Market research

Many people starting businesses put considerable time, effort and financial resources at risk in their new venture.  Some choose to test their business on a part-time basis before committing full time to it.  Successful business people are risk minimisers rather than risk takers.  They use well-proven tools to ensure the venture has a good chance of succeeding.

Market research is one of these tools.  It will help you answer these critical questions:

• Is there a demand for your products and services?  This is the most basic question: do people or other businesses actually want your products and services?

Note | Some hard evidence of potential demand (see Direct research below) is far superior to “if only 10% of the market buy our product” type guesses.

• Is this demand sustainable? Is the market for your products and services growing, mature, or in decline?  Is it limited to New Zealand, or do see opportunities for export?
• How big is the potential market?
• How strong is the competition?
• What are the barriers to entry for others?  If you launch a successful business, what barriers might stop others copying your success?
• What are the threats to the potential market?  For example, being overtaken by new technology if you are in the technology field, or a virus threat limiting tourism numbers if you are starting a tourism business.
• Can you bring your products and services to market at the right price?  This has to be a price that will enable you to sustain the business (make a reasonable profit) but also a price that will attract customers.  
• What is your competitive advantage?  No business survives long if it does not have some unique points of difference from other businesses.

Generally, the more market research you can do the better.

Note | Friends and family may quite naturally wish to be very supportive of your ideas, so don’t rely on them for approval of your business ideas.  Seek the opinion of experienced business people as well. 

How to undertake market research

There are two main ways to conduct market research:

1. Direct (or Primary) research

This involves finding out possible demand from potential customers. For example:

• Asking potential customers if they would buy your product or service and if so (this second part of the question is equally important), how much they would be prepared to pay.
• Test marketing your product or service in a segment of the market to gauge potential demand.
• Researching optimum business locations (a particular issue for retail businesses

2. Indirect (or Secondary) research

This involves finding out as much as possible about the market from secondary sources, for example:

• Gaining market demographics (statistics on people) and trade statistics from such sources as the Statistics New Zealand website, libraries, industry journals and magazines.
• Researching competitors to see what they offer, what gaps exist and what you could do better
• Visiting the library to research trade catalogues and directories
• Researching industry journals and magazines
• Using the Internet to research competitor websites, trade statistics, search online directories, etc.