A friend from a young business recently asked me how he should go about doing his market research. This is a very important question, because before any business creation project, it is necessary to carry out a real market study. Admittedly, market research is not a guarantee of success, because customer statements do not necessarily match their behavior. However, it is still a real asset to analyze their needs and lead you to success …
Why market research?
Validate your idea
A market study allows you to validate your initial idea using economic information. It allows you to refine your commercial offer to stand out from the competition and create your clientele.
Build your business plan
Carrying out market research will require you to ask structuring questions for your project: what will my offer be? Who would I like to sell it to? How will I sell it? What are the competing offers? At what price ? What are the key stages of my project? The answers to all these questions will then serve as the basis for building your business plan.
Convince your partners
Once you have a business plan and market analysis, you can present your project and your business model to potential partners: bankers, investors, suppliers, other project leaders, etc. A well-built business plan is essential to reassure your potential partners.
The pitfalls to avoid
- Do a self-confirmation or self-justification study of your business idea. In other words, conduct the study to confirm what you already think. You should strive to be as objective as possible. The corollary is therefore that you must be ready to accept the result of the study (including if it is negative) and adapt your project accordingly;
- Interview only friends or family. To be relevant, a study must be conducted with potential targets, therefore with people who will be likely to buy your product. Think of the online questionnaire;
- Do not study, because even if you are convinced deep inside you of the genius of your idea, you can not intuitively check that there are enough “real” customers for this product so that you can live on your entrepreneurial activity.
Do not neglect the preparation phase
The 1st step of your market research is to collect all the information already available:
- Internet :
- Official sites (INSEE, ministries, public bodies, chambers of commerce, etc.);
- Reports published by firms (some are available free of charge);
- Information sites specializing in the area that interests you;
- You can use Google Alert to follow the news of the sector which interests you.
- Specialist journals : Identify specialized journals on the sector that interests you and choose one or two that seem particularly relevant to you. It will be a wealth of information on your target sector: major trends, latest news, key success factors, main players, sector dynamics …
- conferences : Try to participate in a few conferences on your industry. This will be an opportunity to gather expert opinions and perhaps also to start networking.
- Fairs and exhibitions : If there are events around the sector that interests you, do not hesitate to go there to observe the latest products and assess possible business opportunities. Also try to discuss with actors to have their feelings on the economic context of the sector. This can help you determine if an industry is stable, growing or rather in a phase of decline.
All this information will still be relatively general, but it will nevertheless allow you to better define the perimeter of your market and to better know it, before moving on to a more targeted and more in-depth study phase.
Anyway, be critical! Above all, do not hesitate to cross-check the information and check the sources from which it comes, because there is also false data circulating. Also check that the information is relatively recent. Given the rapidity with which the market evolves, beyond 2 or 3 years, there is little chance that marketing data is still valid.
Who can do your market research?
Given the importance of this market study for your project, I recommend that you really get involved and not outsource it entirely. Afterwards, you can also work with other actors, provided you carefully pilot the realization of the study. Here are the different options available to you for carrying out market research.
You can contact institutes specialized in carrying out marketing studies (the biggest in England are Ipsos, Médiamétrie and BVA), but obviously, the costs will be high (on average 600 € per questionnaire for a qualitative study, 5000 € for a quantitative study by Internet, € 10,000 for a quantitative study by telephone). I would come back later on the difference between the qualitative and the quantitative.
Alternatively, you can also contact the junior business at a business school. These are student associations that sell business services to companies at below-market prices because these services are provided by students. A junior company will charge you between 1,500 and 3,000 €, but with a lower level of achievement than that of a real research firm. It will also be important to clearly define your specifications to ensure that the results meet your expectations.
You can also ask a specialized freelance consultant and subcontract the study to him. The advantage is to benefit from its specialized expertise and to have a well-targeted result, but the cost is not negligible. Depending on the negotiation, he may invoice you for his service around 800 to 1,500 € per day.
Do your own study
It’s probably the cheapest solution for an entrepreneur. However, it is also the one that will require the most time and work. In the rest of the article, we will assume that you have chosen to carry out your own market research.
Optimize your market research
Your market research should allow you to recover key information for your project. Here is a non-exhaustive list of points that you should explore during your study.
Information to recover
- The size of the market, in volume and in value;
- Market developments (stagnation, growth, etc.);
- Market segmentation according to different categories of customers;
- The geographic area where your target is located;
- Your potential catchment area;
- Price trends on the market;
- Possible substitution products;
- Customer decision criteria;
- A summary of supply and demand;
- Customer requests;
- Prescription circuits;
- Customer purchasing process;
- Lifetime of products;
- Distributor and supplier information;
- Information on competitors (size, market share, offers, etc.).
Interview experts and people who know your target well
First, you can approach experts who know the sector you are targeting. Imagine that you want to launch a telemedicine web service to connect practitioners and patients. As a first step, you can approach doctors, health sector consultants or experts from public health authorities (High Authority for Health, Council of the Order of Physicians), or even health lawyers. Or if you decide to launch a product that allows households to reduce their energy consumption, you can contact professionals in the energy sector (salespeople, engineers, consultants) as well as experts in the public sphere (Ministry of Energy , Energy Regulatory Commission).
The ideal is to first go through your network of contacts to contact these people, and if not to use professional social networks like LinkedIn or Viadeo. For what purpose? Identify the relevant contacts and solicit them by briefly explaining your project to them and trying to obtain a short interview of 20 to 30 minutes by telephone or face-to-face. Since your interlocutors are likely to be busy, let them know that you will try to limit yourself to this period, even if in reality this may overflow, especially if your interlocutor is interested in your project.
Don’t be afraid to explain what your idea is, by doing so, you are much more likely to get useful info than getting stuck with your idea.
In addition, given that the aim of this phase is to obtain a better overall vision of the characteristics of the market you are targeting and the viability of your project, the ideal is to prepare between 5 and 10 open questions on the trends of the market, the main players and the problems encountered, the strengths and weaknesses of these players, the intensity of competition, the dynamics of the sector….
What method of investigation?
The next step is to define and interview a sample of potential customers. There are two types of methods for this: quantitative or qualitative.
Rather, this type of study is used to try to determine the statistical characteristics of a population. In general, we use this type of study to assess the age groups of a population, its socio-professional characteristics or the price levels that different categories of people are willing to spend on a given product.
In terms of method, the questions are rather of the closed type (yes / no answer), and the sample size is important, because it must be statistically representative of the target population you want to study. If you are not familiar with statistical tools, you can consider that to respect the law of large numbers, you will need to interview a minimum sample of 30 people. You can also assess your sample size based on the size of the target population, your desired level of confidence, and the response rate you think you have with tools like SurveyMonkey or CheckMarket.
Besides, you can also use SurveyMonkey to create your questionnaire and distribute it to your potential customers. It is often used by entrepreneurs because the basic functionality is free. Again, social networks (especially Facebook) are a good way to widely distribute your questionnaire. Otherwise, there are customer databases that you can rent and buy, but this can be costly and without guarantee as to the quality of the base (see this article).
You can also go to the field, for example at the exit of a store, and solicit customers to complete your questionnaire in 5-10 min. By positioning yourself in a well-chosen location, you will be able to obtain a significant number of returns fairly quickly. This is what business school students who study for their junior business do.
For the qualitative, the objective is rather to identify the motivations and expectations of potential customers. As part of a business creation project, you will seek to understand what are the elements that will interest your customers and therefore what features of your product you should plan, what distribution strategy you should use to identify, which business strategy to implement, etc.
So here, the sample size doesn’t matter. Rather, what will be important is to interview different profiles to try to understand the different categories of customers who may be interested in your product. Interviewing 5, 10 or 15 customers may be sufficient to obtain a good view of potential demand.
The approach is very different from that of the quantitative, because here, you will rather favor face-to-face or telephone interviews. These survey modes will allow you to dig deep into the important points during your interviews, which is difficult to do with a questionnaire on the Internet or by email. That said, social media will still be of great help to you in identifying potential customer profiles that you can use.
The questionnaire is also a critical point. For a qualitative study, the questions will rather be of the open type (which do not call for a yes / no answer). The idea here is to invite your interlocutor to give as much information as possible on the one hand on his preferences, desires, frustrations, hopes, means, fears, and on the other hand, on his perception of the market in a more General. In this way, you will be able to pinpoint its potential expectations as closely as possible.
For this, it is essential to list questions in the clearest and most objective way possible. This is a rather delicate exercise, because we do not interpret the questions that are addressed to us in the same way according to our values, our history, our opinions … Indeed, a lot of bias can be reinforced by the turn of the questions you are going to use. Typically, there is a fairly widespread emotional bias that leads individuals to unconsciously try to give the answers that will please their interlocutor.
Analyze the results of the market research
Once you have recovered the data you wanted, you now need to analyze it to guide your strategic choices.
Assess the size and attractiveness of your market
To estimate the size of your market in volume, you can perform this simple calculation:
Q [Quantité demandée] = n [nombre de clients] * q [quantité moyenne par client]
For an estimate of the size of your market, in value this time, the calculation is as follows:
V [Valeur du marché] = n [nombre de clients] * q [quantité moyenne par client]* p [prix moyen d’achat]
Then, the attractiveness of your market will depend on the growth rate of your market. The higher it is, the more attractive this market will be, either for you or your competitors.
To do this, you will need to obtain an assessment of the future demand for your product:
Q n + 1 [Quantité demandée, l’année suivante] = Qr [Demande de remplacement] + Qv [Demande des nouveaux clients]
You can assess Qr and Qv by crossing data on customers’ purchasing intentions with estimates from sales forces (salespeople, distributors). For some markets, you can also use macroeconomic data available on official websites, such as that of INSEE.
The ratio (Q n + 1 – Q) / Q will give you an estimate of the growth potential and therefore of the attractiveness of your market.
Assess the strengths and weaknesses of your competitors
Now you can study the existing competitors in your market. The first step is to identify them all (or at least the most important), whether they are direct competitors (same product or service as yours) or indirect (different product or service, but intended to meet the same need as your product or service).
- Their goals : you can try to assess their current and future goals by searching for information on their sites, on the Internet, in the mainstream or trade press.
- Their current strategy: What markets are they present in? What is their customer offer? How do they position themselves on the market? What is their marketing and communication strategy? What are their distribution channels?
- Their current resources : What are their strengths and weaknesses? What are their financial resources (see societe.com or infogreffe.fr or manageo.fr)? What are their key skills?
- Their future strategy : What strategic moves can they make? Where are they vulnerable? How can they react to your action?
Answering these questions is quite difficult. You can formulate hypotheses by using the elements which you will have identified above, by looking in the press for any new acquisition (for example on fusacq.com), or by looking at their recruitment policy (number of recruitments and profiles). You can also formulate them by identifying attractive markets related to their activities and which could interest them, or by trying to analyze their history to identify their “standard strategic behavior”.
Define your strategy
All this should now allow you to define your strategy and your financing plan to penetrate your target market. For this, you can take inspiration from the generic strategies defined by Michael Porter:
- Cost dominance : You offer an offer comparable to that of competitors, but with better control of your costs which allows you to have better profitability than that of your competitors. This approach requires a strong mastery of your organizational processes to streamline your entire supply and production chain. This is what Dell has done in the business PC market;
- Differentiation from above: You offer a premium offer, more expensive than that of your competitors, but with a higher value for your customers. There, you will need to be able to both identify the demand and target your potential customers. The example that comes to my mind is that of the Apple iPhone;
- The niche strategy: You decide to focus on a particular segment of the market, with a very specific offer. This is the case of Smart in the automobile, which targets a very specific clientele for its cars;
- The differentiation strategy from below: This is the low-cost strategy, a more degraded offer than that of competitors, but also less expensive (example Ryanair in aviation). If you opt for this strategy, you must carefully choose the way in which you will degrade your offer;
- The rupture strategy: You operate a technological breakthrough, or in terms of an economic model which allows you to radically transform the uses on a market (example BlaBlaCar in the transport sector). For more information on this type of strategy, you can see this article: Breakthrough innovation strategy.
Once you know your strategy, you can then define the main characteristics that will allow you to design your offer, i.e. your marketing mix (prices, distribution channels, promotion strategy, product packaging). Here are some key questions to ask yourself when you want to design a new offer: Launch a new offer. Once the market study has been completed, you also have enough information to carry out your precious business plan!
However, I draw your attention to the fact that if market research is important and not to be overlooked, in the end, it only serves to guide action! Certainly you need a minimum of valid data before you get started and to have something to convince potential investors or partners. But at some point, it will be important to get started and avoid getting bogged down in a too long preparatory phase. Market research is a useful tool because it will allow you to obtain valuable data and guide your strategic choices, especially if you have just started your business. However, it will never reveal the true nature of the market to you. You will not know this until you really get to know your customers. This is why I also recommend that you have an experimental approach to your project. As such, the lean startup approach seems very interesting to me (Lean Startup method).
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