Before you can start a business, you must conduct thorough research into the type of market you are likely to attract.
If you have a good idea of the type of research tools available, you need to start focusing on specific areas to research. This section discusses the customer research you should conduct before starting up your business. Much of this information, however, is very valuable for the ongoing development of your business.
Even after you have established your business, you should still maintain and continue to research information about your customers, for their preferences might change often. The information presented here, therefore, applies to all stages of business development.
The first thing you’ll need to do when you perform market research is define the customer base. By determining the characteristics of the customer base, you will narrow the scope of your research.
A thorough customer analysis addresses these three areas:
- Customer Motivation.
- Customer Requirements.
Segmenting your market
Segmentation allows you to determine the specific attributes of your target market. There are numerous segmentation factors to choose from, but the factors most commonly taken into account are customer attributes, geographic zones, and product factors.
These are some commonly used customer attributes:
- Company size.
The geographic zones used in segmentation may be as large as a whole state or territory, or as small as a street within a suburb.
Product factors, on the other hand, concentrate on the product itself and include the following:
- User characteristics.
- Frequency of usage of product.
- Type of benefits sought from product.
- Pricing sensitivity.
- Major competitors.
- Utilisation (purpose for which consumer will use product).
- Brand loyalty.
- Customer Motivation.
Once you’ve identified customer segments, the next step is to determine what motivates customers to buy a particular product.
To find out what motivates customers to buy a particular product, you may need to form a questionnaire that you can mail to consumers, use in telephone surveys, or use in personal interviews.
The questionnaire should list the attributes of your product and ask how they would affect the purchase decision. You can also include questions that ask customers if they would give up one benefit to gain another. This way, you can determine which factors are more important than others.
You’ll also need to research your competition. Researching the competition will provide you with a clear picture of potential threats and opportunities developed in response to your competitors’ current strategies, weaknesses and strengths.
The first step is to identify the competition. There are essentially two ways to identify competitors.
Customer groupings – Competitors are grouped by how intensely they contend for the buyer’s dollar.
Strategic groupings – Competitors are grouped based on their competitive strategies.
There are several ways you can group competitors according to competition for the customer’s dollar. In most industries, you can evaluate competitors based on how intensely they will compete with you.
There will usually be a core group of direct competitors, other competitors who don’t compete as intensely, and those who do not compete with you directly but still pose a threat. Most companies focus most closely on their most direct competitors.
To determine the intensity of competition within the industry, you can send a questionnaire to prospective buyers of the product you intend to market.
In the questionnaire, you can ask them a series of brand-loyalty questions:
- Which brand do they currently buy?
- Have they tried other brands?
- If so, which brands have they tried?
Have them rank the different brands of products according to preference. The idea behind this type of questionnaire is to help you see the market and the competition from a customer’s point of view.
Grouping by strategies
Grouping competitors by strategies is far different from grouping them by customer viewpoint.
You would group competitors by similar competitive strategies that they pursue over a period of time, uniform characteristics, or similar assets and skills.
You also need to determine which barriers exist within each group – barriers that would prevent competitors in one group from moving to another strategic group. Usually these barriers include factors such as advertising budgets, distribution channels, research and development budgets, etc.
The information stage
Whether you use customer groups or strategic groups, you’ll have to gather information on your competition. Many companies communicate extensively with their suppliers, customers, distributors, government legislators and regulators, and security analysts and stockholders if they sell stock.
Contacting any one of these sources can result in valuable information regarding your competitors. You should also subscribe to all relevant magazines to evaluate your competitor’s adverts. The copy in these ads usually indicates the company’s objectives.
Trade shows are another good source of information. Many of your competitors will display their products and may discuss their objectives at such events.