How Do Businesses Use Market Research?

How Do Businesses Use Market Research?

Market Research Can Make Your Business More Profitable

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Definition:

Market research is the collection and analysis of information about consumers, competitors, and the effectiveness of marketing programs.

While market research is crucial for a business startup, it’s also useful for established businesses to increase profits. It’s accurate information about the marketplace, the target market (customers), and the competition that allows the development of a successful marketing plan.

How Do Businesses Use Market Research?

Business owners use market research to:

• Determine the feasibility of a new business. Market research is an essential component of a business plan for startup businesses - if market research does not indicate a demand for the product or service, the proposed business will not likely be viable.
• Test interest in new products or services to respond to customer needs.
• Find and develop new markets or expand existing ones.
• Monitor industry and economic trends and develop strategies to adapt the business to the changing environment.
• Determine optimal product placement – when, where, and how a product or service will be distributed.
• Improve aspects of their businesses, such as customer service.
• Monitor the competition – checking competitors ads, websites, social mediacampaigns, etc. to see how they attempt to capture some of your market share.
• Develop competitive strategies – for example, setting competitive pricing for products or services or determining how your products/services and customer service compare to the competition.
• Develop optimal strategies for promotion - how to get the message out to the target market via branding, traditional advertising and/or social media, etc.

How is Market Research Conducted?

There are several ways that market research is conducted, including:

• Customer surveys - These are conducted in various ways, including online, one-on-one interviews, “Satisfaction Surveys,” and phone calls. Traditional phone surveys are on the decline due to cost and the low rate of response (most people find them irritating). Many businesses provide a short customer feedback form in a prominent location on the premises (or include the form with invoices), so customers can record their comments.
• Web-savvy businesses use their online presence to conduct market research by encouraging customer feedback on business websites and social media. A short web-based questionnaire about your products and services is a simple, inexpensive, and effective way to survey customers. Make sure the survey is usable from mobile devices. Social media platforms, such as Facebook, Twitter, LinkedIn, and others provide a dialogue between you and your customers so that you can receive immediate feedback on product and service offerings and make your customers feel like you value their opinions. Unfortunately, social media campaigns can also backfire as people are statistically more likely to post negative comments or reviews than positive ones. Poor customer service and negative product reviews can lead to widespread criticism on social media and be disastrous for businesses.
• Product trials or usability studies - Providing samples of new products to customers in a live setting and gauging the response can be very effective. Direct customer feedback can be used to make changes to the product or determine optimal pricing. Product trials are ideally suited for businesses like food service establishments that wish to test new menu items.
• Focus groups - These are organized sessions with groups of people where a scripted topic or Q&A discussion with a moderator takes place. Focus groups can collect useful information but are difficult to organize; they are also an expensive method of market research for small businesses. Focus groups are increasingly conducted online.
• Direct observation - This involves watching or video recording customers in a natural setting to see how they respond to displays of products or services. Note that for privacy reasons, direct observation by video can only be conducted in a public setting unless the person being surveyed is aware of being video recorded. Direct observation has advantages in that for the purposes of collecting information the customer is behaving naturally (rather than possibly responding in a contrived fashion as they might with another survey form), but it is a very time-consuming method of market research.

While it’s common for businesses to hire market research companies to conduct market research for them, it is possible for small business owners to do their own.

Examples of Changes Driven by Market Research

McDonald’s

After several quarters of declining sales, McDonald’s executives decided in 2015 that major changes were required to combat the public perception of McDonald’s products as being unhealthy. Based on market research, the company made menu changes and no longer sells chicken products containing human antibiotics or other ingredients, such as phosphates and maltodextrin. Other changes include the addition of more salad choices and healthier desserts including apple slices.

Lego

For years Lego was an enormously successful product with young boys but was popular with only 10% of female children. In response, Lego conducted a huge four-year market research campaign with over 3500 young girls, resulting in a new product line featuring vibrant colors and different figurines. The new products became a huge success and the share of female Lego users increased sharply.