Welcome to Markets and Customers: Market Research!
Hi there! Starting an enterprise is exciting, but success isn't just about having a great idea; it's about knowing exactly who needs that idea. This chapter is your guide to becoming a detective, finding out what your customers truly want before you spend time and money building your business.
Market research is absolutely crucial because it reduces risk. If you know your customers, you won't be guessing! Let's dive into how successful entrepreneurs find the information they need.
8.2 Understanding Market Research
Market research is the process of gathering, recording, and analysing data about customers, competitors, and the market. The main goal is to identify potential customers and understand their needs and wants.
Why do we need market research?
- To find out if people actually want your product or service (the need/want).
- To determine the best price point.
- To understand where the best place is to sell your product (location).
- To identify your target market (the specific group of customers you are aiming for).
Think of it this way: You wouldn't bake a cake for a party without first checking if anyone is allergic to nuts, right? Market research is your way of checking for "allergies" before the enterprise "party" starts!
Key Takeaway
Market research helps you identify your potential customers and reduce the risk of failure by making informed decisions.
The Two Pillars of Research: Primary and Secondary
All market research falls into one of two categories. It’s important to know the difference because they provide very different types of information.
MEMORY AID:
Primary = Personal, brand new information.
Secondary = Stored, already existing information.
1. Primary Research (Field Research)
Definition: Primary research involves gathering new data directly from the source—your potential customers. This information did not exist before you collected it.
Methods of Primary Research
Entrepreneurs use several methods to talk directly to their target market:
- Surveys/Questionnaires: Asking customers structured questions (either online, face-to-face, or on paper).
- Focus Groups: Bringing a small group of typical customers together to discuss the product/service in depth. This generates qualitative (opinion-based) data.
- Observation: Watching how customers behave (e.g., seeing which products they pick up in a shop, or how long they spend looking at a website).
- Interviews: Asking specific individuals detailed, open-ended questions.
Evaluating Primary Research: Advantages and Disadvantages
When you evaluate a research method, you must consider its pros and cons in terms of the factors below:
| Evaluation Factor | Advantages | Disadvantages |
| Suitability for the Enterprise | Data is highly relevant and specific to your product and enterprise idea. |
Requires significant time and specific skills (like creating good survey questions). |
| Suitability for Target Market Reach | Allows you to get feedback directly from the exact group of people you want to sell to. |
The sample size is often small, meaning the results might not represent the whole population. |
| Cost | If done simply (e.g., quick questionnaire), it can be relatively low cost. |
Can be very expensive if you use professional interviewers or large focus groups. |
| Availability (Time) | The data is up-to-date because you collect it right now. |
Takes a lot of time to design the method, collect the data, and analyse the results. |
Common Mistake to Avoid: Students often think primary research is always the best. It gives great quality data, but if you have a tight budget or deadline, the high cost and time commitment might make it unsuitable.
Key Takeaway
Primary research provides specific, current, and relevant data but is generally expensive and time-consuming to collect.
2. Secondary Research (Desk Research)
Definition: Secondary research involves gathering and analysing data that already exists. It has been collected by someone else for a different purpose.
Sources of Secondary Research
This information is often found easily at your desk (hence 'Desk Research'):
- Internal Data: Existing sales figures, customer records, and past research reports held by the business.
- Government Publications: Census data, economic forecasts, and population structure reports (great for finding market size).
- Trade Magazines and Journals: Industry-specific articles and data on market trends and competitors.
- The Internet/Social Media: News articles, competitor websites, public financial statements, and general statistics.
Did you know? Even reviewing a list of your past customers' postcodes to see where they live is a form of secondary research!
Evaluating Secondary Research: Advantages and Disadvantages
| Evaluation Factor | Advantages | Disadvantages |
| Suitability for the Enterprise | Provides great background information on the whole industry or economy (e.g., "The soft drink market grew by 5% last year"). |
Information may be too general and not specific to your unique product or local area. |
| Suitability for Target Market Reach | Allows easy access to data on very large populations or geographical areas. |
Does not allow for direct interaction with customers, so you can't ask "why" they bought something. |
| Cost | Usually free or very cheap (e.g., using a search engine or free government reports). |
N/A (Cost is generally a massive advantage here). |
| Availability (Time) | Extremely fast! Information is immediately available and gathered quickly. |
The data might be outdated (e.g., a report from five years ago) or gathered for a different objective. |
Key Takeaway
Secondary research is fast and cheap, providing excellent background information, but it may be general or outdated.
Choosing the Most Effective Method
When setting up your enterprise, you will likely use a mix of both primary and secondary research. The effectiveness of any method depends entirely on the specific needs of your enterprise and the local context.
Checklist for Effectiveness:
- What is your budget? If funds are very low, secondary research is more appropriate.
- What information do you need?
- If you need to know the *size* of the overall market, secondary data (like census reports) is better.
- If you need to know *why* customers prefer blue packaging over green packaging, primary data (like a focus group) is essential.
- How fast do you need the answer? If you need a quick decision, secondary research is better due to its high availability.
- Who is your target market? If your customers are older, face-to-face interviews (Primary) might be more effective than relying on social media data (Secondary).
Example:
An entrepreneur wants to open a new café in a small town (Local Context).
- Secondary Research Used: Checking town council reports to find the average age and income of residents (Cost effective, fast, general size data).
- Primary Research Used: Standing outside the proposed location and asking passers-by what kind of coffee they usually drink (Specific to location, relevant, but time-consuming).
By combining both methods, the entrepreneur gets both the big picture (Secondary) and the detailed, specific customer preference data (Primary).
Quick Review Box: Market Research Methods
Primary (New): Surveys, Interviews, Observation.
Pros: Relevant, current, specific to the target market.
Cons: Expensive, slow, small sample size.
Secondary (Existing): Government reports, Internet data, Sales records.
Pros: Cheap, fast, provides large-scale overview.
Cons: Outdated, too general, not specific to the product.