What Is Market Research?
Market research, also known as "marketing 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 or paid a small stipend for their time. Market research is a critical component in the research and development (R&D) of a new product or service.
- 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.
- Market research is a combination of primary information—information gathered directly—or secondary information, which is information an outside entity has already gathered.
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.
Market research is a critical tool in helping companies understand what consumers want, developing products that those consumers will use, and maintaining a competitive advantage over other companies in their industry.
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 Gathers Information
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 research 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.
History of Market Research
Formal market research began in Germany during the 1920s. Around the same time, market research in the United States took off during the advertising boom of 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.
Types of Market Research
From there, companies were developed that would interview people on the street about publications that they read and whether they recognized any of the ads or brands within the 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.
To get a strong understanding of your market, you should understand demand, market size, economic indicators, location, market saturation, and pricing.
A focus group is a small number of representative consumers, who are chosen to try a product or watch an advertisement. Afterwards, the group is asked for feedback regarding their perceptions of the product, the company's brand, or competing products.
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.
As an alternative to focus groups, surveys represent a cost-effective way to determine consumer attitudes without having to interview them in person. Consumers are sent surveys in the mail, usually with a coupon or voucher in order to incentivize participation. These surveys help determine how consumers feel about the product, brand, and price point.
Online Market Research
With people spending more time online, many market research activities have shifted online as well. 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 of their own volition.
How to Do Market Research
The first step to effective market research is to determine the goals of the study. Each study should seek to answer a clear, well-defined problem. For example, a company might seek to identify consumer preferences, brand recognition, or the comparative effectiveness of different types of ad campaigns.
After that, the next step is to determine who will be included in the research. Market research is an expensive process, and a company cannot waste resources collecting unnecessary data. The firm should decide in advance which types of consumers will be included in the research, and how the data will be collected. They should also account for the probability of statistical errors or sampling bias.
The next step is to collect the data and analyze the results. If the two previous steps have been completed accurately, this should be straightforward. The researchers will collect the results of their study, keeping track of the ages, gender, and other relevant data of each respondent. This is then analyzed in a marketing report that explains the results of their research.
The last step is for company executives to use their market research to make business decisions. Depending on the results of their research, they may choose to target a different type of consumer, or they may change their price point or other features of their product. The results of these changes may eventually be measured in further market research, and the process will begin all over again.
Benefits of Market Research
Market research is essential for developing brand loyalty and customer satisfaction. Since it is unlikely for a product to appeal equally to every consumer, a strong market research program can help identify the key demographics and market segments that are most likely to consume a given product.
Market research is also important for developing a company's advertising efforts. If the company's market research determines that their consumers are more likely to use Facebook than Twitter, they can then target their advertisements to one platform instead of another. Or, if they determine that their target market is value-sensitive rather than price-sensitive, they can work on improving the product rather than reducing their prices.
What Are the Main Types of Market Research?
The main types of market research are primary research, which includes focus groups, polls, and surveys, secondary market research, which includes articles, infographics, and white papers, qualitative research, which gives insights into how customers feel and think, and quantitative research, which uses data and statistics, such as website views, social media engagement, and subscribers.
What Is Online Market Research?
Online market research is market research that is conducted over the Internet. Online market research can be either qualitative or quantitative and follows the same format as primary and secondary market research methods.
What Are Paid Market Research Surveys?
Paid market research involves a group of individuals that are paid to partake in a research study. This can involve filling out surveys, partaking in group studies, research panels, and more. The individuals are usually pre-selected and monetarily rewarded for their time and effort.
What Is a Market Study?
A market study is the proactive analysis of market demand for a product or service. A market study looks at all of the factors involved in the market that influence the demand for that product or service. This includes price, location, competition, substitutes, and general economic activity.
The Bottom Line
Market research allows companies to understand the demand and viability of their product and to see how it might perform in the real world. Market research is conducted either through primary information or secondary information, both providing unique insights into a company's offering. Market research is a key component of a company's research and development (R&D) stage and is a key aspect of its success and growth.