Market Research: The action or activity of gathering information about consumers’ needs and preferences. (Google Dictionary)
Entrepreneurs often perform “market research” by simply searching for similar products or services through online search engines. Look at a few competitors, find out what their pricing is, find out where they are selling their products and services, and look up a few customer reviews.
Voila, you’re done.
You know your products and services are better than anything on the market, so you can safely ignore any evidence to the contrary. We see this all the time. Even clients who have been in business for decades sometimes have wildly optimistic ideas about their competitors and market trends. It’s just human nature to downplay the competition and avoid potentially uncomfortable truths. The problem is that by the time you finally understand how tough the competition really is, it is too late. The competition isn’t just eating your lunch, they’ve taken over your living room and are eating out of your refrigerator.
Another common mistake is to rely too heavily on one or two sources for information. At Ground Floor Partners we look at as many sources as possible and also try to identify why information may differ among them. This can provide insight into how an industry is defined by different sources and where gaps and potential opportunities may exist. For example, a blogger may write about an 80% increase in product use but upon further research you find that the 80% increase is among that blogger’s readers, not the country as whole.
Government statistics are often the most reliable and the US government monitors most industries. Looking at labor trends as well as value and volume sales can provide excellent insights at both the national and local levels.
There are dozens of websites with government statistics. Two of the most useful are
Below are some of the areas we look at when we perform market research at Ground Floor Partners.
Fully understanding your end customer is critical when performing market research, but it isn’t the only factor.
To fully understand your end customer, several things must be considered beyond age, education and income. To understand their “needs and preferences” you have to dig deeper. Here are a few examples:
- Age, education, income—beyond defining these three, you need to understand the “why”. Why this age, why this education, why this income?
- Online habits—What blogs do they read? Which influencers do they follow? What are their social media preferences? What news sources do they turn to? What are their television or movie preferences?
- Offline habits—hobbies, family, sports, entertainment
- Social trends, and how your target customers react to them
- Political trends and how your target customers react to them
- Fashion trends and how your target customers react to them
- Health trends and how your target customers react to them
- Demographic trends
When researching your competition, be sure to include every possibility. For example, if you planned on opening a “better for you” frozen yogurt in your home town, your competition would include:
- Ice cream shops (direct competitor)
- Frozen yogurt shops (direct competitor)
- Restaurants with take away options including desserts/confections (secondary competitor)
- Grocery stores (secondary competitor)
- Convenience stores (secondary competitor)
- Health Food/Natural Retailers (secondary competitor)
Just looking at direct competitors does not give a full picture of your true competition. The following is a more exhaustive list of topics to consider for this segment of your research:
- Who are your direct competitors and secondary competitors?
- Who are their core customers?
- How do they reach their customers?
- Where do they advertise?
- How do they market their products and services?
- What is their unique selling position?
- How have they branded themselves?
- What other industries impact yours in terms of trends? (a good example of this is skin care, which is often affected by food trends)
- What could be an industry disruptor?
- International trends—even if you do not expect to do international business, global trends affect almost every industry
Understanding your supply chain is also crucial, from labor to marketing materials and everything in between. Regardless of whether you are providing a product or service, you are only as good as your suppliers. Thorough current understanding and future projections are necessary to ensure you are on solid ground.
For example, suppose you found the perfect bottle for your one-of-a-kind hot sauce. Is it so unique that it will be discontinued after a year? What would an alternative be?
- Who (and where) will you get your inputs from?
- Where do your competitors get their inputs from?
- Are there any scarcity issues now, or potentially in the future? If so, how will you manage them?
- Is there a large enough labor supply to meet your production/distribution needs?
A good rule of thumb is to always have three potential suppliers for every input.
How big is the market? This may seem like an easy question to answer, but it is important to take many factors into consideration:
- Volume—How many units of products/services were sold in your industry/sector/subsector in the last five years, broken down by year? (Sectors and subsectors are smaller segments of an industry. For example, if you are selling frozen yogurt that is a subsector of the frozen deserts sector, which is a larger segment of the frozen food industry.)
- Value—What was the total dollar amount sold in your industry/sector/subsector in the last five years, broken down by year?
- Potential market—How many target customers will potentially buy your products? If you define your target customer as female, 25-50, college educated, income over $70,000—How many people in your demographic selling area fit this definition?
- Market trends—using the value and volume figures and the potential market size, you can figure out if your products/services are likely to see increasing or decreasing demand. Many companies believe their product is unique and that uniqueness overshadows traditional market trends. While that is true in some cases, understanding the data can help give you a more realistic idea of your potential.
- Niche market—many new products or services do not fit neatly into a specific industry definition. Some ingenuity may be necessary to calculate market size, potential and trends.
The economy will always ebb and flow. How have these ups and downs impacted your industry historically? Where are we now in the economic cycle? How would an economic downturn affect your target customer? Would a natural disaster impact your industry/company? Having a basic understanding of economic trends and extrapolating to your industry can help you prepare for both good and bad times.
If you think you will be in business for five years or more, it is a safe bet that economic conditions will change. How that will affect your business is a crucial question, regardless of what stage your business is at.
Market research is more than just understanding your specific industry in today’s condition. Once you have a thorough understanding of your core customer, competitors, suppliers, market size and economic impacts, you have a solid foundation to build on.