13 Mar 5 Key Components of Market Research
Market Research is a crucial step that you should always take to ensure your business is minimizing risk at every level. Researching the market before going operational allows you to gather both qualitative and quantitative data that, when properly analyzed, allows you to make informed, insightful decisions that are aligned to the users and buyers. Although there are many important takeaways from the market research process, below are some of the most vital.
One of the fundamental topics market research identifies is the overall market potential. There are many components to be considered to reliably estimate market potential. It requires you to first identify the entire customer base and demand. Although later you will begin to narrow this to your target market, you should first understand the entirety of consumers that may need or desire your product or service. When the market size is being measured, it’s always important to be able to consider the growth of the demand of a certain market or industry to be able to understand not only the actual size but the trends of future projections.
While researching the market, you will identify the established and up-and-coming players. Only through truly understanding the competition can you determine where you stand regarding your value proposition and your competitive advantage towards them. It is through this component of market research that many threats and opportunities are identified and considered. Most importantly, comparing pricing strategies and understanding what strategies can be put in place to enter the market are always key. Never underestimate your competition because they will be able to provide insights as to where the opportunities to grow really are while also identifying what needs are unmet.
Pricing analysis considers several factors. One of them is analyzing your competitors: how much they are currently charging for your similar service; what terms and conditions they are providing to their client base; and ultimately, what pricing model they are using? Some clients may charge for their products, others for their periodic service; some may develop a subscription based pricing model while others may rent their assets. The pricing analysis not only allows you to compare pricing but the way people perceive and receive your targeted pricing model to understand how consumers will react to your product or service at different price points. The relevant data is collected in a variety of ways, such as examining competitor pricing when the information is available, using methodologies such as mystery shopping, or becoming clients of your competitors and conducting consumer surveys to understand intentions. Other factors will go into setting your final price, but this exercise is done independent of your costs or margin considerations. As price can be one of the most crucial aspects of whether a business is profitable, understanding customer pricing thresholds is paramount.
Regardless of whether your company relies mainly on locals or is targeting consumers on a national or global scale, your location will have an important impact on your business. It is obvious that if you rely only on foot traffic, location is key. However, even the locations of offices or distribution centers need to be carefully considered. It will determine things like your employee pool, shipping costs, taxes, and rent or purchase prices. To analyze location, you will need to consider what criteria is most important to your specific circumstances. Will it be demographics, weather considerations, the time zone(s) of the clients you support, logistic costs, or distance from customers, or will it narrow down to areas of high traffic if focused on a retail industry? Once the list of criteria is determined, the location analysis can be compared by neighborhood, city, or state. Those businesses that work on a nationwide market – sometimes online – will focus more on things like cost of living, rent, and utilities to set up a warehouse, office, or store.
Whether you are physically moving products or providing services, how they will reach your end customer is vital to successful business operations. Thorough distribution channel analysis helps a company balance two very important factors: costs and customer experience. Market research will help a company determine if they should provide their product directly to their end consumers, provide their product through one or more intermediaries, or a combination of both. In many instances, companies choose to have a multi-faceted distribution channel mix that provides both direct and indirect distribution. This strategy not only allows a company to broaden its potential customer base, it also caters to the varying purchasing behavior of different types of customers.