By Max Oerder
“Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. To one he gave five talents, to another two talents, and to another one talent. Then he went on his journey. The man who had received the five talents went at once and put the money to work and gained five more talents.” (Matthew 25:14-16)
All business consists of buying/selling a product or a service and receiving payment in return. In other words, it consists of putting money to work. The process of buying and selling means there is a buyer (customer) and a seller (business person).
The key to any business is the customer. Without a customer you have no business. So before you can begin with a business you need to know what the market is for you products and who your customer is likely to be.
So, where do you get customers? And how do you find out where they are hiding? What products do they want? What are their tastes and preferences regarding packaging and so on? How often do they buy? And so on, and so on.
The process of finding out what the customer’s wants and needs are and where they live, work, and play is what’s known as Market Research.
Market research is a method of collecting and evaluating information obtained from customers and potential customers so that you may make available goods and services that meet their needs. It also enables you to develop a marketing strategy to bring your products to the marketplace at the right price, place and time.
There are two main branches of Market research and these are known as Primary research and Secondary research.
Essentially this refers to information gathered specifically for the problem that is to be solved or to provide the needed information. This is usually done by means of questionnaires, but may also take the form of experimentation and/or observation.
Questionnaires are a way of getting information directly from potential customers and can be in several different formats: Personal questionnaires (such as door-to-door canvassing), postal questionnaires, telephone questionnaires and group questionnaires (such as asking a group of consumers how they feel about a proposed new product).
Major activities involved in the design and execution of a market survey include the formulation of the questions, the actual act of collecting the data (i.e. going into the marketplace to ask the questions), the analysis of the results, and the interpretation of how these results can be utilised to formulate a meaningful market strategy.
The field work and analysis of using questionnaires can be very expensive and time-consuming and it can be very difficult to eliminate any partiality factor in the way that the survey is conducted. Every potential customer who is questioned must be asked the same questions without any guidance or highlighting of particular questions or answers. The questionnaire study could also take the form of a localised survey particular to the area of operation of the business and in this way costs can be reduced, however the accuracy of the results will also be influenced.
Potential customers from whom information is to be gathered might be individuals, businesses, groups, households, etc. Usually only a sample of the total possible customer population is targeted and so allowance also needs to be made for a margin of error, however if the target audience for the questionnaire is carefully selected this is quite small.
Observation entails watching people and observing and recording their behaviour (e.g. television viewing patterns, cameras that monitor traffic flows, analysis of the buying patterns of consumers regarding existing products).
Experimentation – This means the testing of various marketing activities in the marketplace and then measuring the effect of each of these on consumers. For example, test marketing, where a new product is launched in a small, geographical area and then the response of consumers towards it will have a bearing on whether or not the product is launched on a wider front.
Secondary research involves the utilisation of data that has been collected by other sources and that has not been specifically designed and collected for the current study, but is still relevant. This is a far cheaper and quicker method of collecting information than doing primary research, but it may be dated, and the accuracy may not be as high as that of a full-scale primary research project.
The main sources of secondary data are reference books, government publications and company reports, newspaper surveys, lifestyle surveys and the like.
Both the primary and the secondary research will provide the business with much information about its markets and its customers. This information is then used to analyse and describe the present market conditions and customer preferences, and then to try and predict which way the market will react in the future as well as trying to explain trends that have and are occurring in the marketplace.
The business may also use the market research information to divide the market into customer segments. This involves analysing the market and identifying distinct groups of consumers who have similar characteristics, so as to tailor the offering to each group in a way that best meets their needs.
Some often used segmentation factors are:
Geographic – the region of the country, urban -v- rural, etc.
Demographic – their age, sex, income, type of house, and socio-economic group.
Organizational type – business, NGO, service, retail, etc.
Usage factors – how often, how much, etc.
Customer behavior: –
o When do they buy?
o What benefits do they want?
o How much of the product do they use?
o What are their hobbies, interests, lifestyles, mind-set, etc?
Alternative factors should also be considered. Also a businessperson should consider how your competitors approach segmentation.
If you have done your market research and segmentation effectively, this can lead to the identification of new possibilities in the marketplace.
Some Practical Steps In The Determination Of Potential Market Opportunities for a Small Business
1. Give a detailed description of people who will possibly buy your product. Ask yourself questions like: How old are they? Where do they live? What do they do? What advantage will my product hold for them? etc.
2. How many of the people you have described live in the area in which you want to operate or move through it daily/weekly?
3. Are there seasonal factors which will influence possible customer buying patterns?
4. Describe how the customer will decide on your product above those of you competitor? Will their decision be based on price, quality, convenience, availability, or other factors?
5. How often will the possible purchasers of your product buy the products: daily, weekly, monthly? Where would they expect to find your product?
6. How much (in Rand and/or units) would a typical customer purchase per occasion?
7. How will possible customers know about your product offering: advertisements, sales personnel, referral by others, etc.?
8. Use the above information to determine your expecxted monthly and yearly sales – in units and in cash.
9. Is the expected income sufficient to cover your expenses?
10. Are there competitors with whom you could form a strategic alliance in order to enhance both your business opportunities?
About the Author: –
Max Oerder, Pr. Eng., F.S.A.I.E.E., M.I.B.A., has consulted to a variety of businesses in a diverse range of industries. He is experienced in the preparation of business and project plans for Corporate Divisions and Small Businesses.