As a rule of thumb, market research should provide you with information about three critical areas in order to determine whether your business idea will get a market:
1. Industry information.
In researching the industry, look for the latest trends. Compare the statistics and growth in the industry. What areas of the industry appear to be expanding, and what areas are declining? Is the industry catering to new types of customers? What technological developments are affecting the industry? How can you use them to your advantage? A thriving, stable industry is key; you don’t want to start a new business in a field that’s on the decline.
2. Consumer close-up.
On the consumer side, your market research should begin with a market survey. A thorough market survey will help you make a reasonable sales forecast for your new business. To do a market survey, you first need to determine the market limits or physical boundaries of the area to which your business sells. Next, study the spending characteristics of the population within this location.
Estimate the location’s purchasing power, based on its per-capita income, its median income level, the unemployment rate, population and other demographic factors. Determine the current sales volume in the area for the type of product or service you will sell.
Finally, estimate how much of the total sales volume you can reasonably obtain. (This last step is extremely important. Opening your new business in a given community won’t necessarily generate additional business volume; it may simply redistribute the business that’s already there.)
3. Competition close-up.
Based on a combination of industry research and consumer research, a clearer picture of your competition will emerge. Don’t underestimate the number of competitors out there. Keep an eye out for potential future competitors as well as current ones.
Examine the number of competitors on a local and, if relevant, national scale. Study their strategies and operations. Your analysis should supply a clear picture of potential threats, opportunities, and the weaknesses and strengths of the competition facing your new business.
When looking at the competition, try to see what trends have been established in the industry and whether there’s an opportunity or advantage for your business. Use the library, the Internet and other secondary research sources to research competitors. Read as many articles as you can on the companies you’ll be competing with. If you’re researching publicly owned companies, contact them and obtain copies of their annual reports. These often show not only how successful a company is but also what products or services it plans to emphasize in the future.
One of the best websites for researching the competition is Hoover’s Online, which, for a fee, provides in-depth profiles of more than 85 million companies. However, there’s also free content available, plus you can sign up for a free trial subscription. You can also gather information on competing businesses by visiting them in person.