Market research: Essential guidance for small business owners
What is market research?
Market research means collecting, analysing and interpreting information about a market that your business plans to enter.
That information will cover areas such as the target audience for your product or service, who makes up the competition and what's happening across the wider industry.
If you do proper market research, you'll gain all sorts of insight into how customers behave, what they prefer and what guides them towards making a purchase.
For new businesses, market research helps you:
spot gaps in the market
gauge demand for your product or service, and
lessen the risks that come with trying to break in
Generally, there are two types of market research:
Primary research (gathering new information on a market)
Secondary research (analysing the information you've already collected)
Blend these two approaches, and you'll end up with a detailed understanding of the market you're looking to enter.
How does market research work?
Market research typically involves the following five steps:
Set your goals
Don't start until you know you want to get out of this research.
Are you testing whether your business idea is workable?
Are you trying to identify who your customers will be?
Maybe you'd like to understand more about your possible competitors?
Choose your type of research
Based on the choices you've made about what you want to achieve, you must now decide whether to carry out primary research, secondary research or a combination of both.
Each method has its pros and cons, so make sure you're selecting an option that will generate the type of information you need to take your business forward.
Begin collecting your data
Again, this will depend on the research method you've gone with. But at this stage you'll be working to gather information through techniques like surveys, interviews and focus groups.
You might also be looking at industry reports, government stats and data about your competitors.
Analyse the information you've collected
Once you have the data you were seeking, the next step is to analyse it. What are you looking for exactly?
Well, you might investigate it for possible trends, patterns or insights that can inform the big decisions you make about your business in the future.
Make informed decisions
Use the insight you've gained from your research to shape your business strategy.
This valuable information might help you refine your business idea, pitch your product at specific segments of the market, or adjust it to be more suitable for its intended audience.
Enterprise Nation is always here to help.
We've created this hub to be your go-to resource for carrying out market research for a small business.
Whether you're a first-time founder or a serial entrepreneur, the information you find here will help you research your target audience, industry, competitors, pricing strategies and more.
What research should you do before starting a business?
Don't even think about launching your new business before you've carried out thorough market research. The information you gather will be invaluable – trust us! Here are some major areas to focus on.
1. Industry trends
Having a detailed knowledge of the industry you're entering lets you judge whether it's a viable business opportunity.
This means researching the industry's general "health", what level of growth is likely to occur, whether there's potential for disruption and what the future might hold.
For example, is the industry going through a period of growth or stagnating? Are there emerging technologies, new laws or changing consumer habits that could have an impact on your business?
By identifying these trends, you can prepare for the challenges you might encounter and make the most of the opportunities available to you.
2. Target audience and customer needs
A key aspect of market research is understanding your potential customers. It's vital that you know who they are, what they need, what they prefer and how your product or service can solve their problems or improve their lives.
You can do this by segmenting your target audience based on:
demographics (such as age, gender and income)
psychographics (such as lifestyle, values and interests), and
buying behaviour (how they decide to buy, how often they make a purchase and so on)
Run surveys, do interviews or arrange focus groups to dive deeper into your audience's pain points, motivations and unmet needs.
The more clarity you have about who your customers are, the better you can tailor what you offer to suit them.
3. Competitor landscape and market gaps
Researching your competitors lets you determine the strengths and weaknesses of businesses already operating in the market. Identify both your:
direct competitors (those offering similar products or services), and
indirect competitors (those offering alternatives or substitutes)
Assess their pricing, product range, customer satisfaction levels and marketing tactics. What are they doing well and where are they falling short?
Understanding your competitors means you can spot gaps in the market – unmet needs or underserved customer segments – that your business could fill.
This insight can give you a competitive advantage by allowing you to set yourself apart and find a unique selling proposition (USP) that resonates with your audience.
4. Regulations and laws in your industry
Every business has rules and regulations that govern how it operates, and failing to keep to them usually results in penalties, fines or even being forced to close.
Before you start your business, research the legal framework for your industry, including any permits, licences or certifications you might need to operate.
For example, if you're a food-related business, there are health and safety standards you must meet, while businesses in the financial sector may need to register with the Financial Conduct Authority (FCA).
Also consider employment law, tax regulations, data protection law (such as GDPR) and intellectual property (IP) law.
Understanding the regulations that apply to your business will help you avoid costly legal mistakes later on.
5. Pricing strategy and market demand
Determining the right price for your product or service is crucial if your business is going to remain profitable. Before you set your pricing, research how much customers are willing to pay for similar products or services.
You also need to understand how price-sensitive your target audience is – will they pay a premium for something that's high-quality or unique, or do they prefer budget-friendly options?
Also think about the overall demand for your product or service. Do enough people want or need what you're offering? Run surveys, use tools like Google Trends and read industry reports to gauge levels of demand.
Finding the right balance between pricing, demand and perceived value will help you position your product effectively and attract the right customers.
Why is market research important for start-ups?
Market research plays a pivotal role in any new start-up's success, as it provides invaluable insight into various aspects of the business. Here are the main reasons why it matters:
1. You get to test your idea
Doing market research allows you to check whether your business idea has a chance of sustaining itself into the future.
By gathering feedback from potential customers, you can assess whether people are interested in your concept and whether there's genuine demand for the product or service you're offering.
Good market research helps you identify flaws or gaps early in the process – which saves you time and money later.
2. You learn about your target audience
Conducting market research gives you the opportunity to gain a better understanding of your target audience – who they are, what they need, how they think and where they shop.
Armed with this information, you're in a great place to start developing marketing strategies that are tailored to them personally. You're also able to offer a product or service that meets those customers' precise needs.
3. It helps you attract investment
Investors want to see that you’ve done your homework and that your business has a strong chance of being successful.
By presenting them with an idea that's clearly well-researched, you show that your start-up has potential – which works massively in your favour when you're trying to attract funding.
Market research helps you build a compelling case for why your business is a good investment.
4. It makes your start-up less likely to fail
Market research can help you limit the many risks that come with starting a new business.
When you understand the conditions of the market, your customers' preferences and the competition you're up against, you can make better informed decisions, steer clear of expensive mistakes and give your business an increased chance of seeing long-term success.
More support with your market research
What is small business market research?
This blog explains more about what market research is and how you can use it to better understand your potential customers, competitors and opportunities.
How to conduct market research for your business
In this blog, we explore the major methods of market research and look at ways to use them to develop a really effective marketing strategy.
Everything to know about market research
Marketer Anna Morrish looks at how online businesses can understand their position and what you can learn from them in order to take more of the market share.
What are the different types and methods of market research?
There are two main methods of market research: primary research and secondary research. Both types can generate the most useful information, depending on what you need.
Primary research
This type of research involves gathering new, original data from your target audience or market directly. You would typically go about this by doing surveys, conducting interviews or running focus groups.
1. Quantitative research
This is when you collect numerical data that you can analyse statistically. It's useful for understanding market trends, customers' preferences and consumer behaviour on a wider scale.
Survey research
You ask a series of structured questions and gather data from a large number of people. You can run surveys online, by email or in person.
Online market research
Using digital tools to collect people's data via the internet. This includes online surveys, website analytics and social media polls.
2. Qualitative research
This type of primary research focuses on understanding people's deeper motivations, opinions and behaviours. It often involves smaller, more focused groups.
Face-to-face interviews
When you gather in-depth feedback from people in a one-on-one setting. Useful for understanding customers' experiences, attitudes and feelings in a more personal way.
Focus groups
Asking a small group of people to share their opinions and experiences regarding a product or service. This allows for open discussion and gives you insight into how potential customers think and feel.
Phone research
A great way to collect qualitative data. Interviews over the phone allow you to ask open-ended questions and gather more personal responses from your target audience.
Secondary research
This type of research involves analysing data that's already been collected and published. It can include industry reports, market analyses and competitor research.
Industry reports
Provide an overview of market trends, growth forecasts and other important insights. Often published by market research firms, trade associations and government agencies.
Public data
Available from government sources such as the Office for National Statistics (ONS) or local government websites. This data might look at the economy, the population or other aspects of the market.
Competitor research
When you analyse the publicly available information about your competitors. This might include their marketing materials, products, pricing strategies and customer reviews.
Primary vs. secondary research
Both primary and secondary research have their strengths and weaknesses.
Primary research provides fresh, specific data that directly reflects your audience's views and behaviour, but it can be time-consuming and costly.
Secondary research, while less expensive and faster to gather, may not be as relevant or tailored to your specific needs.
A mix of both is often the most effective approach.
How to do market research for a start-up
Step 1: Know what you want to achieve
Before you begin, clearly define what you want to learn. Are you:
testing demand for your product?
identifying what your customers prefer?
trying to better understand your competitors, and where (and why) they're having success?
Setting clear goals will help guide your process when you start carrying out your market research.
Step 2: Decide what type of research you'll do
Based on the goals you arrived at in step 1, choose the most appropriate methods for gathering the information you need.
Will you do primary or secondary research
Quantitative or qualitative?
Make sure you're selecting techniques that will give you the most relevant and actionable data.
Step 3: Collect and analyse the data
Spend time conducting your research, whether it's through surveys, interviews, online tools or secondary sources.
Once you've collected all the data you need, examine it closely for trends, patterns and insights that can inform the action you take next. (There's more information below on how to do this.)
Step 4: Implement what you've learned
With your data fully analysed, use the key things you've learned to make informed decisions about your business.
For example, you might have found ways to adjust your products, refine your marketing strategies or rethink the audience you've been trying to target.
How do you analyse your market research data?
Data analysis is all about reviewing the data you've collected to identify trends, patterns and insights.
For quantitative data, statistical analysis can reveal important trends, while qualitative data needs to be interpreted more subjectively and focus on themes and recurring patterns.
Common tools for analysing market research data include statistical software (such as Excel and SPSS) and data visualisation tools (like Tableau and Google Analytics).
How do you test your business idea with market research?
Testing your business idea is an essential step you must take before you commit fully to your venture.
By gathering feedback from potential customers and analysing conditions in the market, you can gauge whether your idea has the potential for success and identify any weaknesses early on.
As this process unfolds, you'll make informed decisions and lessen the risk associated with launching a new business.
Here are the steps and methods you can use to test your business idea effectively.
1. Conduct a feasibility survey or questionnaire
You can design a survey or questionnaire that asks potential customers specific questions about your product or service. The key is to focus on what matters most:
Does your target market see value in your product?
Would they consider buying it?
What features do they like or dislike?
Ask open-ended questions to get a sense of their overall perception, along with specific queries about pricing, quality and potential uses.
For example, you could ask respondents:
Would you be interested in using this product?
What problems does it solve for you?
How much would you pay for it?
How does this compare to alternatives you're already using?
2. Test a prototype and get feedback
If possible, create a prototype or a minimum viable product (MVP) of what you're offering. This could be a sample of your product or a simplified version of your service that allows potential customers to experience it.
You can distribute the prototype to a small section of your audience (through online platforms or in-person events, for example) and ask for detailed feedback.
Testing a prototype lets you make sure your idea is practical and that people will actually use it the way you want them to.
You'll also learn where the strengths and weaknesses are with your product or service, and make adjustments before launching a full-scale version.
3. Run focus groups for in-depth insights
A focus group is a small, carefully chosen group of people from your target audience who take part in a structured discussion about your business idea.
This allows you to gather qualitative data in a group setting, where participants can bounce ideas off each other and provide more detailed opinions than they would in a survey.
In a focus group, you can present your business idea, demonstrate your product or service and ask participants questions to explore their reactions.
Some useful questions to ask:
What do you think of the overall concept?
Is there anything you'd change or improve?
Who would benefit the most from this product or service?
Does the product meet a need you have? If so, how?
Focus groups give you deeper insights into customers' emotions and views, which you can use to refine your business idea and marketing strategy.
4. Analyse your market and competitors
Understanding how your idea fits in the current market is crucial. This means identifying your direct competitors and judging their strengths and weaknesses.
Look at their products, pricing strategies, customer base and marketing tactics.
Also examine customer reviews and feedback on your competitors' products or services. Are there any recurring complaints or unmet needs your idea could address?
By identifying gaps in what your competitors offer, you can position your business to meet customer demands more effectively.
You should also look at market trends to establish whether there's growing demand for your product or service. Is the industry expanding? Are consumers shifting toward products similar to yours?
Gathering data from industry reports, competitors' websites and public sources will give you a clearer understanding of whether your business idea fits into a thriving market.
5. Launch a pre-sell or crowdfunding campaign
An innovative way to test demand for your idea is through a pre-sale or crowdfunding campaign. Platforms like Kickstarter, Indiegogo and GoFundMe let you introduce your business concept to a wide audience and see if they're willing to commit to buying your product before you've even launched it.
This is particularly useful for products, and it offers double the benefit:
Validate your idea
Secure early funding to help with development at the same time
A successful pre-sale or crowdfunding campaign shows there's genuine interest in your product, which should give you the confidence to continue.
Even if the campaign doesn't fully attract the funding you hoped for, you'll get invaluable feedback from potential customers. You can use this to tweak your idea before moving to full-scale production.
6. Run a small-scale test with a soft launch
A soft launch is when you introduce your product or service to a smaller audience before rolling it out on a larger scale. It allows you to test whether your business's logistics are working, gauge customers' reactions and fine-tune how you're operating.
For example, you could launch your product in a limited area, or offer it to a smaller segment of your target audience online.
The feedback and data you gather from a soft launch can give you valuable insight into the customer experience, the effectiveness of your marketing and the operational challenges you might face as you scale.
A soft launch also lets you adjust pricing, branding or the product itself before investing in a full-scale launch.
7. A/B test your marketing
Is your marketing strategy working for you? A/B testing (also known as split testing) is an effective way to assess different marketing messages, designs and methods to see which one resonates best with your target audience.
You can test different landing page designs, email subject lines or social media ads to determine which versions drive the most engagement, sign-ups or conversions.
For example, if you're not sure which marketing message will work best, create two versions of an ad with slightly different language or offers and run both to see which performs better.
The results will help you get the best out of your marketing campaigns and make sure you're reaching your audience effectively.
8. Measure early adoption and customer retention
For your business idea to have success, once you've attracted your initial customers you need to find a way to keep them.
After you launch your product or service, track early adoption and monitor customer retention rates.
Are customers coming back to buy from you again?
Are they referring other people to your business?
Positive early signs of customer loyalty indicate that your business idea has strong potential for growth.
You can use tools like email follow-ups, customer satisfaction surveys and net promoter scores (NPS) to gauge customer loyalty and work out ways to retain those customers.
Measuring customer retention will help you understand whether your business idea has the potential to succeed long-term.
How do you build market research into your start-up's strategy?
Incorporating market research into your strategy puts your business in a great position for success.
Market research gives you valuable insight into customers' preferences, industry trends, competitive dynamics and potential risks. These can all guide your decisions and shape your long-term plans.
By continuously using market research to inform your business strategy, you can stay agile and make good decisions based on real data. That's the key to achieving sustainable growth.
More support with your market research
What are the benefits of market research?
This blog explores the key advantages of market research. Learn how it can help you identify your ideal customers, understand your competition and launch new products and services with confidence.
How to create a target customer list
When running a business, knowing your ideal customers can make all the difference. Find out how to identify and cultivate a list of target customers – and build marketing campaigns that reach the right people.
How to understand your ideal customer
Marketer Amy Atkinson guides you through truly understanding your ideal client, researching and defining your ideal customer avatar (ICA) and targeting a single customer type for effective marketing.
Final thoughts on small business market research
Market research is an indispensable tool for any start-up or new business looking to succeed, especially when up against strong competition.
By understanding your market, target audience and competitors, you can make informed decisions that lessen the risks and give you a much better chance of success.
Whether you're refining your idea, testing a product or developing your marketing strategy, market research provides the insights you need to move forward with confidence.
Remember, the more effort you put into understanding your market upfront, the better placed your business will be to adapt, grow and thrive in the long term.
