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How to Do Market Research
Kody Wirth | Oct 29, 2023
Don’t skip market research.
If you do, you’ll waste countless hours (and money) building a product or service without knowing who you’re selling to, or even worse, find out that no one wants to buy it.
Don’t let this happen to you. Take the time to do market research. Let’s show you how.
What is market research?
Market research is the process of gathering information about your potential customers. It helps you define your buyer personas and target market and understand the viability of your business by answering questions like:
- Who are they?
- What are their buying and shopping habits?
- How many of them are there?
Why do market research?
When starting a business, getting to know your customers is one of the most important things you can do. By conducting market research, you can:
- Prove product viability: Determine if customers will pay for your product or service.
- Reduce risk: Inform critical decisions with real-world data.
- Understand competitive position: Know how competitors and alternatives to your business represent themselves in pricing, quality, and placement.
- Identify market trends: Stay ahead by spotting emerging trends and shifts in the market.
- Enhance customer experience: Improve customer satisfaction by addressing their pain points.
- Improve marketing/sales process: Know what messaging and interactions resonate with your target customers.
6 steps for effective market research
Follow these steps to focus your research efforts.
1. Identify your target market
Your target market is your ideal customer who needs your solution. They share common traits like age, gender, income, interests, or job roles. To start, focus your efforts on one target customer.
Tip: Consider focusing on a younger audience
Younger consumers are often overlooked in favor of older customers who currently make purchasing decisions. However, if you can crack the interests of a younger audience, it may lead to long-term loyalty.
2. Talk to your potential customers
Data helps identify the basics about your customers. To get business-defining insights, you’ll need to engage with them directly.
Set up 1:1 interviews, put together focus groups, or simply observe your customers in action.
If scheduling face time is difficult, start with a survey and request to follow up. Whatever the process, you aim to get direct, unfiltered, and honest feedback.
Do this one thing, and you’ll be miles ahead of your competition. Why? Because most people skip this step. It’s intimidating to talk to strangers. What if they don’t want to buy what you plan on making?
3. Create a customer persona
Visualizing your customers when reviewing a sea of data can be tricky. So, turn that data into the living, breathing person you imagine your customer to be.
Example: LivePlan customer persona
Check out this real-world customer persona used by the business planning and management software—LivePlan.
4. Find out if your market is big enough
After identifying and validating your target market, ensure it’s large enough to sustain your business.
Use the attributes you defined in the target market step and determine how many people meet your demographic, psychographic, or location criteria. If you’re in a highly competitive industry, seek out industry reports or trade publications for more recent market size estimates.
You must consider changing your product or service offering if there aren’t enough potential customers to sustain your business and your competitors.
For example, suppose your target market only has a few thousand potential customers. In that case, you must either sell to them frequently or reasonably high price to create a sustainable, profitable business. Additionally, if multiple competitors already serve this audience—you may need to take a drastic position (like a shallow price point) to pull them away.
If that doesn’t seem possible or profitable, this may not be a viable customer base.
Tip: Break the market down into what’s attainable
Learn how to refine the total market (everyone) and identify the number of customers you can obtain.
5. Find a niche audience
A profitable and sustainable market isn’t broad. Instead, a highly targeted niche customer base can improve your ability to message, iterate, and create long-term loyalty.
Identifying a niche audience comes down to segmentation. You need to dig deeper and establish subgroups within the target audience you’ve already established. Your goal is to find the most dedicated customers or show the potential to be.
To do this correctly and get valuable data, you must revisit step two and talk to your customers. Doing so will help you bypass traditional demographic information and hone in on values, interests, relationships, etc.
6. Document your findings
Lastly, record your research findings—ideally, as part of your business plan.
The formality depends on its use—informal for internal communication, formal for investor presentations.
Make the data work for you and your needs. You can always revisit and add to it later on.
Dig deeper: How to do better market research
Check out these additional resources to help you conduct more effective market research.
Market research tools and resources
Check out our regularly updated selection of tools and resources to speed up your market research efforts.
Types of market research explained
Learn more about primary and secondary market research—how they differ, why to pursue them, and what research options are available.
What to consider before entering a market
Part of effective market research is understanding the market you’re entering. Here are six critical questions to verify it’s the right fit for your business.
Market penetration strategies explained
Entering an existing market requires you to pull away customers from existing options. Learn what strategies are available to you.
How to find out what your competitors are doing
Here are 10 easy ways to get to know the competition and conduct a thorough competitor analysis.
Industry research vs. market research explained
Learn the difference between industry and market research, why you may need both, and when to focus on one over the other.
Market research informs your startup decisions
Data collection and analysis are vital.
Without it, you’ll be starting a business lacking insight into your market, customers, and any challenges that await. With it, you’re ready to complete the remaining steps to start a business.
Now, knowing what you do about your customers—it’s time to select your business model and determine how you’ll make money.