Market research happens a lot during startup but is also an ongoing effort to understand the customer’s needs, because things change and if you can see the changes coming then you can prepare your business to take advantage of them.
Market research is a cross-functional activity led by the Information Department because it involves finding and collecting information from the world outside the business and it requires a methodology, meticulous approach, and extracting information from all the data collected. It is cross-functional because it involves people from other departments such as revenue, operations, and logistics.
Questions to answer via market research:
- What are the customer’s needs?
- What problems does the customer have?
- How much is the customer willing to pay to solve these problems?
- What is the size of the this market?
- What are the barriers to entry?
Customer needs
Look at your customer’s needs through a variety of perspectives.
Physical needs: water, food, shelter, reproduction.
Emotional needs: certainty, variety, connection, significance, growth, contribution.
Another way to look at people’s needs is in the categories like health, wealth, and relationships.
Health starts with the essential needs of water, food, and shelter. Another way to think of the essential health needs is in categories of nutrients and protection from the elements. Then there’s exercise and other activities that can improve health and fitness. Finally there are luxury health items, experimental therapies that are rumored to have great results but they’re also very expensive, and anything else that might cost a lot and only has a marginal improvement in outcomes, if any.
Wealth has various levels. Let’s look at three levels called security, comfort, and luxury. Security is consistently being able to acquire or maintain the essential needs of water, food, and shelter. Comfort is being able to acquire or maintain the next level of needs, for example the gym membership or being able to pay for the occasional dinner out. Things that are not essential but they do improve quality of life by reducing stress, saving time, or helping to achieve non-essential goals. Luxury is being able to acquire the best items or the best service in the best places at the most convenient times. Luxury items and services don’t need to exist at all, but people who are wealthy enough to have all the comforts they want look for something else, something more, and so another way to define luxury is “because I can”.
Relationships can mean with a “significant other” and also parents, children, siblings, coworkers, and more.
Customer problems
Look for the problems that keep your customers awake at night, or problems that are on their mind all the time.
Willingness to pay
This is critical. If customers aren’t willing to pay to solve the problem, then you cannot create a business around it. However, you could create a non-profit charity around it. There are many non-profits whose mission it is to solve problems that the “customer” cannot pay for, such as housing and feeding the homeless and the poor.
Market size
This can be measured in different ways. You can measure it in dollars, as in how much do people in this market spend every year on products and services. You can measure it in “accessible dollars”, as in how many of those dollars could your own business potentially get every year with your product or service. You can measure it in number of potential customers, looking at how many people or how many companies are out there buying products and services like yours, regardless of how much they spend individually or collectively each year.
Barriers to entry
How easy is it to start selling in this market? This is a concern for any business, but it affects some businesses more than others. For example, if you want to sell t-shirt designs online, there are websites that help you do every part of this now so the barrier to entry is very low in a technical sense. If you want to start a new bank or insurance company, the barriers to entry are high by any measure — these industries are heavily regulated and it would require a lot of money, expertise, and effort.
An important aspect to consider about barriers to entry is how well you are positioned to overcome them. Returning to the t-shirt example, since a lot of people are doing it you do need a way to stand out and grab attention so your barrier to entry may depend on your ability to advertise to your market. If you already have an audience, selling them a t-shirt may be as easy as making an announcement that they’re available. If you don’t, you’ll need to invest time and effort into attracting an audience. Returning to the bank example, if you’re already a billionaire and you want to start a new bank, it could be as easy as having some conversations with the right people and putting up your part of the money, but will still take time for all the experts you hire to get it started. All the same barriers are there, but a billionaire is better positioned to overcome them than most people.
How each department is involved
Information – Define the methodology. Compile the data collected. Produce a market research report.
Revenue – Identify current customers who are willing to participate in the research. If market research includes “live” order pages to test willingness to pay, set up the journey pages, payment form, and arrange customer interviews.
Operations – Monitor progress in terms of learning. Ensure the market research activity is conducted within the allocated budget.
Logistics – If employees or customers need travel arrangements for interviews, or need to set up online events, these are done by the logistics team.
Compass
After market research, continue to product development.
Back to top – steps to start a new business.
See all information activities.