10 Reasons Why Market Research is Critical before Starting a Business
Market research is one of the core principles of effective business strategy. Market research helps entrepreneurs “feel out” the current market, identify niches and gaps that they can fill, learn about consumers’ habits, needs, and preferences, and create a business from scratch that is designed to fit seamlessly and snugly into an already busy market.
Lesley Spencer Pyle is the founder and president of HWBM.com, Inc., which is a work from home network geared toward working mothers. She recently wrote an article for Entrepreneur.com that provides some tips and strategies for conducting effective market research before starting a small business. In the article, Pyle quotes William Bill, of the Houston-based Wealth Design Group, who says, “Failure to do market research…is like driving a car from Texas to New York without a map.”
Why, though, is market research so important? If you know your skills and you want to start a business, isn’t passion and determination all that really matters? Successful entrepreneurs are actually discovering that there is no substitute for comprehensive and thorough market research. Here are ten reasons why this process is so critical to your business.
Market Research Helps Establish a Target Audience
First, market research helps establish and define a target audience. Because knowing who you are going to target is so essential to the success of your business, this step cannot be skipped. Even if you know, without a doubt, that you want to start a cupcake business, market research will help you identify the age range, gender, socioeconomic status, and demographic of your audience members.
You Can Discover an Untapped Niche
Market research can even help you discover an untapped niche within your market that you can focus on in your business endeavors. Continuing with the cupcake business example, you might discover that your city already has three major cupcake businesses. Entering the cupcake business with such steep competition might be difficult. You may, however, realize that there is no current business offering novelty cupcakes, specific cupcake flavors, or bargain-priced cupcakes. By identifying an untapped niche, you can specify your business and reach a large audience population.
Provides Insight into Consumer Needs
With market research, you can identify customer needs before you even open the doors of your business. You’ll know exactly how they like to shop, exactly what they’re looking for, and how to reach them. Knowing your target audience the same way you know old friends is incredibly beneficial for a small business owner.
Discover Marketing Strategies with Market Research
Market research can also help you identify the best marketing strategies to use to communicate with and reach your target audience. You might discover that the vast majority of your target audience members are using social media platforms, like Facebook and Twitter, to connect with new business. You might realize, on the other hand, that social media activity is not very popular with your audience members. Without market research to provide insight into consumer behavior, you risk investing in marketing tactics that will not be beneficial.
Market Research Helps with Business Projection Calculations
Every small business needs to have some projections, calculations, and expectations before “breaking ground.” If you need to secure a small business loan, the loan provider will likely ask for some projection calculations to see if your business represents a worthwhile investment. Market research will help you make these projections accurately and efficiently.
Create a Business Timeline
Market research will also help you create a small business timeline using your projections and calculations. Did you know that one of the reasons small businesses fail is that their owners had misconceptions or irrational expectations about business growth? Without market research, your expectations of growth might be too high. Disappointed hopes result in discouragement, which can result in despair and abandonment of the business endeavor. If you perform market research, though, you can create a realistic timeline for your business.
Helps with Pricing Strategies
Without market research, how will you know how much your products and services need to cost in order to create a profitable scenario for your business? Research will give you an idea of how many products or service you’re likely to sell, and this information will help you create a pricing strategy.
Prevent Business Obstacles
Market research can also help you to prevent business obstacles from occurring. Is the market for your business idea declining? Are your ideal customers moving on to other interests? If market research reveals a declining consumer population, you can move on to another idea before you’ve invested in a shrinking business opportunity.
Reveals the Cause of Business Slumps
Continual market research will help you identify the cause of business slumps. Maybe a competitor has opened a business in a neighboring town. Perhaps your customers aren’t checking social media as often as they used to. Whatever the reason for a business slump, market research will help you identify the cause and prepare a solution.
Business Expansion is Only Feasible with Adequate Market Research
Market research will also provide you with information that you can use to determine if expansion is necessary. Business owners often use market research to determine if they should start offering new products and services, reach out to a new consumer population, or change their branded image. By evaluating the current market, you’ll be able to stay abreast of new trends, and this will help you stay relevant for a longer period of time.
Without adequate market research, your small business is less likely to survive and thrive in the first five years of its existence. Performing extensive and high quality market research will help you create a business that serves its target market, adapts to market change, and provides high quality services and products to a growing population of consumers.
If you liked this article, please add your comment below. What additional reasons did you have for performing market research before starting a business? Thanks for your comments and support!