As a business owner, you cannot understate the importance of market research. As tempting as it may be to take your business idea and jump in at the deep end, it will be doomed to failure unless you understand the market that you are operating in and the potential demand for your product.
Many "experts" talk about taking action first and learning from your mistakes later, but when starting a business, it is wise first to gather intelligence. After all, a lack of market research is one of the main reasons why many companies fail. Conducting market research means looking at what your competitors are doing and taking the time to understand your target audience's wants and needs.
The Importance of Market Research
Therefore, if you're at the start of your entrepreneurial journey - or you're further down the cycle and wondering why your marketing campaigns are not converting - you need to take a step back and consider whether you have done enough market research. As a standalone part of the wider business process, its importance really cannot be overstated; indeed, every action that you take that is geared towards your target audience will be influenced by the work that you do here.
To illustrate this point, here are seven reasons why market research is pivotal to business success:
1. It Identifies Your Target Market
To be successful in business, it is vital that you know who your target audience is. This means identifying the key metrics with which to create a customer profile, such as age, location, gender, income and lifestyle, as well as a general breakdown of the characteristics that your target demographic share.
As an example, market research at McDonald's has led the fast-food giant to identify its target audience as within the age range of eight to 45 years old, and belonging to low and middle-income groups in predominantly urban areas.
Once you know who your target market is, you can start planning your marketing strategy accordingly.
2. It Helps Identify Business Opportunities
Once you understand who your target market is and where they are located, you can perform a more in-depth analysis and look closer at their consumer habits. This, in turn, can then lead to new business opportunities that you may not have previously considered.
If you are catering to the needs of a younger audience, for instance, and you find that this audience is engaging with a specific trend, fashion or pastime, then you could cash in on this by collaborating with the brand or label in question, associating your name with theirs.
3. It Helps Develop an Advertising Strategy
Before you start creating advertising campaigns, you first need to understand what kinds of advertising platforms might suit your business.
Knowing where to advertise is hugely important not just to your sales, but to your budget, too; advertising, in the traditional sense, is not cheap, after all. As an entrepreneur or small business owner, your advertising budget is likely to be small, so you need to maximise your return by identifying which platform can guarantee the best value. If you spend your entire budget on a radio advertising campaign, for example, but your target audience doesn't listen to the radio, then that is poor research on your part.
Market research also helps you pick up on the major issues and concerns that your target audience cares about and, therefore, what you should attempt to address in your advertising. If you are using the right tone and language to reflect this, then your advertising messages will resonate far more; socially conscious Generation Z consumers, for instance, are more likely to respond to your advertising if it discusses the sustainability and positive environmental impact of your product.
4. It Provides Insight Into Your Competitors
Differentiating yourself from your competition is one of the hardest things for a business owner to do. To achieve this, though, you first need to know what it is they are doing; market research allows you to study and understand your competitor's strategies and see how they differ from yours.
It can be used as a learning tool, too. If you know a competitor is more successful than you, for instance, then try to understand why, and adapt your strategy accordingly. This doesn't mean that you have to copy the competition, either; you could make a point of going in the complete opposite direction to make waves in the market and gain more attention.
5. It Makes the Big Decisions Easier
Once you know what your customers are looking for, you can begin to develop the magic marketing formula that will make them happy. This means documenting and recording all of your research, and using it to make informed decisions going forward.
This could involve product testing, research into brand awareness and the use of study groups to gain consumer insight. You can analyse any strategies you put into place according to the outcome of your research and, if the results of your studies change, you can tweak your already existing strategy.
In an era where business is massively data-driven, market research offers an invaluable platform on which to make key decisions and drive growth.
6. It Reduces Risk
Risk management is essential in any line of business and, through responsible market research, you will be more aware of the trends - and potential pitfalls - of your target market.
You will also know about any outside factors that may affect the way purchasing power is allocated. As industry trends change, your marketing strategy has to change with them, and as external factors alter the landscape, you have to understand how they can put a dent in your marketing plan. Predicting these factors and knowing how to deal with them will help you avoid unforeseen problems and any associated loss in market share.
7. It Aids Product Development and Decision Making
Customers may be loyal, but that does not mean that they don't appreciate it when you mix things up a bit and develop your product to meet their ever-evolving needs.
In a business sense, your product is a living entity, and sometimes it may need a facelift to attract new customers and stay relevant. Market research helps with all this and more. Once you know in which direction your product should evolve, you can shift your marketing strategy accordingly and quickly make reliable marketing decisions.
This is particularly important to preserve the longevity of your brand, as illustrated by the example of beverage giant Coca-Cola. When its rival, Pepsi, started gaining more of the market share in 1983, Coca-Cola developed a new, sweeter beverage to mimic Pepsi's taste; however, the company immediately received over 40,000 letters of complaint, with people failing to understand why the formula had been changed. The company quickly reverted to its previous formula and rebranded it as the phenomenally successful Coca-Cola Classic, appealing to the core of its target audience and re-establishing itself as the market leader.
Essentially, starting and running a business without knowing anything about the market is a strategy that is doomed to failure. Therefore, the importance of market research cannot be understated and is something that every business owner should conduct, either independently or through a third-party agency.
What do you think? Is market research important? Let us know your thoughts in the comments below.