Micro and Home-Based Businesses - Market Research

Oklahoma Cooperative Extension Service

Glenn Muske PhD
Home-Based and Micro Business Specialist

Tom woke up one morning with an idea for a new product. To his carpool friends, he asked if they would ever use such a product. Tom was doing market research.

Sally always wanted to have a small business. She knew what she wanted to do but could not decide where to locate. One day she happened to drive to a new area of town and noticed a vacant store that seemed like a good location. During lunch time she went to the library to see what she could find out about that part of town. Sally is doing market research.

Bob owned a printing service. While shopping for supplies at the hardware store, he noticed what items people bought. He wondered why they made the selections they did. Then he wondered why his customers made the decisions they did. To find out, Bob hired the students from a college marketing class to survey his customers. Bob is doing market research.

In the morning paper, Janice noticed a competitor had opened a store downtown. Since she had a client to meet that morning, so she decided to leave early and take a look at the store. Janice is doing market research.

Any good marketing book will contain numerous refer­ences on how a business owner must do marketing. Market research is an organized process to gather, analyze, interpret and utilize relevant information about the business environment for the purposes of making accurate business decisions.

Market research focuses on potential customers, existing customers, the competition, and the business environment. The ultimate goal of market research is business success. Market research provides information useful in developing short, medium, and long-term marketing plans. The objective of market research is to:

1. Identify potential target markets
2. Identify customer needs and wants
3. Determine if the product or service meets customer needs
4. Determine the best promotion technique for each mar­ket
5. Examine the competition

These scenarios show that market research can be a formal or informal process. Asking questions to friends, rela­tives, or family is an informal method of market research, while hiring an individual or agency to do a survey in person, through written questionnaires, or by phone is a formal way to do market research. The data can be quantitative (some­thing that can be reduced to numbers) or qualitative (such as Janice’s observation of the open look of the competitor’s new store and the manner in which the owner is greeting each customer personally).

Market research also uses primary or secondary data in the analysis and decision making process. Primary data is collected directly for the business owner. It can be a formal process like Bob’s surveys performed by students in the mar­keting class, or an informal process like Tom’s questions of his carpool group. Primary data also is collected from sources other than people. Janice’s physical survey of the competition provides her with primary data. Secondary data is information collected and made available to the public to use as needed. Secondary data can be Census Bureau information, highway traffic counts, building permits issued, trade association sales figures, or chamber of commerce statistics.

Whether formal or informal, primary or secondary, the purpose of market research data is to help the business owner make better decisions. Using market research, the business owner can develop an accurate understanding of the potential customer. The goal of market research is to reveal unfilled needs in the form of a market niche, customers’ needs, a competitor’s weakness, or an unused marketing strategy. The ultimate goal is to increase the business’ sales and profits.
Not all data collected is valuable to the owner. Surveying the customers who walk by a telemarketing business tells the owner very little. National sales statistics alone offer little assistance in a decision to open a store. The data collection and analysis must relate to the question the owner is trying to answer. Bob’s selected his own customers as the database from which to gather information; customers are one of the most valuable data sources for the business owner.

Should marketing research be done by all businesses includ­ing micro and home-based firms? Yes. While it is possible to operate a successful business without it, market research improves the business’ chances of success. Some business owners have been called “lucky” or have made good “edu­cated guesses.” This luck or successful educated guesses are often the result of observations of the business environ­ment – in other words, market research. The best market research programs, however, go beyond hoping to catch the right information. The best market research programs are carefully thought out and planned with a study question(s) in mind. Micro business owners typically have limited resources. Effective collection and use of market research data improves the chances of avoiding mistakes that can consume all those scarce resources.

Can a business owner do his/her own market research? Certainly the process can be learned and need not be difficult. Should the owner do the market research? When possible, it certainly is cost-efficient. However, like Bob’s use of students in a marketing class, there are ways to hold costs down. Market research does consume time. It also requires the ability to fully analyze the data. But the most difficult part of an owner doing his or her own market research is the ability to be objective. The owner may be too closely involved in the business to accept what the research reveals.

When deciding to do your own market research, at the end of this publication is a sample customer profile and competitor analysis. These are only two examples of the possible forms that can be used. Remember to structure research specifically to a certain business.
Market research programs provide three types of informa­tion – about customers, about competitors, and in general. The following kinds of information may be learned in each area:

About Customers
Characteristics

1. Demographics (age, where they live, where they work, race, gender, marital status)
2. Socio-demographics (income, number of children, edu- cation, home ownership, lifestyle)
3. Needs, wants, and desired benefits
4. Past and future purchases (what, when, why, where, how much)
5. Products and services that complement or substitute

Use of various media (radio, television, newspapers, magazines, Internet, etc.)

About Competitors

1. Who they are
2. What products and/or services they offer
3. Price range of products and services
4. Policies on returns, credit, warranties, etc.
5. Special services
6. Parking and store amenities
7. Staff (experience, customer respect, customer focus)
8. Promotions/advertising
9. Image
   

General

1. The physical/geographical area (traffic flow, develop- ment plans, history, growth patterns)
2. The industry
3. The economy
   

Summary
The purpose of market research is to help the owner gather information and make decisions – decisions about who may buy a product or service and about the competition. The information serves as a blueprint to guide future business decisions.
To organize market research data, consider using a SWOT (strengths, weaknesses, opportunities, threats) format. When evaluating a business, what are its strengths (where is it a leader?) and weaknesses? When evaluating the environ­ment, where are chances for growth and what might slow the business?
Market research identifies the available market, discovers the best method to reach the target market, and asks what the customer needs or wants. Market research is a simple, structured, objective way of learning about people – the people who will buy your product or service.

Resources

• Bull, Nancy and Passewitz, Greg (1994) Conducting Market Research. Fact Sheet - CDFS-1252-94. Columbus, OH: Ohio State University Extension.
• Gerson, Richard (1996) Marketing Strategies for Small Businesses. Washington, D.C.: U.S. Chamber of Com­merce.
• Mowat, Barbara and James, Ted (1996) Right from Home. strategies.ic.gc.ca/cg1-bin/dec/
• Torres, Nayda and Israel, Glenn (1991) Marketing Fact Sheet. Florida Cooperative Extension Service SS-FL18-08. Gainesville, FL: University of Florida.
  

Oklahoma Cooperative Extension Fact Sheets
are also available on our website at:
http://osufacts.okstate.edu
Division of Agricultural Sciences and Natural Resources • Oklahoma State University