What Is Market Research?
Market research is the process of determining the viability of a new service or product through research conducted directly with potential customers. Market research allows a company to discover the target market and get opinions and other feedback from consumers about their interest in the product or service.
This type of research can be conducted in house, by the company itself, or by a third-party company that specializes in market research. It can be done through surveys, product testing, and focus groups. Test subjects are usually compensated with product samples and/or paid a small stipend for their time.
[Important: Market research is a critical tool in helping companies understand what consumers want, develop products that those consumers will use, and maintain a competitive advantage over other companies in their industry.]
Understanding Market Research
The purpose of market research is to look at the market associated with a particular good or service to ascertain how the audience will receive it. This can include information gathering for the purpose of market segmentation and product differentiation, which can be used to tailor advertising efforts or determine which features are seen as a priority to the consumer.
A business must engage in a variety of tasks to complete the market research process. It needs to gather information based on the market sector being examined. The business needs to analyze and interpret the resulting data to determine the presence of any patterns or relevant data points that it can use in the decision-making process.
How Market Research Works
Market research consists of a combination of primary information, or what has been gathered by the company or by a person hired by the company, and secondary information, or what has been gathered by an outside source.
Primary information is the data that the company has collected directly or that has been collected by a person or business hired to conduct the research. This type of information generally falls into two categories: exploratory and specific research.
Exploratory research is a less structured option and functions via more open-ended questions, and it results in questions or issues being presented that the company may need to address. Specific research finds answers to previously identified issues that are often brought to attention through exploratory research.
Secondary information is data that an outside entity has already gathered. This can include population information from government census data, trade association reports, or presented research from another business operating within the same market sector.
Example of Market Research
Many companies use market research to test out new products or to get information from consumers about what kinds of products or services they need and don't currently have.
For example, a company that was considering going into business might conduct market research to test the viability of its product or service. If the market research confirms consumer interest, the business can proceed confidently with the business plan. If not, the company should use the results of the market research to make adjustments to the product to bring it in line with customer desires.
Market research was first put into place in the United States in the 1920s and originated during the advertising boom during the Golden Age of Radio. Companies that advertised on the radio began to understand the demographics that were revealed by how different radio shows were sponsored.
From there, companies were developed that would interview people on the street about publications that they read and whether they recognized any ads that were published in the magazines or newspapers the interviewer showed them. Data collected from these interviews were compared to the circulation of the publication in order to see how effective those ads were. Market research and surveys were adapted from these early techniques.
Data collection then shifted to the telephone, making face-to-face contact unnecessary. A telephone operator could collect information or organize focus groups — and do so quickly and in a more organized and orderly fashion. This method improved the market research model greatly.
Within the last 10 to 15 years, market research started to make a shift online. While the platform may have changed, data collection is still mainly done in a survey-style form. But instead of companies actively seeking participants by finding them on the street or by cold calling them on the phone, people can choose to sign up and take surveys and offer opinions when they have time. This makes the process far less intrusive and less rushed since people can do so on their own time and by their own volition.
- Companies use market research to test the viability of a new product or service by communicating directly with a potential customer.
- With market research, companies can figure out their target market and get opinions and feedback from consumers in real time.
- This type of research can be conducted in house, by the company itself, or by an outside company that specializes in market research.
- The research includes surveys, product testing, and focus groups.