What is Market Research?
Market research is the process of gathering relevant data to help solve marketing challenges that a business will most likely face–an integral part of the business planning process. In fact, strategies such as market segmentation (identifying specific groups within a market) and product differentiation (creating an identity for a product or service that separates it from those of the competitors) are impossible to develop without market research.
The key process behind market research is to get to know your customer better than they know themselves. The more through the research the more information one has to develop a new product and grow their business. The smaller the niche the easier it is to develop a killer business model. When we started Orbitz, there were only two other businesses doing meaningful travel sales online (Expedia and Travelocity). We changed the online travel business model by making money by volume vs sales price through our unbiased matrix display showing the lowest fairs first. Orbitz didn’t make a percentage of ticket sales price (e.g. 10% of a $1000 fare) like our competitors. We established our revenue model around a flat fee per ticket sold (~$6 per ticket) requiring us to move significant volume and capture marketshare to be profitable. It was easy to get new customers when our pricing was less than anyone else online! The market void we discovered through our Market Research helped us build a profitable business that customers loved.
What is the Market Research Process?
Market research basically involves gathering two types of data:
- Primary information. This is research you compile yourself or hire someone to gather for you.
- Secondary information. This type of research is already compiled and organized for you. Examples of secondary information include reports and studies by government agencies, trade associations or other businesses within your industry. Most of the research you gather will most likely be secondary.
When conducting primary research, you can gather two basic types of information: exploratory or specific. Exploratory research is open-ended, helps you define a specific problem, and usually involves detailed, unstructured interviews in which lengthy answers are solicited from a small group of respondents. Specific research, on the other hand, is precise in scope and is used to solve a problem that exploratory research has identified. Interviews are structured and formal in approach. Of the two, specific research is the more expensive.
One of the most effective forms of marketing research is the personal interview. They can be either of these types:
- A group survey. Used mostly by big business, group interviews or focus groups are useful brainstorming tools for getting information on product ideas, buying preferences, and purchasing decisions among certain populations.
- NOTE: Survey Monkey is a tool very often used to quickly reach and gather results.
- The in-depth interview. These one-on-one interviews are either focused or nondirective. Focused interviews are based on questions selected ahead of time, while nondirective interviews encourage respondents to address certain topics with minimal questioning.
- NOTE: If a company is operating this is typically an easy step. Contact existing customers and pay them something for their time.
Secondary research uses outside information assembled by government agencies, industry and trade associations, labor unions, media sources, chambers of commerce, and so on. It’s usually published in pamphlets, newsletters, trade publications, magazines, and newspapers. Secondary sources include the following:
- Public sources. These are usually free, often offer a lot of good information, and include government departments, business departments of public libraries, and so on.
- Commercial sources. These are valuable, but usually involve cost factors such as subscription and association fees. Commercial sources include research and trade associations, such as Dun & Bradstreet and Robert Morris & Associates, banks and other financial institutions, and publicly traded corporations.
- Educational institutions. These are frequently overlooked as valuable information sources even though more research is conducted in colleges, universities, and technical institutes than virtually any sector of the business community.
Why do I need to Market Research?
The main issue I typically see is that an Entrepreneur who is developing a business believes they “Know” the customer and there is no need to research the market. I see this mindset all of time. What is surprising to me, however, is I actually see this problem in large well established firms more than startups. I call this process designing “in-a-box.” I have seen countless large firms invest millions into a program with zero market research then wonder why a product they launched failed. Here’s a link to an article that describes 22 epic product flops (http://www.businessinsider.com/biggest-product-failures-in-business-history-2014-7). #22 is the ORBITZ drink!
That’s right, Orbitz was a soda before it was a travel website! We bought the rights to ORBITZ from the bottling company, which is how we obtained our brandname.
The companies that are looking for help to get to know their customers better are the ones that tend to withstand the test of time. Good examples of some proactive tech companies that spend the time and money to understand their customers and then utilize their research to create profitable products are Apple, Google, Facebook, Amazon, and LinkedIn. Prominent businesses that I personally don’t believe do an effective job understanding their customers are Yahoo, Twitter, Groupon, and Travelport (Travel GDS provider: Worldspan, Apollo, Galileo).
Apple does Market Research?
Those that follow Apple may think it is strange that I would list them as a market research company when Steve Jobs famously said, “It isn’t the consumers’ job to know what they want. It’s hard for [consumers] to tell you what they want when they’ve never seen anything remotely like it.” Although the statement is technically accurate for a company developing a never seen product before, it is only the version of the truth that Apple wants to disclose publicly.
Apple spends millions of dollars understanding their customers. If you’ve ever visited an Apple Store, I suspect that most of you would agree it is an experience like no other retailer. It is hard to put your finger on why. Everything in an Apple Store form product placement to the LED lighting and Air Handlers has a purpose geared to engage their customers. Their retail model is so pervasive that not only do customers come back frequently for the experience, they are willing to spend hours waiting in line to get their hands on a new product. The Apple Store success is one that most retailers research throughly. We certainly did at Walgreens. The Walgreens Flagship Stores were developed using concepts we discovered form researching Apple.
Apple operates in a highly competitive market and they do not share their secret sauce with the world. During a lawsuit between Samsung and Apple in 2012, the Apple VP of Product and Marketing, Greg Joswiak, testified that they do Market Research and got into detail about their process. Mr. Joswiak said, “they survey customers every month…” Then went on to explain that “if a competitor were to find out what drives iPhone purchases – whether it be FaceTime, battery life, or Siri – it would serve as an unfair competitive edge to rival companies. Further, competitors, as it stands today, have to guess as to which demographics are most satisfied with Apple products.” Apple petitioned the court to have the records sealed (read more).
Hopefully I have convinced you to do Market Research! The process takes time, but it pays off more than one can imagine. I have seen good market research transform a business. We put orbitz on the map. We took Walgreens who was an aging retailer and in a few years completely transformed the business. Every business I have worked with that embarrasses Market Research and creatively implements solutions to the problems the unearth benefits form extraordinary success. I trust you will have the same results if you put the time into researching your market and developing products that your customers want.