Intuit QuickBooks Small Business Index, December 2024
STARTING YOUR OWN BUSINESS
How to do market research for a small business
Market research is the essential first step to launching a successful company, service, or product, providing useful insights into the way you should market a company, the types of customers you can access, and the successes and failures of your competitors.
You may have a brilliant idea for a new product or service - maybe you have discovered a gap in the market, a new niche, or simply found a way of providing services cheaper than your competitors.
It can be tempting to move ahead with creating your product or developing a website to market yourself, but before engaging in these steps you should first look into effective market research practices to ensure you understand how you fit into your chosen market.
In this informative blog from QuickBooks, we discuss best practices; where to start your journey, and the types of market research that are best suited to your business.
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Table of contents
What is market research?
Market research is the process of examining the successes and practices in a given market, such as consumer behaviours, market trends, the use of branding, and more. Through an effective market research process you can gain valuable insights into the way your chosen market works and the successful strategies that help convert people into customers.
The types of research you conduct may differ depending on your industry, but the end goal will always be the same: to provide a baseline analysis of your customers and competitors in order to inform your future marketing strategies.
Market research can also be defined by using the following methods:
Researching your target audience to determine how they discover new products.
Discovering what informational sources and competitors your customers trust to learn about products.
Exploring industry trends over a long period of time.
Finding the biggest competition in the market and what challenges they face.
Discovering the defining characteristics of a product or company that converts people into customers.
Establishing if there is a demand for your product or service.
Figuring out pricing information, and how low/high price points affect purchases.
Creating focus groups to directly interact with consumers and discover their spending habits, their opinions on competitor products and brands, and their attitudes toward pricing.
There may also be some industry-specific research you will need to conduct, but the above points generally form the basis of any thorough market research process.
Why is market research important?
Gaining an in-depth understanding of your market puts you in a strong position to launch a new product or service whilst reducing your risk of facing unexpected challenges.
Preparation is key in any new business strategy, and market research is the first step in preparing yourself for future successes. In fact, if you have an idea for a new product or service, then you have likely conducted some form of market research already without knowing it.
Take for example an idea for a new product. Most people think of an idea for a new product when they discover a need that is yet to be filled by the existing market offerings, for example, the invention of the camera phone; an idea which was born partly through the realisation that mobile phone users and camera owners were the same customers.
However, these customers were generally splitting their phone and camera purchases between multiple companies, for instance, they may own a Samsung mobile phone but a Kodak camera.
In this example, the first part of the market research process comes through the identification of a gap in the market. One that could be filled by offering consumers a product that covers both requirements - the camera phone.
Once a market gap such as this is discovered, it is important to further understand your target audience through detailed market research. Through this process you may discover additional gaps in the market, potential hurdles that will need to be overcome, or even how well your idea resonates with your planned customer base. All of these considerations can help to increase your marketability and potential profits.
Market research will not only help you launch a new product, but is also a useful tool when making any type of change to an existing product. In fact, the market research you conduct before a product launch may later become irrelevant in the face of emerging or changing markets.
This makes market research a vital tool that should be regularly conducted to ensure you understand your ever changing consumer base. Afterall, consumers will get older, their tastes may change, and new consumers with different preferences will eventually arrive to take their place; and all of this requires constant adaptation by companies both big and small.
Ignoring proper market research can lead to huge financial losses, and this is usually caused by a company’s assumption that they understand their customers better than anyone else. For example, the Coca-Cola company’s disastrous launch of ‘New Coke’ in 1985, which saw the company change their famous flavour along with a rebrand of their flagship product due to declining sales, among other factors.
This resulting rebrand failed to take into account customers’ reactions to a household brand name changing overnight, with marketing professionals attesting this failure to a research process that was not thorough or transparent enough to gain a proper understanding of consumer reactions.
In the above example, we can see that even a company such as Coca-Cola is at the mercy of market research strategies, and it is for these reasons that a proper market research process can be the key to success throughout the lifetime of your product or company.
What are the elements of market research?
There are 4 main elements to the market research process, each of which aims to help the researcher gather a wealth of quality data that they can use to further develop their marketing strategy.
Market research is conducted partly through a mixture of psychology and data analysis - don’t let that scare you though. The psychological aspect of market research comes from interacting with consumers to gather information about their product preferences.
For example, their opinions on brand identity, the prices they find acceptable, and the way they discover relevant product information. Data analysis, however, refers to gathering data, and using this data to understand trends; consumer numbers, sales figures, and more.
We refer to these types of research as qualitative and quantitative research, using both primary and secondary methods. More on these below:
1) Qualitative vs. quantitative market research
Quantitative research comes from a mathematical analysis of numbers, and refers to the practice of using data gathered from sources such as multiple choice questionnaires, website traffic, growth trends, or sales figures, to understand the current market.
By completing quantitative research, you can get exact figures that paint a realistic picture of how your product or service may perform once it enters the market.
Quantitative research may help you to understand:
The market size for your product or service.
The market awareness of your product or service (if it is already available to the public).
The number of consumers in this market.
The types of customers within the market (such as average age).
The buying habits of consumers.
How customers discover a product, such as informational sources, trusted websites, keywords.
Using this data you can create a detailed analysis of the overall market, which will not only help you as the company responsible for delivering your product, but may also help you attract new investors or partners by utilising tangible figures that provide a clear insight into the market.
Qualitative research is focused around understanding the personality, habits, and opinions of your consumer base through processes such as focus groups, one-on-one interactions, and questionnaires.
Through these methods you can find valuable information about customers’ preferences, such as their values and beliefs, how they perceive certain brands; imagery, or products, or even their reasons for purchasing certain products.
You may want to ask potential customers questions such as:
Which of these products do you prefer?
Why do you prefer one product over the other?
Which brand logos do you prefer?
How does this advertisement make you feel?
This type of research can help you to understand the psychology of consumers, which could later inform decisions on your brand identity, the way you present yourself as a company, or your advertising strategy.
As a simple example of qualitative research, if you were to conduct a focus group where relevant consumers were presented with 10 different logos, and 8 out of 10 people stated they prefer a red logo to a green one, this may help inform your branding strategy. Using this type of research can have a major impact on the future of a product.
2) Exploratory primary research
Primary research is the first step in market research, and involves talking directly with current and potential customers to gather an understanding of your target market. This can be achieved through interviews over the phone, online surveys, questionnaires, focus groups, or visiting competitor locations.
The exploratory phase of primary research refers to the fact that you are looking to gather any information possible. You may not have a proper understanding of your market or consumer habits yet, and as such you are simply looking to discover as much as you can about your target market by asking more open ended questions and gathering the answers.
This process can take a while, as you will want to cover as much ground as possible with each participating customer.
3) Specific primary research
Specific primary research follows the exploratory stage. Once you have gathered a wealth of information from customers in the exploratory phase, you can begin to analyse this data to determine whether there are more refined questions to ask your customers.
For instance, through the initial phase you may notice trends in the problems that customers discuss. There may be a common issue with the most popular products in your market that a number of customers have noticed, and you may wish to put more of a focus on asking questions related to this issue in your specific research phase.
Both types of primary research will often cost more than secondary source research, as you are asking individuals for specific information, who may require cash or product incentives to participate in this research. However, the cost of primary research is often beneficial in the long run if you are trying to stand out in a competitive market.
4) Secondary sources research
Secondary research refers to the practice of gathering data that has already been collected or published by third parties. You may be able to buy this research from other companies, or it may be freely available from public sources such as government agencies, trade associations, or even online trend analysis platforms such as Google Trends.
If you are running on a limited budget, such as for self-employed workers or small businesses, you may find this type of research is most appropriate to get your product off the ground. Secondary research can be a valuable source of information, but bear in mind that this information may not help you to understand the specifics of your customers and their buying preferences.
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What are the main types of market research?
There are 6 main methods for conducting market research with your customers. Each of these methods can benefit your marketing strategy by allowing you a deeper understanding of your customers and the way they interact with the market.
This process may take some time, as it requires the participation of many different people in order to be successful and provide a realistic picture of the consumer landscape, but once this research has been completed you will have access to a wealth of valuable information that could mean the success of your company if utilised correctly.
1) Product or service use
How do your customers use the product? By finding answers to this question you may be able to tailor your product to the needs of the current consumer base, thereby providing a better product or service than your competitors. You may also discover uses that have yet to be explored by your competitors.
If your participants state that a particular feature of a product is more important than others, for example the video quality of a camera phone, you can understand which features to prioritise and improve upon to gain a foothold above your competitors.
2) Focus groups
Focus groups can be given test versions of your product and provide feedback. This step is particularly important as it provides insight into how the average person perceives and uses the product or service you are developing.
By conducting focus groups you may be able to discover any issues with your product that you were previously unaware of, or there may be a particular feature that customers enjoy more than others and you may be able to adapt your development efforts to prioritise a previously low-priority feature.
3) Buyer personas
Who are your target audience? What personalities and commonalities make up your customer base? By conducting thorough buyer persona research you can adapt your marketing strategy and branding to better cater the personalities of your audience.
4) Market segments
Market segments are groups of consumers that can be defined by specific characteristics, such as age, income, or even personality types. By segmenting your audience you may be able to create specific strategies that focus on each group, or you may determine that one segment’s interest in your product far outweighs another.
5) Pricing
Your pricing strategy should be informed by researching your competitors’ price points, as well as by talking with consumers about their perceptions of price for a specific product or service.
For instance, some consumers will simply want the cheapest product possible, regardless of how cost may affect quality. However, there may be other instances where consumers will actively seek the most expensive product in the market. Pricing research will help you to determine which way your customers sway when it comes to pricing.
6) Competitor landscape
Competitor research will allow you to determine what makes your competition so successful. What kind of branding strategies do they use? Which are their most popular products? What times of year are their products most popular? What do consumers say about your competition?
Thorough competitor analysis can help you to determine the successes and failures of your competition, and may help to inform a successful strategy for the way that you develop or market your product in the future.
7) Brand awareness
Let your customers tell you how they perceive your brand. You can use brand awareness research to determine what consumers know about your company, what they think about your brand, and what associations they make when thinking about your brand.
8) Customer loyalty
You can use customer loyalty research to determine how likely customers are to stick with your product over your competitors. This is especially important if your competitors offer loyalty schemes and incentives that may motivate customers to move to their product.
How to conduct market research in 5 steps
Now that we have determined the best methods for market research you can begin to put this into practice in 5 simple steps.
1) Determine who you are selling to - Your customer persona
Customer personas refers to the measurement of key characteristics for each customer, which may include the following:
Age
Gender
Job Title
Location
Income
Buying habits & preferences
Creating a detailed buyer persona report will allow you to better understand the consumers that make up your market, and can inform your future strategies by showing you how they spend their money, their available income, and even why they buy certain products.
Customer personas are important because the preferences of one group of people may differ entirely from another group, which could result in marketing failures if your company does not understand who they are advertising their products to.
The results of a customer persona report could completely alter your marketing strategy. It could help determine which platform is best to advertise your product, such as TikTok for younger age groups or Facebook for older customers, or even inform the colour schemes and values that you present in your advertising.
2) Research your sector’s competitor landscape
Identifying your competitors is vital to gaining a proper understanding of how to market a product.
Bear in mind that your actual competitors may not always be the obvious choices, as some companies may produce a wide range of products where only 1 item in their offerings competes with yours, whereas other companies may be completely in competition with your own.
For instance, if your product is a set of bluetooth headphones there will be some companies where this type of item only makes up a small part of the business’ offerings, which may include companies such as Sony, Apple, or Samsung. On the other hand, there will be companies whose entire business is in competition with yours, such as Beats or Soundcore.
Competitors are not simply defined by the products they offer either, as you will also need to have a focus on content as part of your business strategy. Using the above example, if your company sells bluetooth headphones, you would need to implement a strong content strategy for your website that discusses a variety of topics related to headphones.
This could include blogs targeting topics like ‘How do I choose the best Bluetooth headphones?’. In this instance, your main competitors may not produce this type of product themselves, but they may be a website that covers topics related to technology.
It is useful to gather a range of competitors both general and specific, especially if your product fits into a particular niche or market gap. Using the above example, you can begin a general search on Google for ‘bluetooth headphones’, which will quickly show you the biggest players in your market.
However, if your headphones are specifically designed to cater to a niche then you can begin to narrow down your search to find more direct competition. For instance, if your headphones are designed for runners or swimmers, you can then search terms like ‘headphones for running’ or ‘waterproof headphones’ to refine your competition.
It is important to gather a concise list of all the companies you will be in competition with for both sales and marketing purposes.
3) Engage with a sample of your customer personas
Once you have identified a particular group of customers that suits your business through customer persona research, you can begin to reach out to these people to conduct focus groups, send questionnaires, or have one-on-one meetings.
A focus group could contain as many people as you like, but most will be limited to around 10 people. The main purpose of a focus group is to further refine your understanding of a particular demographic. It is easy to group people together based on traits such as age, job title, gender, etc; and this is a good way to find your initial customer base, but it is also important to remember that each person is nuanced and different.
Your focus group will allow you to further understand these nuances to see how people’s tastes align with one another, and help you further develop a suitable marketing strategy that suits your overall target audience.
Questionnaires are an easy way of gathering a lot of information quickly, but you must ensure that the questions you are asking are relevant and encourage answers that will help your new strategy.
It can be helpful to gather a range of participants, including current customers (if applicable), your competition’s customers, and people who are unlikely to buy your product. Through this varied group you can gain valuable knowledge on the potential successes and failures of your product or company, and may even find new areas of focus to reach a wider market.
Questions to ask your market research sample
What do you look for when choosing to purchase a product/service?
What problem were you trying to solve when you purchased a product/service from [COMPETITOR]?
How often do you purchase from [COMPETITOR]? Do you ever go with an alternative brand?
What might convince you to choose a different brand?
Is there anything that businesses in this sector could do better for you?
4) Analyse and refine your data
Once you have gathered all of your market research, you can begin to collate and analyse your results together using sheets, graphs, charts, and any other tool that will help you concisely analyse large amounts of data.
Organising data into visual aids such as graphs and pie charts is particularly useful for identifying potential trends, buying habits, industry seasonality, and a range of important data points that may not appear obvious when simply viewing numbers on a spreadsheet.
In this example, our new company has conducted a focus group of 10 people to discuss the qualities they look for in bluetooth headphones. Imagine that the original idea for this new product was a set of waterproof headphones with a focus on unique case designs that stand out from others and hold charge longer than any other product.
This idea may have seemed perfect to those involved with its development, but after talking to a group of headphone enthusiasts we discover that only 4 out of 10 people are interested in waterproof headphones, with only 2 caring about the case design, and only 3 concerned about the charge time of their device.
When we collate this data you can discover the potential interest in your product, and possibly find a new niche. For instance, in this example we can see that all 10 focus group members were interested in the colour of the headphones, the audio quality, and something else listed as ‘Other’. At this point you could reach out to these customers again to discover what the ‘other’ element was, and perhaps find a new niche that competitor companies do not currently fill.
This is just one example of how your gathered data can influence your overall marketing and product development strategy, but it is ultimately up to the business to find this information for themselves and decide how to use it.
5) Summarise your findings
Once you have finished the above steps it’s time to look back at your results and determine how best to use this information.
Creating a report on your results is the best way to summarise large amounts of data so they are comparable and easy to read. You may want to create a slideshow presentation, or an overall document that outlines your results, those who participated in each step, a summary of what you learned, and more. A usual summary of findings may include the following:
Research rationale: Why did you conduct these studies? What was the goal or purpose?
Participants: Who participated in this research? Which demographics or buyer personas did you reach out to?
Summary: What did you learn through this research? What actions will you take based on the results?
Key takeaways: What did you uncover in your research? What were the common themes people talked about like concerns or preferences with a particular product?
Action plan: Where does your business strategy go from here? How will you utilise the information you gathered to improve the marketing strategy of your product?
Final notes
We hope you have found this comprehensive guide on how to do market research helpful. By using the above techniques and adhering to a proper market research process you are likely to gain powerful insights into the marketing landscape that could mean the success of your new product or service.
Market research is one of the most powerful tools available to companies around the world, and implementing a thorough and consistent research strategy can be the key to successfully beating your competition by gaining a proper understanding of the people who use your products.
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