Do Business Well

Once you’ve identified customer benefits, you must determine if, indeed, enough customers exist to make yourproduct/service profitable. That requires market research.

There’s a tendency to think of market research as something very sophisticated and complicated, involving long surveys, regression analysis, and similar sorts of exercises. But market research is really a matter of learning two things:

1. Whether enough potential customers exist to enable your product or service to achieve the growth you’re looking for_;
2. Whether the industries you are going after are on the upswing or the decline.

Here are three key questions to guide you in your research:

1. What is the market, precisely? If you’re selling restaurant supplies, are you selling to all restaurants or just fast-food restaurants or gourmet restaurants or wine bars? The more specific you can be, the better.
2. Is the market growing or shrinking? Obviously, y you’ll want a growing market rather than a declining market. Trying to sell typewriters in the face of the personal computer revolution has proven quite difficult. Someone considering getting into the liquor industry should think twice, since sales have been declining because of health and auto safety concerns.
3. Is it worth your while? You may have identified a growing niche market, but it may not achieve a size that makes it worthwhile. Consider the dilemma facing the owners of a company that markets a special massage tool (selling for $50) to physical therapists who deal with back problems. The market is growing and the tool is selling well. But the owners have encountered a problem. Even with growth, the physical therapist market is so small that nearly every person in it would have to buy the tool to make it worthwhile—a nearly impossible task no matter how good the product is. The owners’ challenge is to identify other markets that might be able to use the tool, diversify, or face the prospect of a shrinking business.

Keep in mind. . . We are in an age of so-called market niches—a time when markets are becoming ever more narrow and precisely defined. Increasingly, providers of public relations services specialize in providing them exclusively to high-technology companies or to law firms. The days of mass production seem to be ending in favor of specialty marketers. Futurist Alvin Toffler refers to this change as “de-massification” of markets. Printers specialize in servicing users interested in long runs or short runs. Clothing makers target athletic women ages 20 to 35 and physical fitness centers target individuals 45 to 60. By virtue of serving niches, businesses are expected to be able to respond more quickly to changing customer tastes and needs. Your plan should point out the advantages you gain by targeting a particular niche.

Getting the Answers You Need

As I’ve noted, market research doesn’t have to be complicated. Much of the information you need is available from public sources: government statistics, trade group surveys, computerized databases, and even the phone book.

Computerized databases have become so inclusive and accessible that many market research tasks can start by accessing CompuServe, Prodigy, or one of the other similar services and punching in the categories you would like information about. Many local libraries are plugged into databases and will do the work for you. The summaries of newspaper, magazine, and professional journal articles will often reveal important data, studies, competitors, experts, and other resources you can tap into. Such information can save you much time and many dead ends in your market research effort.

To appreciate how useful the phone book can be, consider the case of a wholesaler of cut flowers who wanted to explore the possibilities for selling flowers directly to large-scale users in the Boston area—caterers, funeral homes, restaurants, and so forth.

The first step was to consult the Yellow Pages and tally up the number of caterers, funeral homes, and restaurants. Next, the wholesaler obtained the number of weddings and deaths each year from a state census office.

From those statistics, it was possible to calculate the number of weddings per catering firm and funerals per funeral home. That data gave the wholesaler an idea of the total market for cut flowers in the region.

The next step was to do some test marketing, determining potential interest within the target market. The wholesaler contacted potential customers and tried out the user-benefit claims on them to determine what sparked interest and what didn’t. The wholesaler discovered, to his surprise, a number of unanticipated barriers and he decided not to pursue the idea.

While the venture may appear to be a failure, I would suggest otherwise. Entrepreneurs shouldn’t be afraid to take no for an answer from their market research. The last thing you want to do is fall blindly in love with your idea.

Keep in mind. . . Generally speaking, a do-it-yourself approach to market research is preferable to hiring an outside market research firm. For one thing, it’s cheaper. For another, you’ll often learn more than you expected by talking directly to prospects.

An exception to this advice would be a situation in which you need extensive consumer tests of a product or service. This is a complex area, and there are firms that specialize in doing surveys and interviews to gather such data.

Once your company is established, though, you often have more market data at your disposal than you realize by virtue of having serviced customers and listened to requests from prospects. The challenge is then to find an efficient and effective way of assembling the data from your staff.

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