How to do Market Research ? : A Brief Step-by-Step Guide

Before we ever really get to the nitty-gritty of conducting market research, let's just take a step back and talk about the "why" of it. At its core, market research has just one purpose: Validation. Validation can be to yourself individually or to prove to potential or to other stakeholders. Imagine this: you have a great idea that might be anywhere on the product development phase, but it is more likely to come through in the early ideation phase. It’s tempting to trust your instincts and charge ahead without any research or validation, but there’s a significant risk that things might not unfold as you dream.

To minimize those risks and uncertainties, we turn to market research. It acts as your compass, providing insights into the potential your idea can achieve while also shedding light on various possible shortcomings. But the benefits of market research don’t end there; it also equips you with valuable suggestions and options for enhancing your idea, transforming it into an even better offering.

Most importantly, the validation you're gathering isn't all for your own good conscience. If you're planning to raise capital, this research becomes a useful tool to present to your potential investors, whether they are banks, venture capitalists, or even relatives who may be willing to support your project. But there's more. Market research is just as good of a weapon in recruiting people to your side. With strong data backing you, other members of your team are more motivated and confident in their ability, with all of them aligned to a shared goal. Additionally, when making striking partnership deals, this approval can serve as a compelling tool to demonstrate the viability of your proposition.

The Market Research Process: A Two-Tier Approach

Now that we've established why market research is needed, let's talk about the "how" of it. There are different methods to take on based on your requirements. But I generally work this way: market research begins with looking at the macro environment of the business before digging into the micro-environment.

Macro Environment: Understanding External Forces

The macro environment is the factors that are beyond your control but affect your business significantly. These forces set market trends, and with them, risks and opportunities. Having an understanding of the macro environment allows you to appreciate the larger forces at play and conduct your strategy appropriately.

A very common tool used to analyze the macro environment is the PESTLE framework, which includes:

• Political: Political stability, trade policies, and regulation policies.

• Economic: Inflation rates, interest rates, market trends, and economic growth.

• Social: Consumer behavior, demographic changes, and cultural trends.

• Technological: Industry-specific innovations, digital disruption, and innovations.

• Legal: Intellectual property protection, compliance mandates, and industry regulations.

• Environmental: Ecological factors, climate change, and sustainability.

  
  

Take the case of companies targeting the Indian market. They observe the country’s expanding middle class and increasing disposable income (economic factors) as major drivers for premium product demand. Coupled with cultural shifts toward Western lifestyles and rapid urbanization (social factors), India becomes a highly attractive market for global brands. Conducting a macro-environmental analysis enables these companies to tailor their offerings and marketing strategies to better appeal to Indian consumers.

Furthermore, the Opportunities and Threats (OT) in a SWOT analysis are excellent tools for comprehending how these macroeconomic trends might influence your business for better or worse.

Industry Analysis and TAM/SAM/SOM

Following an assessment of the aggregate macro environment, undertake an industry analysis to comprehend the overall value, growth potential, and realized potential of the industry. These pieces of information are often located in reports from industry participants and industry associations.

But as a new player, it is not just necessary to understand the current scenario of the industry, but one must also understand its untapped potential. This refers to opportunities yet to be utilized or tapped. The TAM/SAM/SOM tool facilitates understanding the untapped potential:

TAM (Total Addressable Market): The total demand for your product or service across all markets, assuming no limitations on access or resources.

SAM (Serviceable Available Market): The portion of the TAM that aligns with your business model. This considers factors like geography, target audience, and industry relevance.

SOM (Serviceable Obtainable Market): The part of the SAM that you can realistically capture. It reflects your actual market potential based on your current resources and competitive position.

Investors prefer to have a quick TAM/SAM/SOM breakdown in business plans and pitch decks. These figures not only validate market potential, but also convey the size and opportunity present.

Micro Environment: Governing Internal Dynamics

While the macro environment sets the stage, the micro-environment allows you to call the shots. These include suppliers, customers, finances, competitors, and marketing intermediaries, all of which are within your control.

Financial Analysis

It pays to know your finances. You need to examine your capital requirements, revenue projections, and cost structures. This would include conducting a profit and loss (P&L) analysis to be aware that your business model is cash-positive. These numbers are what partners, investors, as well as your internal team, use to make sound decisions. A cost-benefit analysis is another level of comprehension to make sure resources are being spent effectively and efficiently.

Competitive Analysis

Next, a thorough competitive analysis is essential to understand your rivals' strengths and weaknesses. What are they doing well? Where are they falling short? This analysis will help you identify gaps and opportunities for differentiation. Take McDonald's, for instance. In its early days, most restaurants had extensive menus, leading to slower service. McDonald’s focused on a limited menu with burgers and fries, allowing for faster service and appealing to a specific customer base. This strategic decision helped McDonald's stand out and dominate its niche.

You can also use tools like Porter’s Five Forces or the SW of SWOT to assess the competitive landscape and identify how your business can stand out.

Customer Insights

The most critical part of microenvironment analysis is understanding your customers. This can be achieved by studying both demographic and behavioral data to define your target audience. Different sets of demographic traits and behavioral traits create a buyer persona.

Demographic Characteristics: Age, gender, income, marital status, education, and occupation provide the overall structure of your audience.

Behavioral Traits: Buying behavior, brand loyalty, and interest in product give a deeper insight into your customers' desires and needs.

Customer insights can be gathered using primary data collection tools like questionnaires, surveys, or focus groups. Customer insights will help you tailor your marketing strategy and products. For instance, if you are launching a new product into the market, you can carry out a survey among potential customers to discover their likes and identify underserved market niches.

But if you lack time or resources for primary research, secondary data in the guise of competitors' reviews can prove handy. Sites like Amazon (for product firms) and G2.com (for software) provide you with reviews that inform you what customers love and what they miss. Such qualitative hints and reading between the lines can assist in product planning and marketing strategy.

Conclusion

Market research is much more than data collection. It’s about making informed, strategic decisions that can steer your business toward success. From studying outside macro forces to identifying inside micro forces, a structured market research approach has you prepared to face challenges and take advantage of opportunities.

Whether you're testing your idea, raising capital from investors, or aligning your team, market research is the key to making smart, fact-based decisions. With it, you can unlock untapped potential, avoid missteps, and create a clear path to growth and success. By understanding your market better than anyone else, you're not only testing your idea, but you're also setting your company up for long-term success.