How to do market research for a small business

You've come up with a business or product idea that you’re excited about. It’s the best idea ever! Now is the time to do some market research to find out just how good your idea is.

Because you're a small business with limited resources, you'll have to take cost-effective steps to gather information to determine if your idea is profitable.

Market research can prevent wasting resources on unwanted products or an idea consumers won't be receptive to.

Let’s take a look at how small businesses can carry out effective market research on a budget.

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Small business market research is the gathering and analysis of information about consumer behavior and economic trends connected to your small business, products, and industry. Your research data can be related to your product designs, branding, advertising concepts, sales channels, and customer service.

Why is market research necessary? It helps small businesses:

• Break into a market

• Look for customers

• Launch a new product or feature

When you arm yourself with information, you can develop products and services, branding techniques, advertising efforts, selling methods, and customer service techniques tailored to the data you gather.

Market research also reduces the risk of costly mistakes and wrong decisions. Effective market research can steer your business in the right direction without unnecessary expense or lost time.

Market research tools for small businesses can be helpful in various ways, not just for introducing a new idea. You can conduct market research to increase the competitiveness or profitability of existing products or services.

Identify potential customers

So, you want to introduce a new product. First, you need to find out who and where your potential customers are. Who is most likely to buy your product?

If you launch your product without knowing this information, you may waste resources producing something that only appeals to very few customers or on advertising and marketing efforts that aren't effective.

Stay ahead of the competition

Market research can help you accurately pinpoint where your business ranks in the marketplace. Your research can tell you how you compare to your competitors or what your competitors are doing to attract customers.

For example, if your research finds that competitors have already figured out an advertising and marketing formula that produces a high level of awareness or a product that customers flock to, you can incorporate that into your business plan rather than starting from scratch. Don’t waste resources reinventing the wheel. Spend resources on improving it.

If your research reveals that competitors are dominating the market more than you are, research ways to become more competitive or surpass them. Specifically, you may find you need to:

• Introduce more products

• Trim your product lines

• Improve your existing products

• Identify customer service lapses

• Adjust your advertising and marketing budgets

• Modify advertising and marketing efforts

Your market research will highlight what is preventing your business from being competitive or giving you an advantage. This information is worth the resources spent on research.

Identify gaps in the market

A gap in the market means there is an area of customer demand that needs to be fulfilled. The gap can consist of problems that haven't been solved. Other companies may fail to see that consumer behaviors and tastes have evolved or other changes have occurred within their market.

Knowing this information can be a gold mine for your business and give you an edge over the competition.

Staying informed on industry trends and developments

Advances in technology are happening at an exponential rate. This rapid technological growth can threaten to make your product obsolete at a moment's notice. It is important to constantly research technological developments related to your industry.

The technological evolutions you find in your research may not only apply to your products. You may discover it’s worth considering automating your business processes or incorporating artificial intelligence, augmented reality, and virtual reality tools to serve customers more efficiently while exceeding their service expectations.

Economic trends like inflation and supply chain insecurity can impact your business if you're unaware of how they may affect your profitability and your ability to serve your customers. If your research indicates economic downturns or supplier issues, you can adjust accordingly to maintain business operations.

Consumer views on sustainability may also affect your industry. Studies show customers gravitate toward products that make environmental and social responsibility-related claims. When products or brands announce they are eco-friendly, they are more likely to see growth and higher customer loyalty than competitors that don't make these claims.

Conduct market research on this particular trend. You'll find the more claims you can make (and can back up), for example, fair trade or carbon zero, the more you’re likely to enjoy growth and improved customer loyalty than businesses that can’t make these claims.

When starting a new business, this is a significant time to conduct market research. It will help determine if your new business concept is sustainable and likely to be successful.

As your business becomes established, you can conduct market research on new or existing ideas, products, or services, especially those that will require a lot of resource.

Begin by conducting secondary market research using existing reliable sources that provide customer and market information at no cost.

You can find useful statistics and business-relevant data from federal business statistics sources, such as the Bureau of Economic Analysis (BEA) or the United States Census Bureau (USCB), regarding:

• General business statistics

• Consumer statistics

• Demographics

• Economic indicators

• Employment statistics

• Income statistics

• Money and interest rates

• Production and sales statistics

• Trade statistics

• Statistics of specific industries

However, relying solely on these sources for general information about your industry trends and demographics won't help you understand your distinct target market. For an in-depth look at your target audience, analyze your internal information resources like sales data or customer-service and frontline employee feedback.

A more costly, but effective, way to conduct market research is to gather original information through primary research by conducting interviews, focus groups, and surveys. This method provides the most valuable information, but it can take time, effort, and cost.

Market research costs depend on what you want to accomplish. It can range from zero cost to thousands of dollars. The four main factors that can influence the cost of market research are:

• The type of research needed to meet the required goals

• The number of participants or sample size necessary for the research

• The percentage of the general or business population who meet your criteria

• Data-collection methods and incentives needed to encourage research participation

The cost of your market research will depend on the business decisions you need to make, the level of insight you need, and your available budget.

Being a small business, you may not have thousands of dollars to spend on market research tools that gauge a customer's perspective. However, there are resources you can use to discover how potential customers view your business and industry. 

Quora

Quora is a social media platform where users can submit questions on any topic and answer questions based on their expertise.

When you set up your profile, you'll select issues related to your business. The platform will notify you when questions tagged with the chosen topics are addressed. Quora can be an excellent forum for collecting information on customers' problems or issues with businesses in your industry.

Reddit

This platform is organized into communities focused on specific topics and niches. It can help you understand the successes and struggles that your target audience experiences when interacting with your industry. This can provide valuable insight into how to address them.

Amazon product reviews

If you or your competitors have products listed on Amazon, the reviews that customers leave are a fountain of information on how to improve your small business.

If you have products listed, the customer reviews will inform you of the successes and failures of your product or customer-service techniques, allowing you to adjust your business operations appropriately.

Likewise, you can get the same information from your competitors' reviews to steer your business to achieve their successes and avoid their failures.

Surveys

Surveys are a set of questions aimed at a target sample of people whom you've already researched. Set a clear goal for your survey, then design the survey with questions that prompt responses to help you achieve that goal.

Next, figure out how to distribute the survey. Will participants be sent the survey by mail or email, or will they be surveyed online or in person? When you've collected a suitable sample of answers, you can analyze the responses.

Facebook groups

There are Facebook groups relevant to a host of industries, filled with businesses or people interested in the products or services you offer or are interested in offering. Reading through questions, comments, and conversations can provide a wealth of information about how these people relate to the topic, whether positively or negatively.

Competitors

When researching your competitors, there are several factors you can look at to see how your business compares, including:

• Features and products

• Pricing

• Target audience

• Marketing strategies

• Elements that make products or services unique or superior

• The strengths and weaknesses of your product against your competitors

Once you know how you compare to the competition, you can make the necessary adjustments.

Customer behavior and analytics

This type of research examines the interaction of customers with elements of your business such as:

• Products/services

• Marketing messages

• Website features

This will determine the effectiveness of your customer satisfaction efforts and campaigns.

You'll learn about your customers’ preferences, needs, and motivations through this type of research, so you can meet or improve their expectations and grow your customer base. 

Analytics platforms are an example of a tool that can measure customer interactions with your website.

Ask your audience

Interviews, like surveys, ask questions, but they are usually a one-on-one, in-person conversation with a customer that helps you delve deeper into a specific topic or clarify answers.

You can design an interview that asks a defined set of questions in a particular order. If you want a less formal setting, you can conduct an interview that follows the flow of conversation.

Besides government sources, you can get free market-research reports from:

• Academic institutions

• Industry associations

• Market-research firms

Universities and colleges, such as Harvard, Stanford, Columbia, and others, will conduct research as a part of their curriculum or initiatives and publish their findings in marketing reports. You can access many of these reports for free.

Industry associations offer free marketing reports for businesses in their industry, even if you don't belong to your particular industry association. Check their websites to see which reports are available.

You can find other free market-research reports through sources such as:

• Online databases

• Websites

• Platforms like Statista, Pew Research, and Google Trends, which provide reports, trends, and insights

• Public libraries: these may contain market research reports in their business sections, and many have subscribed to databases that may provide the marketing research data you're looking for

• Trade shows and conferences related to your industry: these can offer free access to reports, whitepapers, and case studies that can help with your marketing research

Whether you're just starting a new business or have been in business for a while, market research can support and steer your business without costly mistakes. Knowledge is power, so the more information you have about your customers, competitors, and what’s happening with the economy, the more successful your business will be.