Not surprisingly, most small businesses develop a sense of their market in the course of day-to-day operations—rather than by spending thousands of dollars on studies. They talk with vendors, customers, and competitors. They listen to the gossip and translate bits and pieces of information into rough numbers. This process is rarely—but can be—formalized. A small business owner and his and her key managers can sit down with notepads and work out the market size and structure. Sometimes this is useful for planning or for justifying loan applications. At the local level, disciplined recording and analysis of such information yields results comparable to very expensive studies at the larger scale—and looking at CBP data can produce rough confirmation.
Market Share and Competition
An important aspect of every market is its concentration, measured by creating a list of participants, sorting them by sales, and then adding up the market shares of the top layer—the top five, the top three. If the top three have most of the market, the industry is highly concentrated; if the top five have around 15 to 20 percent, concentration is low. Most market share listings have an "All Other" category. Small businesses are invariably hidden in that line. The sales volumes of small operations are rarely available publicly, but "work arounds" are available to infer their size. Important measures are employment and square footage. A "typical" small business can calculate its own sales per square foot in retail, for instance—or its sales per employee—and can then proceed to develop approximate company size estimates for its competitors by applying the same unit measures to them after counting their people and eyeballing their floor space. There are all kinds of other "proxy" measures available. A ready-mix concrete supplier knows his/her revenues per truck—and can count competitors' trucks. Economic forces tend always to produce the same averages across an industry.
Competitive strategies are also accessible to the small business. The method of detecting such strategies will depend, of course, on the relative visibility of the competitor. Retail stores advertise; the frequency of their sales and the items they use as loss leaders indicate strategy. They can be visited. Vendors are a useful source of information on less visible competitors' strategies—as are observations of such companies at trade shows. The alert small business owner will constantly watch his or her competitors and note when they enlarge their leases, build, or pave their parking lots—or when their inventories overflow to the parking lots. Problems that they encounter also leave tell-tale signs. When such observation becomes routine—and when the owner collects ads, news stories, and records observation in notes—doing a market share and competitive analysis for a plan will be relatively easy.
Products Research and Consumer Surveys
A small business intending to test products before launching them to the market will expose them to employees, friends, customers, relatives, vendors, suppliers—anyone at all with a likely opinion—and will thus gradually discover what seems to be the best design, positioning, packaging, name, and even marketing slogan. The more systematic this type of exposure is—and the more effectively informants' opinions are recorded and analyzed—the more it will resemble the practices of large organizations who deploy sophisticated methodologies like focus groups and consumer surveys.
In general "sophistication" translates into disciplined planning of tests and the application of specialized expertise in that planning. Focus groups and customer surveys frequently employ psychologists before a trial (preparing settings, choosing respondents, framing questionnaires, etc.), during a trial (observing reactions), and after the trial (analyzing results). But, in effect, a high level of sophistication is simply an attempt to formalize and then to apply mechanically what is nothing other than good entrepreneurial "feel" and "instinct." Many a very successful product was launched because the entrepreneur simply liked it—and so did the people around him or her.
Small businesses generally lack the resources for massive, costly trials and surveys and, instead, rely on innovative ways to obtain consumer feedback. A store, for instance, may mount two very different product displays and then instruct the clerks to note which one the customers spend more time examining. Surveys can be conducted at very modest costs by simply asking every customer a question at checkout time—and then recording the answer. Such approaches may lack the "scientific" halo of big studies but will produce actionable and reliable results if properly done.
Keeping record of informal events is another low-cost method to accomplish in a small business what large companies spend huge amounts achieving. Customers complain. Customers make complimentary comments. Customers criticize products or comment on them. To jot down such comments with appropriate annotations, to collect them in one place, periodically to review them can be a source of intelligence on customer satisfaction.
Other Market Influences
An important component of all market research is identification and assessment of forces external to the market itself—but likely to influence it. A classical example of government action for a small business might be the routing of a freeway; it could isolate the business from major parts of its clientele or massively increase its traffic. External influences include government, as already mentioned, which can by its enactments increase pay (up minimum wage) or returns (accelerate depreciation), impose costs by regulation, modify interest rates, stimulate or inhibit exports, and do hundreds of other things. Changes in demographic patterns were underway in the mid-2000s as the baby boom generation marched toward retirement, eroding some markets, swelling others. International events may have great influence by disturbing raw material or energy availability or stimulating competition (outsourcing). Technological change of a massive character impacted communications and distribution by means of the Internet—but less visible changes, like improvements in materials or equipment have sometimes dramatic impacts of a particular business too.
