Market research examines consumer behavior and trends in the economy to help businesses develop and fine-tune their business idea and strategy. By gathering and analyzing data, it helps businesses understand their target market.
Market research evaluates the viability of a new service or product through direct engagement with potential customers. It allows companies to define their target market and gather opinions and feedback from consumers about their interest in a product or service.
Research can be conducted in-house or by third-party specialists in market research. Methods include surveys and focus groups. Test subjects are usually compensated with product samples or a small stipend for their time.
Key Takeaways
- Companies conduct market research before introducing new products to determine their appeal to potential customers.
- Tools include focus groups, telephone interviews, and questionnaires.
- The results of market research inform the final design of the product and its marketplace positioning.
- Market research typically combines primary information (directly from consumers) and secondary information (data from external sources).
How Market Research Works
Market research is used to determine the viability of a new product or service. The results can be used to revise product design and fine-tune the strategy for introducing it to the market, including market segmentation and product differentiation elements tailored to specific segments.
Businesses perform various tasks to complete the market research process. They gather information based on the targeted market sector and analyze it to draw conclusions about optimal design and marketing strategies.
Market research is a critical component of the research and development (R&D) phase for new products or services. It employs various methods, including surveys, product testing, interviews, and focus groups, to understand consumer wants, develop suitable products, and maintain a competitive advantage.
Primary Market Research vs. Secondary Market Research
Market research generally combines two types:
Primary Market Research
Primary research is generally of two types: exploratory and specific.
- Exploratory research is less structured, uses open-ended questions, and is performed via focus groups, telephone interviews, or questionnaires to identify issues related to a product under development.
- Specific research delves deeper into the issues identified by exploratory research.
Secondary Market Research
Secondary research draws on existing data from external sources, such as government census data, trade association research reports, polling results, and other business research within the same market sector.
History of Market Research
Formal market research began in Germany in the 1920s. It took off in the US with the Golden Age of Radio. Companies began to analyze audience demographics for radio shows, creating targeted advertising strategies.
Types of Market Research
Face-to-Face Interviews
Initially, market research involved interviewing people on the street about their reading habits and the advertisements they remembered. These techniques evolved into more structured surveys and focus groups.
Focus Groups
Focus groups involve a small number of representative consumers who try a product or view an advertisement and provide feedback.
Phone Research
Telephone interviews became a more efficient and cost-effective method for collecting information. However, it’s becoming less feasible as landline usage declines and mobile phones replace them.
Survey Research
Surveys provide a cost-effective way to gauge consumer attitudes, usually via mail with incentive coupons or vouchers for participation.
Online Market Research
Online market research adopts traditional strategies and techniques but conducts them over the Internet. Potential customers participate in surveys or provide feedback online, allowing less intrusive and timelier engagement.
How to Conduct Market Research
The first step in effective market research is identifying the study’s goals, ensuring it answers a clear, well-defined problem, such as consumer preferences, brand recognition, or ad campaign effectiveness.
Next, identify the intended research participants and the data collection methods to avoid unnecessary expenses. Once the data is collected and analyzed, a report explains the study’s results.
The company’s executives then utilize these findings to make informed business decisions—targeting different consumers, adjusting price points, or modifying product features based on research insights.
Benefits of Market Research
Market research is essential for developing brand loyalty and customer satisfaction by identifying the demographics and market segments most inclined to use a product. It also informs advertising strategies, enabling targeted marketing rather than broad-brush approaches.
Note: Market research’s effectiveness hinges on participants’ honesty and willingness to engage.
Example of Market Research
For instance, a company considering a new business may conduct market research to gauge its product’s viability. Confirmation of consumer interest solidifies the business plan; otherwise, adjustments are made based on feedback to better align with customer needs.
Main Types of Market Research
The main types of market research are:
- Primary research including focus groups, polls, and surveys
- Secondary research involving academic articles, infographics, and white papers.
Qualitative research provides insights into customer feelings and thoughts, while quantitative research uses statistical data like website views, social media engagement, and subscriber numbers.
Online Market Research
Online market research employs same strategies as traditional research, tailored to strategies suited for the Internet. Consumers participate in surveys and offer feedback at their convenience, making the process less intrusive.
Paid Market Research Surveys
Paid market research rewards individuals with small payments or discount coupons for their participation in studies, such as filling out questionnaires or joining focus groups.
Market Study
A market study analyzes consumer demand for a product/service, including price, location, competition, substitutes, and general economic factors influencing the product’s adoption.
The Bottom Line
Market research is crucial in a company’s R&D stage. It allows understanding the viability of new products in advance, aiding in their development and forecasting how they will perform in real-world conditions.
References
- Britannica Money. “Market Research”.
- U.S. Small Business Administration. “Market Research and Competitive Analysis”.
