Forum of Private Business: Market Research

A guide to Market Research for small businesses

MGSELL FEB2017 Forum of PrivateBusiness

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An guide to market research for small businesses This guide has been written as a basic introduction to market research for the owners and managers of small and start-up businesses in the UK. Section 1 gives you a brief introduction to market research, its uses and the benefits to your business.

Section 2 contains the following templates for you to fill out and use in your own business: •

External influences - PEST(LE) analysis

•

Internal audit

•

Competitor analysis

•

Strength, weaknesses, opportunities and threats (SWOT) analysis

•

Research brief template

•

Customer research findings template.

“I believe in innovation and that the way you get innovation is you fund research and you learn the basic facts.”

Bill Gates Founder of Microsoft

Use the guidance notes and examples, and answer the questions to create a plan for market research that you can use in your own company.

Each section focuses on the different areas you need to think about when carrying out market research – internal factors and external influences, such as customers and competitors. These provide a starting point for you to base your research on, and there are also links to useful sources of information.

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Section 1 What is market research?

Simply put, it is research into the structure of a particular industry or market and the forces which shape and influence it. It provides the owners and managers of businesses with information on customer characteristics, size of the market and demand; the insight you need to be able to make informed decisions.

Secondary to this is marketing research, which includes the research undertaken in order to make specific marketing decisions, like how to price products and where to promote them. For the purposes of this guide, we’ll refer to all of this under the banner of market research.

Sources of market research There are two two ways of gathering research:

•

Primary – research you carry out yourself for your own purpose

•

Secondary – research carried out by a third-party for their own purposes, but which may contain some useful information for you. Government statistics tend to be fairly unbiased, but research from other commercial organisations should be treated with caution.

Secondary research can, however, help you to build up a picture of the market as a whole. For suggestions of where to look for secondary research, check out the ‘Useful information’ section at the end of this guide.

Market Research Methods There are also two research methods you need to be aware of: •

Quantitative – usually targeting a large number of respondents, can include questionnaires or surveys carried out by post, online, face-to-face or over the phone. By questioning a large sample, you can help establish trends in data, which should be representative of your market.

•

Qualitative – as the name suggests, this is more about quality than quantity. By using techniques such as focus groups, in-depth interviews, product testing and feedback, you can discover the underlying thoughts, feelings and motivations of a typical target customer.

Benefits to the Business Helps you to plan – you cannot write a realistic business, financial or marketing plan without first taking stock of where you’re starting from. Market research takes into account all the factors, internal and external, that could have an impact on your success and profitability.

Better communication – market research can influence the way you communicate with existing and prospective customers. You can discover how they like to be communicated with,

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how often and which messages they respond to, allowing you to tailor your communications so they’re more likely to take the required action.

Find new opportunities – by assessing what the market looks like, what customers want and what your competitors provide against what you offer, you’ll be best-placed to spot any gaps in the market.

Minimise risks – armed with up-to-date information, you can be confident that you’re making informed judgements rather than panicked decisions.

Helps you to get funding – banks and investors don’t like risk, so the more evidence you have that you’ve researched the market and the need for what you’re selling, the more likely they’ll be to hand over the cash.

Manage your reputation and keep more customers – do you know if your customers are happy or are there people out there bad-mouthing your business for poor customer service?

By regularly asking customers if they’re happy, they’re more likely to tell you so you can fix any problems quickly.

Get feedback – imagine launching a new product, only to find that your customers hate it.

Research aids good product development, so you can be sure that what you’re offering is attractive to potential customers.

Know what your competitors are doing – It’s important to know your competitors’ positions in the market as well as your own, so you can work out how to develop or make the most of your competitive advantage.

But: Be wary about undertaking primary research unless: •

You are prepared to act on the results

•

You are willing to give some information back to your clients

Otherwise you may alienate potentials customers, stakeholders or suppliers or minimise the halo effect for undertaking good research

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Section 2 Step 1 - Decide why you need to carry out research Whether you’re starting a new business, launching a new product or entering a new market, good research is key to your success.

If you’re just starting out in business and want to use market research to test your business idea, go to section A. If you’re already established in business but looking for ways to grow, go to section B.

Section A - Testing a new business idea So, you have a hunch that your great business idea might work and you want to get started. Do you jump straight in and get to work on getting it to market?

No. Whilst some entrepreneurs and business owners may have run successful businesses on ‘gut feeling’, you should always back up intuition with cold hard facts, just to be on the safe side. You may have a feeling that a product will be a hit with customers (and it is) but on closer inspection there are already hundreds of businesses selling it and it will be a really hard market to get into without the right business model, funding and people to make it work.

Market research doesn’t have to mean the end of your idea; it just means you’ll be better equipped to come up with an innovative solution before you invest your time and, most importantly, your money.

Your research should focus on: •

Size of the market – how many potential customers there are out there?

•

Number of competitors – their business model, share of the market, pricing, promotional strategies, etc.

•

Your own internal capabilities – strengths and weaknesses

•

Customers – what they need, where they shop and how often, how much they earn and what they have to spend.

We’ll take you through how to do each of these in the next step.

Section B - Growing your business The decision to grow your existing business may stem from a number of different reasons, including: •

Financial – to increase turnover or profitability

•

Excessive competition in current markets – new entrants are coming into the market, prices are being eroded

•

Opportunity – you’re wondering whether to take up a new opportunity such as tendering for a contract or exporting

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•

Fear of stagnation – you don’t feel the business is dynamic enough to react to changing market conditions

•

Technology – providing services or products that use technology more effectively

•

Need for a new challenge – personal motivation to grow the business.

An understanding of why and how you want to develop the business is important as it will help with the way that you develop your research.

Ways of developing the business will vary from business to business but may include one or more of the following options: •

Selling more to existing customers – research needs to focus on whether the existing customer base can sustain this, and whether you have the capability to deliver it.

•

Selling new product to existing customers –- research should identify if their is a need for this amongst customers.

•

Selling existing product to new customers –- you will need to find out everything you can about the new market you’re about to enter. This could mean opening a new location in a different city – or even a different country!

•

Selling new product to new customers -– this option needs the most research in order to understand the need for an entirely new product in a new market

•

Using technology to modify current services or product or alter your distribution channel.

Some of these options are riskier than others. If your research shows that demand for your existing product outstrips supply then simply increasing capacity may well be a lower risk option than introducing a new product or exporting.

An awareness of risk, reward and the reasons for growing the business will help you with the route and level of depth that your research needs to takes. For example, a high risk, high growth strategy will require greater planning than a strategy that is relatively low risk.

Step 2 – Carrying out your initial research In this section you will find a set of analytical tools that you can use to structure the information your business needs to collect in order to improve decision-making and highlight any gaps in knowledge.

You should be able to find this information in your own business (old research, data, experience), if your business is already established, and from secondary sources (see ‘Useful information’ section at the end of this guide to get you started).

Simply fill out the following templates using the guidance notes and questions provided.

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A. Assessing external influences PESTLE (Political, Economic, Social, Technological, Legal and Environmental) analysis.

This gives an overall market overview and aids understanding market growth or decline, potential and direction for operations.

What are the key POLITICAL factors that could/do impact on your business?

These could be beneficial or detrimental.

What are the key ECONOMIC factors that could/ do impact on your business?

These could be beneficial or detrimental.

What are the key SOCIAL factors that could/ do impact on your business?

These could be beneficial or detrimental.

What are the key TECHNOLOGICAL factors that could/ do impact on your business?

These could be beneficial or detrimental.

What are the key LEGISLATIVE factors that could/do impact on your business?

These could be beneficial or detrimental.

What are the key ENVIRONMENTAL factors that could/ do impact on your business?

These could be beneficial or detrimental.

B. Internal audit This assesses your current marketing activity (or planned activity if you’re just starting up) and helps you to see where you can make improvements.

Price

How have you arrived at your pricing policy? How does it compare to that of your competitors? Do you offer discounts and how are they calculated?

Product/service

What are you offering to the customer? What are the benefits to the customer and what makes it unique?

Place

Where and how do you sell? Do you have a physical shop, sell online or both? Or do you sell through distributors?

Promotion

What do you currently do to market your business – i.e. advertising, PR, exhibitions – and approximately how much do you spend?

People

How are your staff trained on your product or service? Who is responsible for marketing and promoting your business? What marketing expertise do you have in house?

Processes

Do you have formal processes for delivering your product or service?

Physical evidence

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What does/do your premises, website, packaging, etc. say about your business?

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C. Competitors You will probably have two types of competitors: direct (they sell the same thing as you to the same market) and indirect (they sell a similar or easily substitutable product to the same market).

Effectively, your competitors are anyone who is competing against you for your customers to spend money with them instead of you.

You can find information on your competitors from a number of publicly available sources, including their website, sales literature, advertisements, press releases, social media trade shows, exhibitions and events, visiting their premises, telephone enquiries and information from Companies House.

Another useful source of information is from your suppliers and, if you have them, employees.

Example Product

Quality, design, usefulness/ functionality, alternative solutions to the problem/products

Place

Distribution stream, import/ export, convenience of supply/ network

Price

Cost of product, value of the product (are people prepared to pay extra for the service etc), price strategies

Promotion

Most directly relevant to marketing in one sense (advertising and brand creation) methods of marketing and messages

People

The human side to the brand story (founders) as well as the customer experience

Processes

Service response time, dealing with complaints, working safely

Physical evidence

Office buzz, branding, website, recommendations, case studies and testimonials

Competitor 1

Competitor 2

Competitor 3

D. Bringing it all together internally SWOT analysis (Strength, Weakness, Opportunity and Threat).

This will give you an overall idea of the business or a new product or service itself and will include elements from the PEST analysis as well as flagging up internal issues. It will also highlight any potential clients you should be considering and where the risks are for the business.

To get the most out of this exercise it is worth asking employees, suppliers or advisers to help you in completing a SWOT analysis as these individuals may see the company in a different light that may be more closely aligned to your current or potential customer base.

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Strengths (internal)

Weaknesses (internal)

Resolution: e.g. emphasise these elements of the product or service

Resolution: e.g. Monitor competition

Opportunities (external)

Threats (external)

Resolution: e.g. turn these to our commercial advantage

Resolution: e.g. turn these to opportunities, perhaps through strategic partnerships

Step 3 – Filling in the gaps Now you’ve collected this information and created your SWOT analysis, you should have a better understanding of the main challenges facing your business.

But there are probably a few questions that are still unanswered.

These may be minor and, if the cost of entry is relatively low and the risk for the business is perceived as minimal, there may be no point in undertaking an expensive research project. But if there are still nagging doubts about customers and the market, some further customer research may be needed.

In this section we explain what customer research is and how to go about it, but there are other options available to you if you don’t have the time or budget, which we explore in the next section.

What’s the best type of research for my business?

Business owners can use a number of ways to understand their customers and the steps they take to make a purchase.

1.

Quantitative research such as online or postal surveys/questionnaires. These are relatively low cost and can raise awareness, though you may have to offer an incentive to get a reasonable response rate. Sample sizes will depend on the level of information that you require and can be completely random or have some level of stratification (where a certain number of respondents will fulfil specific categories).

2.

In-depth interviews with a small number of key buying types. This will help you to understand more about the market need, reasons for purchase and key elements of branding. This can be done by telephone but the process is often more effective face-to-face. Face-to-face depth interviews do not have to be limited to one individual and it can be a highly effective way of getting comments from all the influencers in a buying decision.

3.

Location-based surveys, street surveys and surveys of residents are an obvious solution to find out if there is demand for a product or service in a specific location.

If you are doing this research yourself you will need to have some sort of proof of identity to reassure people about your work.

4.

Syndicated research is a good way of reaching a relatively large number of businesses for a relatively modest fee, by paying for your questions to appear in a bigger piece of research, however this only works if you have a relatively small number of questions you want answered. Also, the sampling can be comparatively random.

5.

Focus groups provide an option for customers to talk and feed off each other but can be swayed by a ‘herd mentality’. Inexperienced moderators can also sway the

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group, so it is good to practice with friends or family and get feedback on whether you’re being too forceful or emotionally involved.

6. Mystery shopping and diaries are more affordable thanks to improvements in technology with individuals able to keep journals or record their thoughts almost instantaneously on relatively small devices.

7.

Hall tests were made famous by the Pepsi challenge in the 1980s and provide a way of testing the effectiveness of your packaging compared to that of your rivals. In most cases using a specialist is advised otherwise you may be in danger of getting a false report if the individuals become aware of which brand you would like to win.

8. Observation can be used, for example, to monitor how many people stop at a window display or how they use a website.

For most SMEs and start ups, a mixture of in-depth interviews with key potential customers and a survey of other customers or potential customers is often the best solution.

Who to ask?

If you have any, speak to your existing customers first. But you should also try to find people with no awareness of your business to have their say, ex customers are an extremely useful way of getting information on improvements but may not always be prepared to give you the real reason. You can invite participants through social media, referrals from existing customers, or you can buy data lists from a third party.

When choosing a sample, make sure they match your target market. You will also need to be aware of legal issues when contacting and collecting information from customers.

The current regulations are under review by the European Union so it is best to check before you start undertaking research - You can find more information on the Market Research Society (MRS) website. If you hire a market research agency, they should be a member of the MRS and follow their guidelines.

It depends on budget and the number of clients you have or are looking to get. As a rule of thumb, sample sizes of less than 100 should be treated with a degree of caution and 380 will give you a reliable evidence base. Depth interviews with as few as ten business owners can give you some key insights and themes to put into your business.

Finally do not be afraid to have a different strategy for your key customers or target customers and those who are less frequent purchasers of your products or services as loss of one of your key customers or the winning of a key potential client.

What to ask This will depend entirely on what you need to find out in order to achieve your objectives, but could include questions around: •• awareness of your product or business how did they/would they find out about a particular product where would they look for information •• attitudes towards your product or service actual cost/value for money/predictability of cost/running costs quality of product or service/ease of use/reliability Forum of PrivateBusiness

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customer service/experience after sales support/technical support/ease of purchase reputation of the company importance of these elements to their business •• attitudes towards your competitors’ products and services awareness/usage and attitude to •• hygiene factors (these are factors that a company in your industry must have or it will impact on the business e.g. good health and safety record for building contractors •• net promoter score, asking customers how likely they would be to recommend your product or services and will give you a benchmarked score for your business •• score of emotional value – a question based on how your product makes them feel.

•• Buying behaviour Trusted opinion Trigger for the purchase •• Segmentation information (you may already have this from your CRM) Region, age, gender, business type, product used

DIY research or call in the professionals?

If your research needs are complex or you don’t have the time or confidence to carry it out yourself, it may be more economical to hire an agency or freelance market researcher to do it for you.

Benefits of outsourcing your research •

Whilst research can be done internally, there are a number of pitfalls that can befall an in-house team, not least because the owners of SMEs tend to be passionate about their business and can ask leading or biased questions, which can lead to over-optimistic expectations for a new product or service.

•

Using an experienced moderator for focus groups is the most effective way to ensure it fulfils its aims. One or two outspoken individuals can skew the results quite significantly if the moderator does not intervene.

•

Good qualitative research often revolves around the quality of the ‘probing’ that an interviewer undertakes. This is when the interviewer looks for the interviewee to expand on what they have already stated or justify a particular comment. This is a difficult skill to learn as the best way of getting this information will depend on the individual characteristics of the interviewee, some will respond to a polite request, whilst others will work better if the interviewer does not react for a few seconds -creating an awkward period of silence which the interviewee wishes to fill.

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Tips for hiring an agency You should follow usual procurement good practice by looking for references, analysing the price from three different contractors and looking for agencies or freelancers that have relevant experience in your sector.

The brief for the agency should be clear and provide them with a significant amount of background information (you can use the initial research you did above as a basis) so that the agency’s efforts do not duplicate the process you have already been through.

Use the brief template below as a starting point.

Leave the brief open so that the agency can suggest an approach and possible solutions, they may suggest methods that you have not thought of before or have access to technology that you are unaware of.

It is worth ensuring that the agency or one of the team is a member of a professional institute such as the Market Research Society (MRS) or ESOMAR for European agencies. They have professional standards to adhere to and a system for dealing with malpractice. Visit the MRS or ESOMAR websites to look for accredited agencies.

Other alternatives If your research needs are minimal, but you don’t want to carry it out yourself OR pay a lot, using syndicated research or buying published research can be a very cost effective way to fill in key gaps in your plans. However, this is unlikely to be an option if the business operates in a niche sector.

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Step 4 – Analysis The amount of data and information that you can collect is never ending, so it’s important to have systems in place to analyse it.

For small samples or qualitative research work a simple spreadsheet or word processing package can suffice. Grouping answers together based on themes or tallying up the results can be done relatively quickly and can give a broad overview of your marketplace. Another low tech option is a form of “Grounded theory” where you start off with the name of the company or service in the middle which forms the central point for a spider diagram. Add in new branches where required but try to group responses around the general points and the variations become new branches in their own right. See below for an example from the Cambridge cycling campaign.

You can also use the information from open ended in a number of ways – for instance a comment about how the company could improve could be analysed under the 7Ps (price, product etc), specific issue, adjective used (quick, effective etc) or even by company department depending on what you feel is needed.

Cross tabulation will help you to understand the information that you have collected and understand the strength and weakness of the sample that you have. It will also allow you to analyse specific elements of the report so that you can understand why you have retained particular customers and what it is that your customers like about your service.

If you have asked questions about importance and satisfaction you can also compare the two to understand where you or your competitors are over-servicing your customers (high satisfaction, low importance), where you need to focus resources (low satisfaction, high importance) and where you are currently meeting their key requirements (high satisfaction and high importance).

Most software packages that can be used to undertake research will allow you to look at tabulations and will often give you the options of confidence levels and/or standard deviation as a way of working out how reliable established the links are with particular Forum of PrivateBusiness

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types of customers. If you do use an agency they should provide tabulations at the end of the fieldwork and you can often ask for additional tabulations (within reason) for no additional charges or a limited fee.

Finally check your data against what you already know – either from third parties or from common sense. A useful way of checking is to give the information back to those who replied (this may even get them to be interviewed by you in the first place) and see what they think.

Step 5 – Putting it into practice Once you’ve conducted and analysed your customer research, you should have a better idea of who your customers are and what they want. With this information, you may be able to separate them into distinct groups, or segments, and from here you can identify distinct needs, which you can reflect in any marketing you do.

We’ve filled in an example for a local cafe to give you an idea of how you could apply it to your business: Customer group Name of segment

Demographic

Age, location, occupation, etc.

Motivation

Why would they buy your product or service?

Any other important information

Promotional technique?

What influences them?

Are they affected by government or economic changes?

Where do they socialise?

e.g. young professionals

21-35, office workers, 100 yard radius of cafe

Need quick takeaway lunch

e.g. mums with babies

25-40, mums, not Want somewhere currently working, to meet other live in 3 mile radius mums late morning/early afternoon

Affordability key issue, like deals

Flyer local offices with introductory sandwich/ coffee deal

Need lots of space for prams, etc.

Offer free use of premises for weekly mum’s group, offer coffee/cake deal

You can use this information to develop a better idea of who your customer is, which products/services you sell will be relevant to them and, potentially, where you can develop new products/services which meet a need.

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Next steps This guide should provide an introduction to carrying out simple market research by yourself. However, in cases where you have very complex research needs or very few resources, it may be necessary to seek the help of a specialist agency.

If you need any further help and guidance with marketing and growing your business, call the Forum’s member helpline on 01565 626001.

You may also find our other guides to marketing your business useful - Advanced members can download them by logging into MyFPB at www.fpb.org and clicking on ‘My Subscriptions’.

Research brief template 1. Background

Give a brief description of your business, industry, customer base and challenges - why are you commissioning this piece of research?

2. Business objectives What is your company trying to ultimately achieve as a result - i.e. increase in sales to existing customers, diversifying product, entering new market, etc.

3. Research objectives What do you want the outcome of the research to be? What information do you need to achieve business objectives. For example, if you want to enter a new market, the information need would be understanding the motivations, buying habits and price tolerance of that market.

4. Approach and methodology You may already have an idea of what you want the agency to do - i.e. carry out a focus group - or you can ask them to quote for a number of options for you to choose from.

5. Deliverables What do you expect to be delivered at the end of the project - the raw data, full analysis and a report, a presentation, or all of the above? Specifying this now will stop any misunderstandings or disappointment later.

6. Timings When do you ideally need the findings by? The agency will be able to manage your expectations depending on what you’ve asked for.

7. Budget Be open about budget so that the agency can come up with a realistic plan of action.

Agencies can usually provide an estimated cost for guidance if you’re stuck.

8. Contact Who will be in charge of managing the research project at the business end? Who should the proposal be sent to, by when and how (i.e. hard copy or by email).

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