THE ULTIMATE GUIDE TO MARKET RESEARCH: DEFINITION, TYPES, AND APPLICATION
The business world is fast-paced and unforgiving. As a result, small businesses and large corporations are in a constant struggle to generate revenue and keep profit margins up. Statistics show that 20% of small businesses fail in their first year, and the figure increases to 50% within five years. Also, big companies are not exempted from failure; Kodak, Compaq, and Blockbuster are examples of large corporations that have faced significant financial struggles recently. Businesses fail for many reasons, such as significant investments in bad products, poor marketing decisions, and failure to move with the trends. However, if there is one strategy capable of solving many of the problems that businesses face, then it is market research.
WHAT IS MARKET RESEARCH, AND WHY IS IT IMPORTANT?
Market research is the collection and analysis of data by a business to achieve a better understanding of its target audience. It is a subset of marketing research that focuses on the behaviors and interests of existing and prospective customers. Are you interested in knowing how customers relate to your new or existing products, marketing campaigns, or even the competition? Strategic planning and execution of market research can provide most of the answers businesses need to satisfy their customers.
To fully understand the importance of market research, let us examine two companies with contrasting fortunes. On the one hand, we have Lego, a company specializing in making kids’ toys. For many years, the toys Legos produced were primarily for boys. In fact, only 9% of the users of their toys were females. When the company decided to start making toys more suitable for girls, Lego conducted a 4-year study during which they interviewed 3,000 girls to know what would make the ideal toy for that population. At the start of 012, the new product was launched, and Lego reported a 35% increase in profit for the year.
On the other hand is Kodak, the world’s biggest film-producing company in the 90s. When innovation started to shift towards digital photography, Kodak had to make a decision – move with the trends or stick to the existing business model. The company chose to ignore the trend and continued pouring money into making films. That decision and other poor investment choices ultimately led to the company’s failure.
Quite simply, the difference between Lego and Kodak was market research. Lego conducted detailed research and designed a new product using the results of their study. Interestingly, Kodak performed market research but failed to act on the results by adding digital cameras to its product line. Consequently, Kodak lost all its customers to the competition. Therefore, for businesses to stay competitive, they must use this research to gather customers’ opinions regularly and act on the feedback generated.
APPLICATIONS OF MARKET RESEARCH
The fact is market research can be adapted to almost any purpose. Ultimately, the goal is to sample the thoughts and opinions of the target market and use the information appropriately. However, these are the five most common ways that modern businesses use market research:
TEST NEW PRODUCTS
One of the most common applications of market research is to test a new product before the launch date. According to Clayton Christensen, a Harvard Business School professor, around 30,000 new products are introduced to the market every year. Remarkably, 95% of those new products fail upon lunch. A simple way to increase the chances of a successful product launch is to conduct research. Put the product in the hands of selected customers, collect feedback, and adjust accordingly before putting your new product up for sale.
DEVELOP NEW PRODUCTS AND SERVICES
Another strategy to prevent the failure of a new product is to be confident there is a demand for it. The Lego story above is a fantastic example of using market research to innovate. The toymaking company created new Legos for girls by collecting data from the intended target audience, and that led to a resounding success. Therefore, instead of launching new services and products because your brand believes in them, use market research to find out what your customers want and then create that instead.
GATHER INSIGHTS FOR PRODUCT AND SERVICE IMPROVEMENT
Just as it can be used for new offerings, market research is also very much relevant in assessing products and services already on the market. There are several ways to apply research for this purpose. For example, it may be used to uncover what customers like or dislike about a particular service on offer. Also, if your brand is considering updating a service or upgrading a product, research the market to listen to the voice of your customers.
FINE-TUNE MARKETING STRATEGIES
A marketing campaign is only effective if the ads displayed pushes the target market into taking action. Market research can be used to measure the reaction of customers to all aspects of your marketing campaign. Subsequently, the insights from the research can be used to improve your marketing strategy and potentially save costs. Similarly, market research can be used to assess different activities of the competition, including how they are marketing their products and services. Your brand can then choose what aspects of its marketing are worth adapting to your campaigns.
ASSESS AND IMPROVE CUSTOMER EXPERIENCE
The ultimate application of market research is to deliver a better customer experience. Conducting customer studies provides businesses with a clear understanding of their customers and what works for them. Research takes the assumptions out of your business operations by providing valuable and actionable insights into the personality and behavior patterns of the people your brand is trying to sell to. As a result, your business can objectively assess the customer experience that your target audience derives from interacting with the brand, products, and services. Consequently, all the information necessary to improve customer experience is made available to the business.
METHODOLOGIES OF MARKET RESEARCH
Market research starts with data collection, which can be done using any of two methods – quantitative and qualitative research.
Quantitative research is majorly used to generate facts and statistics that can guide business decisions. Therefore, the questions asked of customers when conducting this method of research are typically closed-ended, that is, yes/no or true/false questions. Quantitative research is an objective way to assess trends and patterns. Because this research method is easier and more straightforward to analyze, a larger sample size of customers can be used so that the feedback better represents the opinions of the entire customer base.
Qualitative research, on the other hand, typically generates deeper and more detailed insights. It is an excellent way to understand customers’ opinions on products, marketing campaigns, and services and then explore the beliefs, perceptions, and points of view that inspire those opinions. Therefore, qualitative research relies on open-ended questions that allow participants to express themselves fully. The sample size in this qualitative research tends to be smaller, meaning the participants in the study have to be carefully selected for better representation.
Different research tools can be used to conduct quantitative or qualitative research. Some of the most common tools include:
SURVEYS
Surveys are the most popular method of data collection for business research. They contain a series of carefully constructed questions that are sent to the customers. Surveys are primarily used for quantitative research, but they can also be adapted to qualitative research using open-ended questions.
FOCUS GROUPS
A focus group is a collection of individuals selected to participate in a discussion. The selection process is usually done to encourage diversity so that all genders, age groups, races, and religions of people in your customer base are fairly represented. These discussions are led by a moderator who guides members of the focus group with questions. Focus groups are used for qualitative research as they inform marketers about how customers feel about the chosen topic.
IN-DEPTH INTERVIEWS
In-depth interviews involve one-on-one conversations between the marketer or customer care agent and the customer. These interviews can be conducted face-to-face or over the telephone and involve the business representative asking the customer one or more questions. All answers are recorded for analysis.
In addition to conducting research by collecting data using any of the above methods, businesses can also rely on secondary data. Secondary data is already existing data collected by other organizations and made publicly available. They include:
Social media reviews
Competitors’ websites
Market reports
Trade journals
Public libraries
Census data
It is also important to note that most companies now integrate quantitative and qualitative research tools for more balanced market research.
TYPES OF MARKET RESEARCH
There are different market research types, each of which helps the business solve a unique problem. The eight most common types of market research available today include:
BRAND RESEARCH
Brand research is used to understand customers’ relationship with the brand and how it affects their decision-making process. Brand research has various subtypes that address areas such as customers’ loyalty to the brand, brand awareness and penetration, and how a brand compares to its competitors in the target market’s opinion.
CUSTOMER SATISFACTION RESEARCH
This type of market research measures the level of satisfaction customers have following their interactions with a business, such as customer service, user experience, and market prices. Therefore, it is a good measure of customer experience (click here to know more about measuring customer experience.). It is typically carried out as quantitative research through the use of customer satisfaction (CSAT) surveys.
PRODUCT DEVELOPMENT RESEARCH
This market research aims to ensure products that get to the market have a maximal commercial impact. Hence, it is helpful for gathering insights to develop new products or seeking the target market’s opinions to improve already existing products.
CUSTOMER SEGMENTATION RESEARCH
Customer segmentation is the practice of breaking down the customer base into smaller groups that share similar characteristics. Demographics, location, transaction history, and buying behavior are examples of characteristics used to divide customers. Subsequently, the brand can collect relevant research data using surveys, focus groups, and in-depth interviews.
USABILITY TESTING
Usability testing focuses on measuring the experience of users when interacting with a brand’s physical and digital products. This type of market research is a great way to reveal problems and flaws in a company’s websites, apps, and other products.
CONSUMER INSIGHTS RESEARCH
Researching consumer insights helps a business understand customers and the reasons for their decisions. It looks into areas such as hobbies, interests, personas, purchasing behavior, and preferences. With these insights, a brand can significantly improve customer service delivery.
CAMPAIGN EFFECTIVENESS
The customers hold considerable information on how effective a campaign is. By carrying out this type of research, the business gains insights into the penetration of its marketing campaign and how to improve it to generate more revenue.
COMPETITIVE ANALYSIS
Competitive analysis is a means to assess the strengths and weaknesses of its competitors. The goal is to uncover insights that can help a business gain an advantage over the competition. Hence, this research type will analyze competitors’ marketing strategies, customer service, pricing methods, etc. Secondary data is the principal data source for competitive analysis.