RESEARCHING FOR A TARGET MARKET
No matter what the size of the target market, it is crucial that an entrepreneur know as much as possible about the customer. In the beginning of a market analysis, the customer definition may be fairly loose and may even change fairly substantially as field research is conducted. It is easy to become overwhelmed by the amount of information available about the target market, so it is important to keep in mind the key questions that should be asked.
- Who is the most likely to purchase the product or service at market introduction?
- What do these customers typically buy, how do they buy it, and how do they hear about it?
- How often do they buy? What is their buying pattern?
- How can a venture meet the customers’ needs?
How To Research For A Target Market
Target market research provides some of the most important data that one needs to decide whether a new venture is feasible. But data are only as good as the research methods used to collect them. To ensure that useful and correct conclusions can be drawn from the data collected, sound research methods must be employed. The table below depicts a four-step process for ensuring that the right information is gathered and that it is used correctly.
STEPS IN MARKET RESEARCH
|Assess your information needs|
|Research secondary sources first|
|Measure the target market with primary research|
Would they purchase your product or service? Why?
|Forecast demand for the product or service|
The Internet is a good starting point for gathering secondary data. Many of the traditional resources found in libraries are now available in online versions; for example, US census data can be found in www.census.gov. Using census data, entrepreneurs can determine whether the geographic area they have defined is growing or diminishing, whether its population is aging or getting younger, or whether the available workforce is mostly skilled or unskilled, along with many other trends.
Some demographic data (data on age, income, occupation, and education) help identify the likelihood that a person will choose to buy a product. Demographic data also make it possible to segment the target market into subgroups that are different from one another. For example, if the target market is retired people over age 60, their buying habits (such as product requirements and quantity or frequency of purchase) may vary by geographic region or by income level.
Finally, census data can be used to arrive at an estimate of how many target customers live within the geographic boundaries of the target market. Then, within any geographic area, those who meet the particular demographic requirements of the product or service can be segmented out.
It is not only consumer markets that are described by demographic data, Business markets can also be described in terms of their size, revenue levels, number of employees, and so forth.
Online sources are not the only sources of secondary data. Most communities and states have economic development departments or Chambers of Commerce that keep statistics on local population trends and other economic issues. Other sources available in the library include reference books and trade journals on all types of industries (many of these are also available online). Apart from the library, useful information can be obtained from trade associations such as the National Association of Manufacturers, commercial research firms, and financial institutions.
Measuring The Market With Primary Data
The most important data that entrepreneurs can collect on potential customers are primary data derived from observation, mail surveys, phone surveys, interviews, and focus groups. Each data collection technique has advantages and disadvantages, and the decision which one(s) to use is generally based on time and money. The first three techniques require drawing a representative sample from the population of customers that the entrepreneur is interested in. The sample should be collected with great care, for it will determine the validity of the results.
In general in order to avoid bias, a sample should be random – that is, one in which the entrepreneur has a little control as possible over who participates. Most entrepreneurs, because of limitations on cost and time, use what is called convenience sample. This means that not everyone in the defined target market has a chance of being chosen to participate. Instead, the entrepreneur may, for example, choose to select the sample from people who happen to be at the airport on a particular day. Clearly, the entrepreneur will not be reaching all possible customers at the airport, but if the target customer is typically found at airports, there is a good chance of obtaining at least a representative sample from which results can be derived fairly confidently.
Even if a convenient sample is used, there are ways to ensure the randomness of selection of the participants. Using the airport example, the entrepreneur can decide in advance to survey every fifth person who walks by. Thus the respondents are not chosen on the basis of attractiveness or lack of it – or for any other reasons, for that matter. A random-number generator on a computer can select names from a telephone book. Whatever system is employed, the key point is to make an effort not to bias the selection.
Primary Research Techniques
Many techniques are available for gathering primary information from potential customers. Each has advantages and disadvantages. In general, mail surveys have a response rate of only 2 percent, and several follow-ups are required to get a sufficient sample. Phone surveys are ineffective because in the past few years, people have been bombarded by telemarketers and now resist responding to a telephone survey. With limited resources, entrepreneurs tend to use interviews, focus groups, the Internet, and immediate-response surveys.
Although personal interviews are more costly and time-consuming than mail or phone surveys, they have many advantages:
- They provide more opportunity for clarification and discussion.
- The interviewer has an opportunity to observe non-verbal communication and hence assess the veracity of what the interviewee is saying.
- The response rate is high.
- Interviews permit open-ended questions that can lead to more in-depth information.
- They provide an opportunity to network and develop valuable contacts in the industry.
Where time and money permit, structured interviews are probably the best source of valuable information from customers, suppliers, distributors, and anyone else who can help the new venture.
One or more efficient way to gain valuable information before investing substantial capital in production and marketing is to conduct a focus group, in which a representative sample of potential customers is brought together for a presentation and discussion session.
It is important to ensure that the person leading the focus group has some knowledge of group dynamics and is able to keep the group on track. . Often these focus group sessions are videotaped so that the entrepreneur can spend more time later analyzing the nuances of what occurred. Thus, in many ways, focus groups can prevent the entrepreneur from making the costly error of offering a product or service in which there is little or no interest.
Internet and Immediate – Response Surveys
Doing a survey entails designing a survey instrument, usually a questionnaire that, once filled out, provides the desired information. Questionnaire design is not a simple matter of putting some questions on a piece of paper. There are, in fact, proven methods of constructing questionnaires to help ensure unbiased responses. It is not within the scope of this article to present all the techniques for questionnaire construction; however, a few points should be remembered:
- Keep the questionnaire short, with lots of white space, so that the respondent is not intimidated by the task.
- Be careful not to ask leading or unbiased questions.
- Ask easy questions first, progressing gradually to the more complex ones.
- Ask demographic questions (questions about age, sex, income, and the like) last, when the respondent’s attention may have waned. The questions can be answered very quickly.
The Internet has made it very easy for small businesses to conduct valuable data without having to enlist the help of expensive market research firms. Internet surveys are less expensive than traditional surveys, and the response time is greatly reduced. It is easier to include global respondents seamlessly. Posting surveys on the internet is a convenient way to conduct research if the primary customer is an internet user. The survey can be posted in user groups, sent via e-mail to target customers, or placed on a website (as long as the people who need to respond to the survey have a way of knowing that it’s there).
The Customer Profile
Out of the primary research will come a complete profile of the customer. Entrepreneurs need to be able to describe the primary customer, be it a consumer or a business, in great detail. The profile is critically important to the marketing strategy, because it provides information vital to everything from product/ service design to distribution channels and the marketing plan. Here is a list of some of the information that goes into the customer profile of a consumer or a business.
- Income level
- Buying habits – when, where, and how much
- Where customers typically find these types of products and services
- How they would like to purchase
The list will contain other data as well, depending on whether the customer is a consumer or a business. If the customer is a business, it can be described in essentially the same way – for example, as a small to mid-sized construction company with annual revenues of $5million that makes purchases quarterly, buys primarily over the internet, and pays within sixty days. The customer profile will also be an important piece in the marketing plan.
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