Market Research: The basics
Market research is the process of collecting information about your customers, competitors, and industry, analysing that information, and then using it to make better informed business decisions.
Every time you chat to customers and suppliers, learn about your industry, and check on your competitors, you’re conducting market research. However, for this to be effective, you must be conscious of what you’re trying to find out, and how this information is useful to your business.
On this page:
Types of market research
You can gather information directly from your customers through surveys and focus groups. While it can be time-consuming to get information this way, it’s up-to-date and relevant to your business, and therefore, valuable.
Information on your industry, gathered by third parties, can also be used to understand your market. Government statistics, trade journals, and company surveys are all useful sources of readily available market research.
If you’re thinking of opening a bar or restaurant in a small town that’s used as a base for visiting a national park during spring and summer by thousands of tourists and domestic travellers, market research can help you determine the chances of business success.
Your market research might simply be a gut feeling after having visited the town several times and noted the number of tourists contrasted with the lack of night spots and restaurants. But will your business be viable outside of the tourist season?
This is where third party market research can help. For example, the information from the Statistics New Zealand Business Toolbox can give you an idea of the average incomes and age brackets of people living in the town, and the survival rates for new food and beverage businesses, both nationally and in your target region. You could also conduct your own research, simply by asking locals for their views on the need for a restaurant or bar and whether they would use it during the tourist off-season.
Market research for start-ups
If you’re thinking of starting a business, you’ll need to talk to potential customers and study what is happening in your chosen industry. Here are some important questions to ask.
Is there demand?
Ask yourself:
- Who else is producing the same or similar products?
- What advantages can I offer that the competition doesn’t?
- Is the market saturated or is there room for my business?
- Is the market growing, stagnant or in decline?
If the answers to these questions are promising, ask people who fit the profile of your potential customers what they think of your business idea. Another alternative is to start the business on a small scale to test the market and establish if there is demand for what you are offering. This is a good way to test the water before investing your valuable time and money.
For example, if you planned to start making and selling recycled rimu furniture, you could make some in your spare time and then sell it at local markets. You could also put up fliers on your community notice boards and set up a blog with photos of the furniture and your contact details. This way, you’d establish demand for your products and gain valuable feedback from customers, with little financial risk.
What can I charge?
There are a number of factors you’ll need to consider when deciding what to charge. These include:
- The amount of money you’ll need to generate to cover the cost of sales and your monthly overheads.
- What your competitors are charging. You can find out what your competitors charge by visiting their website, viewing advertising material or discretely visiting their business.
- What potential customers are prepared to pay for your product or service. You can find this out by asking a sample group of your potential customers what they’d be willing to pay.
Once you have a price range in mind, think about the message the price conveys. If your products and services are cheaper than competitors, for example, will people perceive them as inferior? If you’re charging more, can you justify this by guaranteeing better quality or offering after-sales service if needed?
Talk to your potential customers and ask for their impressions, and read more about pricing your product.
Is there potential to make a reasonable profit?
Once you’ve established that there is a demand for your product, you’ll need to work out how many customers you’re likely to get. If, for example, you open a cafe near a large primary school and at the base of a hill that cyclists and runners train on, your potential customers include the mums, dads and caregivers doing the school run, and the people who will be hungry and thirsty post-exercise, plus other locals and people wanting brunch and coffees on weekends. Multiply the number of customers you might serve in a certain period (a week, month, school term, or year) by the average spend per customer, and then subtract your expenses.
It’s safer to underestimate your customers and overestimate your expenses to allow for unexpected items or expenses you may have overlooked. Use this lesson on financial forecasts to help you determine how viable your business idea is. If the numbers aren’t looking positive, you may need to re-think your plans.
Where should I locate?
Do you need a physical location or could you be based online? If setting up a physical shop, location is important, particularly for retailers. Consider the amount of foot traffic that passes your store front, the availability of parking for customers, and whether other businesses in the area complement or compete with yours.
Keeping your target market in mind, use Statistics New Zealand’s Quick Stats About a Place: Place Search to find the demographic profiles of specific suburbs. This will tell you how many potential customers live in the locations you are considering. If you’re a service business or manufacturer, location is less important. Aim to locate somewhere affordable and easily accessible. Ideally, you’d want to be close to your suppliers and customers and have enough parking for your employees and space to expand if necessary.
What future changes might affect my business?
You’ll need to watch for trends and changes in your industry and local economy. Could politics, or social or technological changes impact on your business? For example, is new technology changing your industry? Are there a lot of businesses entering your market, and if so, what are they better at? Could environmental concerns impact on your sales? Is the local council introducing new regulations that might affect your business’s location? Keep informed about potential threats to your business and plan and act accordingly.
Market research for existing businesses
Existing businesses might think they already know what their customers want and that market research is pointless. But people, technologies, and demands constantly change, and information gathered in the past could now be outdated and inaccurate.
Existing businesses wanting to review their market could start by asking themselves some of the questions suggested above. It’s important to regularly compare your prices with your competitors’. Businesses leasing their premises should consider where they might relocate if the landlord decided not to renew the lease, and all businesses should regularly take stock of possible future threats they face.
Here are some questions to ask your customers:
- What do you like about our business?
- What could we improve?
- What do you think about this particular product or service?
- What do you think of our website?
- Why do you buy from us and not our competitors?
It’s a good idea to keep an eye on your competitors’ websites, Facebook pages, and Twitter accounts to see what products and services they offer, how they communicate with their customers (or don’t), and the loyalty schemes they use. This will help you make better marketing decisions for your business.
Other important questions existing businesses should ask themselves are:
- Who else can we sell to?
- Should we be offering new products and services?
- Have any of our products and services become obsolete or unprofitable?
When it comes to market research, small businesses have an advantage over larger companies. While you may lack the funds to commission experts to do research for you, you are much closer to your customers and better placed to approach them with questions, and you can act quickly on the answers given. When your savings, future, and business reputation are at stake, you can’t afford not to do market research.
This information is provided by Business.govt.nz
