Related Terms: Focus Groups
If the "market" is viewed as the totality of all environmental factors that bear down on a business, market research may be defined as a disciplined investigation aimed at discovering what is going on and, most importantly, on what is changing in the environment. The object is to discover opportunities and threats—and to assess how some intended action might play itself out. The research may be designed broadly or narrowly, but even limited studies must have sufficient scope to give the investigation context.
GENERAL ASPECTS
Market research answers questions along the following lines: How big is the market and how does it divide?—into product lines or services or geographically? Who are the buyers and why do they buy? Who is the competition and what methods are they using? What's on the horizon that will change this market? How will we benefit or suffer if these changes take place?
Managements undertake such research for some motive; thus market research always has a context. The context may be negative (declining profitability or sales) or positive (new technology, rapid growth); it may be brought about by forces outside the company's control such as legislative events, the economy as a whole, a new entrant to the market. Most start-ups that need front-end funding begin their careers by doing a comprehensive market study in order to put the results into a business plan.
Company size is itself a context, and while, in general, business is business at any scale, problems and opportunities manifest differently. Managements in large organizations, for example, are inevitably at a much greater distance from the actual interface where customers and products meet—where the action is. Small business owners are closer to the market but rarely have vast resources at their command. Distance from the market and the extent of it that must be surveyed influences the techniques deployed. Market research may take the simple form of driving around and talking to a lot of people—or just parking someplace and counting the number of cement trucks a competitor sends out. At the other extreme, it may cost hundreds of thousands of dollars and may even involve undertaking test marketing in several cities.
A general rule of market research is that costs vary inversely with level of detail and currency. A business can get a broad view of a market by finding free materials at the library. Expert studies on a national or global market cost between $150 to $700 (depending on the subject). But a business wishing to have detailed information at the county level on some cluster of products is looking at minimally $3,000 for a commissioned study—and more likely four times that. Baseline economic data are collected by the U.S. Bureau of the Census. These are better at the aggregate than at the detailed level. Good data on specific products are simply not there, but data on physical products are better than on services. The Bureau collects fewer data on service sectors and these at a rougher granularity. The future auto dealer, in other words, has an easier job plotting the future than the future independent midwife. Government data are invariable three-or-more years old when they become available. Collecting current, real-time data is very costly. Grocery chains collect such data digital at the check-out counter, but access to it runs into hundreds of thousands of dollars.
Useful market research has a time element. It will present a history of developments and include a projection of future events. A manager wants to make decisions about what to do next and therefore needs a look at the future. Projecting data forward requires special but somewhat opposing skills: statistical expertise on the one hand and an inspired, open, and yet sober sort of gaze. Market research that merely confirms management's prejudices, hopes, or fears is worth little—but the findings, of course, may do just that. Managements often do see the future accurately.
MAJOR COMPONENTS
Market Size and Structure
Market size is an important aspect of orientation in business: it tells the owner how he or she is doing. Measuring market size at the national level is easy, at the local level difficult and costly. The government collects data at the county level in a series called the County Business Patterns, but the CPB only reports establishments, employment, and payroll. Product detail is not available. Nonetheless, CBP data are the most objective look at what is happening locally. Data from the CBP, combined with averages on shipments or revenues at the national level, can produce an estimate of the market size for broad industry categories locally. Where an activity is visible (e.g., picture framing shops), market size can be approximated by looking at telephone directories and using an average sales volume. Federal data for framing shops will not be available because the activity is "too detailed." Therefore alternative approaches are necessary. Where only factories are visible, local sales are very difficult to estimate, but the "production market" may be estimated similarly.
At the local level the structure of the market—its divisions into products, its channels of distribution, its concentration—are also subject more to guesswork than study. Telephone surveying is the method most likely to yield reasonable results, but such work is very expensive.
