How market research can help small businesses
Knowledge is power. And whether you're selling coffee, computers or conferences, it pays to know and understand your target market.
Big businesses do this using market research that’s usually quite costly. They have teams dedicated to interviewing customers, carrying out surveys, arranging focus groups and analysing buying patterns.
While much of that work does require a big budget, it's still possible for small businesses to carry out lean and effective market research – and there are good reasons for doing so.
When should you use market research?
There are certain times in a company's life-cycle when market research can be particularly useful. For example:
- To see whether a new business idea is viable: You have an idea for a new business. Is there a market for it? Don't just guess – use market research to find out.
- When moving into new markets: This is especially true when selling abroad. Different countries and cultures have different markets. What works in one might not work in another. Research will help you uncover the differences and adapt to them.
- Before launching a new product or service: You might think you have the perfect new product or service – your customers may think otherwise. It pays to get feedback before you launch, so you can make any necessary changes quickly.
- When applying for funding: Show potential investors that there's a gap in the market – and that your company is the one to fill it.
If you're planning to carry out market research, keep it tightly controlled. Concentrate on the key questions that matter to your business, then work out what information you need in order to answer those questions.
With that knowledge you can decide how best to obtain the answers – with a focus group, online research or survey.
Don't be tempted to ask all sorts of additional questions. Stay on topic and you'll get useful answers that will help you shape your business strategy.
Effective market research for small business – five top tips
If you want to make the best use of market research, here are five key points to bear in mind:
1. Start researching early
Whether you're selling locally, nationally or globally, it pays to know the potential size of your slice of the pie. Do your research before you start trying to sell in a new market.
2. Don't waste money
Small businesses can't afford to splash out on expensive research – and luckily they don't have to. Small focus groups and surveys of your existing customers can be effective and inexpensive.
3. Use existing research
Someone may have done the hard work for you already. Check out online reports, industry reviews and magazine articles.
4. Find out what your customers are saying
The internet makes it easy to find out what your potential customers think. Read consumers' blogs, watch their YouTube videos and vlogs (video blogs), and check out discussion forums and social media.
5. Use the cloud and big data
Companies such as Google spend vast amounts of money collecting research. Take a look at Google Trends and Google consumer surveys. Google Trends will let you see what people are searching for. For example, if there’s a large volume of people searching for glow-in-the-dark cat collars and no one is selling them, then there may be a gap in the market. Google’s findings are often free so make use of them.
Know the limits of market research
Market research will give you some information about your target market, but it can't predict the future of your business with perfect accuracy. That's because:
- a small sample of your potential customers might not be representative of the whole market
- people don't always say what they truly believe in surveys
- the research might not take new trends into account
- the way your business acts in the market will change the outcome
That doesn't mean market research for small business isn't useful – far from it. But you should take the findings with a grain of salt and consider other factors too.
In particular, trust your gut instincts, because they are often based on the experience you’ve gained working in the industry.
Market research is a useful tool
Doing some low-cost market research can really help you learn more about the market demand for your products or services. And while it's not always a sure-fire way to predict whether your business will succeed, it’s a great way to get new insights and opportunities.
When you have a combined strategy that includes your own intuition and customer feedback, market research can help your business perform better and enter new markets successfully. You can read more about doing market research in our guide to starting a business.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.