Target Market
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When you analyse your market opportunities apply careful and thorough evaluation and don't bias your opportunities!
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What is Market Research?
Market research involves the collection and subsequent analysis of data, and the transformation of this data into information for use in strategic and/or practical problem solving for businesses. It essentially helps businesses to better understand both their customer needs and the competitive set in which they are operating.
Why is Market Research Important?
- It allows business to become customer-led, informs product design
Market research helps a company focus on their customers' needs and competitors' capabilities - this will in turn enable the company to build their competitive advantage through a superior customer value that comes of a market-oriented focus
- It validates the business proposition to investors
A venture capitalist will acquire an agreed share (equity) in a business in return for providing funding. This is most likely with businesses that have a strong growth potential as VC's will "exit" at a later stage by selling their investment and making a return.
Since the future profitability of the business is affected by its market environment, an analysis of the commercial and market dynamics is usually undertaken when evaluating investment opportunities - known as commercial "due diligence"
Informal business angel investment - which is especially common for young businesses in the technology sector - is more likely to be based on a hunch than complex market appraisal, but even they will want to see some market research to minimise the risk of their investment
- It validates the business proposition to yourself
It is just as important to prove to yourself that you have a valid business proposition worth investing time and money into as it is to prove it to any investor
- It helps you win grants or loans
There are a number of government-funded initiatives designed to help the development of innovative new products which require a degree of market investigation on application. In addition, a market investigation is required to complete applications for the majority of grants.
- It helps to build credibiliy in your sales pitch
Market research can help start up companies to build up credibility, particularly in the fact of potential new customers. This will then help the sales pitch process
- It will enable you to find customers
Market research is essential to finding customers in the first place: there is a blurred line between the point at which researching customers ends and selling to them begins
- It will enhance your decision making
Market information helps to reduce uncertainty and risks in business opportunities, and can provide a focus and map for how to move forward. If you conduct some detailed market research yourself, you will get a real sense of how your future customers think, and can avoid the mistake of basing your business solely on a 'gut-instinct' and some general statistics
When Should I Do Market Research?
Basically as soon as possible! It is essential to develop a customer focused product. This can be done by monitoring the market to ensure that what you are developing will meet a market demand. Therefore, market research should be an on-going process rather thn a one-off event. Remember, speaking to customers or potential customers is the best form of continuous market research.
Who Should Do My Market Research?
In most smaller businesses and start-ups, market research is often done by the CEO or senior management and is commonly a "do-it-yourself" process due to limited financial resource. However, the founders are also usually best able to describe their products and services and best understand their full potential. For larger businesses, or those smaller businesses looking for expert help, consider looking at Higher Education Institutes which can be a source of market information and market research services
Classifying Market Research
The basic market research process has four fundamental steps:
- Deciding what to collect and why
- Collecting data
- Analysing data
- Disseminating findings
In addition, market research is broken down into two classifications: primary research, and secondary research
Engaging the Right Market
Quoting James Barlowe (SIE)
- Markets where your profit potential is high
- How much do customers want the product?
- What does it costs to satisfy the customer(s)?
- How many customers are in the segment?
- Markets where you have market control
- Few competitors
- Sustainable differentiation
- Markets where your suppliers and distributors don't have market control
- Is the market attractive?
- Is there a target segment where you can offer clear and compelling benefits at a price the customer is willing to pay?
- Are these benefits in the customer's mind different and superior to other current solutions?
- How large is this segment and how fast is it growing?
- Can we get into other segments having gone for this one?
Further Reading
- Jeff Hawkins (Handspring, palmOne): "The Role of Market Research" in Stanford Entrepreneurial Thought Leader Lectures (video)
- Frank Levinson (Finisar Corporation): "Communicate with Customers" in Stanford Entrepreneurial Thought Leader Speaker Series (video)
- Rob McLeod (Scottish Institute for Enterprise): "Writing a Business Plan - Target Market"
