Businesses don’t operate in a vacuum. There are a number of factors, some under our control and some that aren’t, that interact to determine how we fare in the open market. Conducting market research gives you insight into these factors, which can give you direction when it comes to making educated decisions related to growth and development.
Many businesses rely solely on analytics to determine how they are doing and how to move forward. Analytics are crucial to understanding how your business is performing and how to make moves to encourage growth, however, they provide an incomplete picture. Analytics provide the “what” and market research provides the “why.”
So, what kinds of insights that we can gather from conducting market research? What we are aiming to do is understand our ideal customer, market, competition and competitive ranking. These are the 4 pillars. Let’s take a look at each one of these, and it’s important to realize that the lines between them are blurred and there is a lot of interaction between the factors that can affect your business. Nothing ever fits neatly into clean boxes, and that is one reason market research is essential. Having a grasp on the different forces of the market and how they interact will give you a solid foundation to make good marketing and executive decisions.
Your Ideal Customer
Truly understanding your ideal customer is vitally important and gets overlooked far too often. Businesses frequently believe that they know their customers better than they actually do and fail to put effort into learning more about them. By failing to do so, they are missing out on opportunities and leaving money on the table.
There are 3 major things that we want to know about our ideal customers:
- Who are they?
- What kind of problem are they trying to solve/ what goal are they trying to achieve when they seek out our (or a similar) product or service?
- How do they interact with our (or a similar) product or service?
Getting the answers to these questions can come in a number of ways. A few common examples are surveys, questionnaires, focus groups, interviews, and observation. Using some sort of incentive, like giving 10% off of their next purchase, is a good way to get people to participate in your research. When asking questions keep in mind that they should be short and to the point.
One of the most powerful tools we have to study our ideal customers is the internet. Not only to send surveys and questionnaires, but also to observe. People will often tell you all about themselves with their online presence. Check out their social media profiles, posts, and comments. Pay special attention to the way they use language, this is a great way to help you write copy text for your advertisements. Go to forums, product reviews, subreddits, Facebook groups etc. where your ideal customers might hang out and see what they are talking about. This can give you insight into problems they face, gaps in the market, how they feel about your product or service or how they feel about your competitors. Try to get a sense of who they are, what they like, what they do for entertainment, where they hang out, etc.
If your business is already established, then you can use the Pareto principle, also known as the 80/20 rule. Take the top 20% of your clients and use them as a model of your ideal customers.
Getting to know your customers on a deeper level will benefit both you and your customers. You can tailor your products or services to fit them perfectly and create more effective marketing campaigns that really connect to your ideal customers. Having a good understanding of them as people will put your business in a position to build trust with your ideal customers. Customers that trust you are more likely to be repeat customers that you can build a solid relationship with.
Your Market
Understanding the market you are in or intend to enter is crucial for making effective business decisions. Here are a few things you want to figure out about your market:
- Market size – How big is the market? Depending on what you’re selling and the nature of your business, this might look like the number of individuals in the market or the number of potential transactions each year. For example, if you sell homes, then what you want to find is the total number of homes sold per year in your market.
- Market value – How much total value does this market have to offer? This is not to be confused with market value of an individual product, but is the market size stated in terms of total exchange of money in the market as a whole. For example, there were 294 million smart phone users in the United States in 2020, and there was a total of $79 billion in smart phone sales in 2020. So, the smart phone market in the United States in 2020 has a value of $79 billion.
- Demand – This is the consumer’s desire to purchase a product or service. Is your product or service something that people actually want and are willing to pay for?
- Market saturation – How many products or services are being provided. Determine if there is demand that is not being met by supply, or if the market is fully saturated and you will need to take market share from your competitors.
- Pricing – What is the going rate for similar products or services? Supply and demand will often work out pricing fairly naturally. If there is more demand than supply, prices will be higher. If there is more supply than demand, prices will be lower. Check to see what your competitors are charging.
- Other economic indicators – This is a broad category, but are there any external economic indicators that will affect your business? The obvious one that comes to mind is how COVID has had a huge impact on many industries. Some have been completely devastated, like hospitality, and others have profited from the global changes. Another example might be technological advancements. For example, pagers were a booming business for a short time, becoming mostly obsolete (though they are still used in certain situations) with the rise of cell phones.
Your Competition
In Sun Tzu’s The Art of War he discusses the importance of knowing your enemy. He states “If you know the enemy and know yourself, you need not fear the result of a hundred battles.” I wouldn’t consider your competitors to be your enemies exactly, but this wisdom can be applied to your business to give you a competitive advantage. Knowing about your competitors, their products and services, how they interact with customers, what they are up to, and how they are seen by your ideal customers can give you direction in how to run your own business. Learn from their mistakes as well as their accomplishments.
Check out their website, their reviews, social media, etc. Go to forums and see what people are saying about them. Knowing your competition will give you an idea of how you stack up. This can also clue you in on any gaps in the market.
Your Competitive Ranking
Understanding where you fit in your market is really important. Be realistic about this, it does you no good to sugar coat it. A good way to determine this is to use Porter’s 5 Forces. Determine the following:
1. Competitive Rivalry
How many competitors are there in the market and how strong of players are they? This is very similar to market saturation, but focuses on your competitors instead of how many products or services are being provided. If there is a lot of competition, then you will need some sort of way to separate yourself from them. This might come in the form of aggressive pricing, niche expertise, or highly effective marketing.
2. Supplier Power
How many potential suppliers do you have? If your options are limited, then it will be easier for your suppliers to raise prices, which will increase your overhead costs. If there are lots of options, then your supplier holds less power over you and your business.
3. Buyer Power
How many customers do you have? Are you at the mercy of a few buyers? If you only have a few customers, then they hold power over you. In order to keep them you may be forced to lower your prices or offer an excess of customer service, which consequently lowers your profit. The more buyers there are in your market, the less power they hold over you.
4. Threat of Substitution
Are there ways that an outside product, service or process can eliminate the need for what you sell or do? An example of this might be a gym that loses customers to a company that sells in home exercise equipment. Although what is being offered is different, they both end up serving the same purpose for the customer.
5. Threat of New Entry
How difficult is it for competitors to enter your market? Is there some kind of specialized knowledge, equipment, certifications, or licenses needed to do what you do and how easy are these things to get? The easier it is for competitors to enter your market, then the harder it will be for you to gain and maintain strong positioning in the market.
Make Your Assessments and Determine Your Course of Action
All of this information will give you a good idea of where you’re at and where you need to go. Using what you’ve learned about your ideal customer, market, competition and competitive ranking to determine your realistic market share, your strengths and weaknesses, and your window of opportunity to enter the market. Develop a strategy to grow and develop your business. Set measurable short, mid and long-term goals and implement a plan of action to reach them. And remember that market research is not a one and done kind of deal, the market is everchanging and you will need to stay on top of all these factors to maintain good positioning in it.
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