Your business concept is ready, but what will your potential customers think? Before spending time and money launching your startup, validate your idea using market research. Withknowledge of how your business fits into the market, you can make informed decisions as you bring your idea to life.
Market research will define the core elements of your business, including:
- validating your business idea and determining if it’s realistic
- identifying your target audience
- when your customers will need your product or service
- where your customers will access or purchase your offering
- how customers will feel before and after they buy what you’re selling
Let’s explore what’s involved in market research.
Qualitative research—non-numerical data—can serve as behavioural analysis relating to your product or service. You can perform this research in many ways: conducting focus groups or customer interviews, observing customer behaviour and experimenting with tests to learn more about the market. For example, you could host focus groups or one-on-one interviews to learn more about your customer behaviour.
This kind of research also applies to your competition. Why are your potential customers drawn to a competitor’s product or service? Here’s where you can identify your competitive advantage.
Through qualitative research, you have the opportunity to discover how your target market will interact with you. For example, you may discover that while there are cafés in your area, there is space (and need) in the market for one offering exclusively gluten-free or allergy-friendly options.
Here are some questions to guide your qualitative research:
- How are your potential customers currently interacting with similar products or services?
- What is their previous behaviour?
- Is there space in the market to do something differently than your competitors? How will you differentiate yourself from the competition?
- How does the location in which you’re operating your business affect things?
Analyzing quantitative research will help you make data-driven decisions regarding your business. This includes any numbers—anything that can be counted or measured—related to your customers, including:
- generalized demographic information, like age, location, gender, race, income, student or employment status.
- standardized survey results, like customer experience surveys.
Jake is looking to open a café in a new neighbourhood in his community. He creates an anonymous survey to retrieve information about potential customers, including:
- how often potential customers go for coffee
- what time of day they visit
- how much they spend on an average visit
- how far away their “regular” café choice is from their home or workplace
Quantitative research will be beneficial after you launch your business. Market research is an ongoing process where you engage with your customers about your product or service, analyze their feedback and adjust your offering to meet their needs. Data points—including purchase tracking, sales volume per customer, payment type and transaction frequency—will inform how you adapt your business to trends you experience after launch.
Jake opened his café. By reviewing sales data, he sees an influx of to-go black drip coffee orders first thing in the morning, but afternoon sales shift to in-café customers purchasing lattes and baked goods. He notices that he consistently runs out of drip coffee in the mornings. This market research tells him sales could potentially be increased if he has more brewed coffee available. This could also lead to higher customer satisfaction because of faster transactions in the morning.
Identifying your target market
Get specific about the characteristics of people who are affected by the pain point you’re solving with your business—this will create the greatest opportunity to reach potential customers who need (and will likely use) your product or service.
Questions to guide this process include:
For B2C (business to consumer) businesses
- What gender are the majority of my customers? Is there a primary decision maker or are decisions made collaboratively? Who or what influences those decisions?
- Where do they live? Do they commute to their job or work from home?
- What are their shopping habits? Online, brick and mortar or a mix? Do they visit the same stores regularly or go wherever is convenient?
- What is my potential customer’s income level? Do they make a salary, hourly wage or commission?
For B2B (business to business) organizations
- Who is the decision maker in the company? Who or what influences those decisions?
- What specific need does your offering meet within the B2B community?
- What industry or industries are you serving? Are you focused on specific types of businesses? (eg. independently owned restaurants vs. franchises)
- Where is the target location for delivery? Consider the service area of your target: urban, rural, localized or broad territory.
- What size of businesses do you aim to serve? How will you determine this? (eg. annual revenue, number of employees)
Every business, no matter how unique, will have some sort of competition. Identifying who else is active in your market is crucial. Distinguish the dominant players and answer the following questions for each one:
- What do they offer?
- What are they doing well?
- What are they doing poorly?
- How is this business doing overall?
Some data will come to you naturally by working within the market while other pieces will need to be sourced. Connect with the team at Business Link to help you identify the key information you need to build your market research.
This helpful handout from Business Link outlines resources you can use to start market research yourself.
Include all four types of analysis outlined above (qualitative research, quantitative research, target market identification and competitive analysis) to provide a holistic view of your market. Once you’ve completed your research, you should be able to answer these questions:
- What can you do to carve out market share for your product or service?
- How can you stand out to reach potential customers? How do they want to hear about you?
- Is your business idea a good fit for this market or should you shift your focus?
If data shows that your idea might not be correct for a specific market, it doesn’t necessarily mean you need to give up. It’s OK to take a step back, rework your concept and find the right fit. Researching before you enter the market will save you from investing your business in the wrong place and give you perspective on what is worth pursuing, ultimately informing your business plan to further your bankability and investment potential.