Market research - Why?

No matter how good your product and your service, the venture cannot succeed without effective marketing.  And this begins with careful, systematic research.  It is very dangerous to simply assume that you already know about your intended market.  You need to do market research to make sure they are on track.  Use the business planning process as your opportunity to uncover data and question your marketing efforts.  Your time will be well spent.

Market research - How?

There are 2 kinds of market research: primary and secondary. 

Secondary research means using published information such as industry profiles, trade journals, newspapers, magazines, census data, and demographic profiles.  This type of information is available in public libraries, industry associations, chambers of commerce, vendors who sell to your industry, government agencies (Commerce Dept. and state and local development agencies), and the SBA Business Information Centers and One Stop Capital Shops. 

Start with your local library.  Most librarians are pleased to guide you through their business data collection.  You will be amazed at what is there.  There are more online sources than you could possibly use.  A good way to start is at the SBA site, http://www.sba.gov/; click the Outside Resources button for a great collection of resource links.  Your Chamber of Commerce has good information on the local area.  Trade associations and trade publications often have excellent industry specific data. 

Primary market research means gathering your own data. For example, you could do your own traffic count at a proposed location, use the yellow pages to identify competitors, and do surveys or focus group interviews to learn about consumer preferences.  Professional market research can be very costly, but there are many books out that show small business owners how to do effective research by themselves.

In your marketing plan, be as specific as possible; give statistics & numbers and sources.  The marketing plan will be the basis, later on, of the all-important sales projection.

Facts about your industry:

What is the total size of your market?

What percent share of the market will you have? (This is important only if you think you will be a major factor in the market.)

Current demand in target market

Trends in target market - growth trends, trends in consumer preferences, and trends in product development.

Growth potential and opportunity for a business of your size

What barriers to entry do you face in entering this market with your new company?  Some typical ones are:

• High capital costs

• High production costs

• High marketing costs

• Consumer acceptance/brand recognition

• Training/skills

• Unique technology/patents

• Unions

• Shipping costs

• Tariff barriers/quotas

And of course, how will you overcome the barriers?

How could the following affect your company?

• Change in technology

• Government regulations

• Changing economy

• Change in your industry

In the Products/Services section, you described your products and services as YOU see them.  Now describe them from your customer's point of view.

List all your major products or services.

For each product/service:

1. Describe the most important features. That is, what will the product do for the customer?  What is special about it?

2. Now, for each produce/service, describe its benefits.  That is, what will the product do for the customer?

Note the difference between features and benefits, and think about them.  For example, a house gives shelter and lasts a long time, is made with certain materials and to a certain design; those are its features.  Its benefits include pride of ownership, financial security, providing for the family, inclusion in a neighborhood.  You build features into your product so you can sell the benefits.

What after-sale services will be given?

For example:  delivery, warranty, service contracts, support, follow up, or refund policy.

Identify your targeted customers, their characteristics, and their geographic locations; i.e., demographics. 

The description will be completely different depending on whether you plan to sell to other businesses or directly to consumers.  If you sell a consumer product, but sell it through a channel of distributors, wholesalers and retailers, then you must carefully analyze both the end consumer and the middlemen businesses to whom you sell.

You may well have more than one customer group.  Identify the most important groups.  Then, for each consumer group, construct what is called a demographic profile:

• Age

• Gender

• Location

• Income level

• Social class/occupation

• Education

• Other (specific to your industry)

For business customers, the demographic factors might be:

• Industry (or portion of an industry)

• Location

• Size of firm

• Quality/technology/price preferences

• Other (specific to your industry)

What products and companies will compete with you?

List your major competitors:

• Names & addresses

• Will they compete with you in across the board, or just for certain products, certain customers, or in certain locations?

• Will you have important indirect competitors?  (For example, video rental stores compete with theaters, though they are different types of business.)

• How will your products/services compare with the competition?

Use the table called Competitive Analysis, below to compare your company with your three most important competitors.  In the first column are key competitive factors.  Since these vary from one industry to another, you may want to customize the list of factors.

In the cell labeled "Me", state how you honestly think you will likely stack up in customers' minds.  Then check whether you think this factor will be a strength of a weakness for you.  Sometimes it is hard to analyze our own weaknesses.  Try to be very honest here.  Better yet, get some disinterested strangers to assess you.  This can be a real eye-opener.  And remember that you cannot be all things to all people.  In fact, trying to be so, causes many business failures because it scatters and dilutes your efforts.  You want an honest assessment of your firm's strong and weak points.

Now analyze each major competitor.  In a few words, state how you think they compare.

In the final column, estimate the importance of each competitive factor to the customer.  1 = critical; 5 = not very important.