Every startup needs to conduct market research if they ever hope to generate healthy revenue. It’s the foundation on which every business plan rests and reduces the risks involved in getting your company off the ground. Thousands of companies worldwide can attest to the powerful benefits of carrying out market research.
Read on to know more about the different kinds of market research, step-by-step guide to conducting market research, and why it’s crucial to document your findings.
Market research is meticulously collecting information about your customer base so you can give your company a keen competitive advantage. It helps you define buyer personas, and what your customers want. Market research is also about finding what your customers’ pain points are. That way, you can tweak your solution to better meet buyers’ needs.
Market Research is Important
When you're launching your early-stage company, getting to know your customers inside-out is a crucial first step. If you don't, you won't know how to solve their problems or if your solution is something customers will plunk down their hard-earned money for.
Market research is vital because it helps you understand your rivals' competitive advantages and reveals their marketing strategies. You can replicate their examples with this information in hand, which maximizes the chances of success.
Market research is a prerequisite to creating a business plan. By carrying it out, you’re able to determine if your potential customer base is big enough to support your business idea. Market research also helps you understand the relative strength of your market position so you can beef up your marketing and sales processes.
Why Startups Fail
Trying to launch a startup is a monumental undertaking that can totally exhaust you. Founders put in 16 hour days hoping they can become the next breakout success.
According to Investopedia, the startup failure rate is around 90%. 21.5% fail in their first year, 30% in the second, 50% in the fifth, and 70% in the tenth. Here are some common reasons why startups fail:
- The market doesn’t need the product or service
- Product or service costs too much
- The product isn't user friendly enough
- Run out of money
- Not listening to customers
- An inability to precisely formulate the business model
- Getting crushed by the competition
- Lousy marketing strategies
- A startup team that doesn’t have the right set of skills
If startups aren't diligent about doing market research, they will almost surely fail.
What are the Different Kinds of Market Research?
Primary research is collecting first-hand information directly from potential buyers. It requires you to go out into the field and have discussions with those people hungry for the solution you offer.
There are two categories of primary research: exploratory and specific. Exploratory research is gathering subjective feedback so you can gauge interest or see what kind of emotional response your product elicits.
Exploratory market research provides context for the more quantifiable results of your investigations. Specific primary research is when you gather objective data by talking directly to customers.
While you can conduct online surveys, it’s no substitute for talking with potential buyers face-to-face. You'll get more insight into the buying habits of your customers if you interact with them in person. Carrying out primary research puts you light years ahead of competitors because most people are too intimidated to do it.
Types of Primary Market Research
The best way to conduct market research is to go out into the field and directly talk with potential or current customers. Create a series of open-ended questions designed to elicit thoughtful responses. Consider the interviewee's tone, body language, and interest, along with what they say.
Focus groups are another way of getting direct customer feedback. The beauty of focus groups is you get to see how customers respond when they’re around other people. You can ask questions, carry out product tests, or have them watch a demo.
This can be A/B testing of different pricing structures on your website. According to Oberlo, A/B testing is “testing method used to compare two or more versions of the same page or app to determine which one converts or performs better”.
Pricing research can also be running ad campaigns at varying price points, or offering discounts to specific audience segments. The objective is to understand what your buyers are willing to pay and consider a fair price.
This is data gathered through secondary sources. It includes:
- PUBLIC SOURCES: information (usually free) collected from government-sponsored research projects.
- COMMERCIAL SOURCES: research studies carried out by private organizations. They include specific industries, markets, or innovations.
- INTERNAL SOURCES: information gathered from everyday business operations, including financial statements and analytics reports.
When you’re first starting out, concentrate your efforts on carrying out primary research. Compare your first-hand findings to secondary sources such as market reports, industry benchmarks, and any other internal data you happen to have.
Use primary and secondary research together for a more comprehensive market overview.
Our 5-step Guide To Successful Market Research for Startups
Step 1: Make a List of Your Top 5 Competitors
This list will change over time because the enterprises you compare your startup with when first starting out will be different from the ones you'll use when your company is mature.
Step 2: Evaluate Your Potential
Figure out if you have what it takes to successfully compete against your rivals. Are there tons of competitors fighting for the same piece of the startup pie? Or is there one that’s so disruptive, it differentiates itself from the rest of the field?
Evaluating your potential will help you assess how easy it will be to make an impact, and notice any possible threats or barriers to entry, including products or services that have the power to totally usurp your solution.
Figure out what types of customers your competition is attracting. This includes your target audience’s interests, age, and gender. Will you try to reach a slightly different market segment to set yourself apart from the herd?
Determine audience overlap between key competitors so you can estimate the percentage of the customer base they share. Then, calculate how much of the target audience isn't being served so you can zero in on this segment.
Track how customers shift their allegiances from one competitor to another over time. Research what causes such dramatic drops and see if you can use this information to refine your product or service.
Step 3: Identify Your Target Market
Identify your target market by describing a hypothetical individual who embodies all the characteristics of your ideal customer. This is called a buyer’s persona, and every startup needs to create at least one. While your startup might have several target markets, don’t have more than three buyer’s personas at one time.
Each market you target needs to share specific traits, such as age, gender, income level, or geographic area. These are all demographic characteristics. They might also share psychographic traits, which are values, desires, goals, interests, and lifestyle choices. Your target market could even be an employee type, like a head of product or CTO.
Market segmentation is creating multiple target markets for your enterprise. In other words, dividing your audience up into different groups so you can sell more effectively to each one. Every segment buys your product or service for a different reason. This means you’ll need to have distinct marketing campaigns for each target market.
Step 4: Determine Market Size
Let's say you don't know your market size. In that case, you might find yourself operating on a playing field so tiny, it will be almost impossible to be profitable. Understanding market size helps you differentiate between the addressable market, the total theoretical revenue possible for the product or service you offer, and the available market.
This second category is the portion of the addressable market for which you can realistically compete. By knowing the difference between the two, you can create a product that’ll be more likely to be successful.
If there aren't enough customers to buy your product, find something new to sell. Suppose you have only several thousand potential buyers. In that case, you'll either need to get them to buy more frequently or offer your product at a higher price.
To figure out the size of your market, do what’s referred to as industry research. This means if you’re considering starting a virtual reality company, determine the dollar amount of VR products potential customers buy from competitors. This should give you a good idea of market size.
Industry reports and trade publications can also be used to do this.
Step 5: Document Your Findings
This is the final stage in the market research process. By documenting your findings, you can share them with co-founders, investors, and other stakeholders. If you’re presenting your results to investors, you should probably write a formal market analysis and do a market forecast.
Gain a Competitive Advantage with Hunt Club
Market research is the bedrock upon which all your entrepreneurial efforts rest. If you don’t do it, you won’t have the keen competitive edge you need to be successful.
Another way to gain a competitive advantage is by outsourcing your hiring process to Hunt Club. We’ll find the talent you need when you need it, so you can concentrate on growing your company.
Call us today!