Most businesses or entrepreneurs wishing to introduce a new product would most likely have many more internal factors to examine than those shown here.

Advice from Successful Practitioners on this Subject

1. Develop a clear, written vision of what type of service or product you want to sell before conducting your business research. Scottish entrepreneur Michelle Mone, creator of the Ultimo lingerie line (and founder of MJM International), spent three and a half years researching the design and tailoring of brassieres before hitting upon a style and shape that satisfied her intended customers. She is now a leader in her field and has the sales and financial resources to prove it.
2. Know your true intentions and why you want to start a business – good research questions will flow from that.
3. Learn to describe your business (or product) and its benefits in less than thirty seconds. Doing so will enable you to converse with people without boring them and provide more time for them to speak to you.
4. Conduct as much of your own research as possible. This does not mean that you should not ask for help. It means that the you must be deeply involved in all aspects of the research process.
5. Carry out a pilot study before undertaking a major research project. A pilot study tests research questions and methods against a dozen or so people to determine if the questions being asked have been well conceived and are pertinent.
6. Don’t ignore your competitors. When conducting research, find out what potential customers think about the competition.
7. Investigate the costs of producing your product as you explore its market. Costs must always be weighed against profit potential before a business venture can be deemed viable.
8. Don’t forget to factor in your insurance needs and costs when doing your research.
9. For existing businesses: don’t remain focused on the internal happenings of your little kingdom. Stay on top of demographic changes, consumer needs, competitor tactics, changes in technology, and so on with regular research.
10. Learn to handle negativity and/or what you don’t expect. The point of research is to locate problems and openly discuss them – not shy away from them or deny they exist.
11. Be open to advice and feedback. Listen and act upon what others say.

Sources
Blankenship, Albert & Breen, George & Dutka, Alan, State of the Art Marketing, NTC Books, Chicago, 1998.

The Economist, Poland (a 15 page special report), pp. 5-20, Oct. 27th – Nov. 2nd 2001.

Hague, Paul & Jackson, Peter, Market Research: A Guide to Planning Methodology and Evaluation, Kogan Page, London, 2002.

Halloran, James W., The Entrepreneur’s Guide to Starting a Successful Business, McGraw Hill, New York, 1992.

‘How to Conduct Market Research’, www.ehow.com, 2005.

‘Marketing Research’, The United States Small Business Administration, www.sba.gov, 2005.

McQuarrie, Edward, F., The Market Research Toolbox: A Concise Guide for Beginners, Sage Publications Ltd., London, 2006.

Peters, Tom & Waterman, R.H., In Search of Excellence: Lessons from America’s Best Run Companies, Harper & Row, New York, 1983.

‘Questionnaire Design: General Considerations’, www.statpac.com, 2006.

(Note: The material in this document was collected from an original research project due out, in book form, in 2008.)