Market research is the gathering and analysis of information about groups of buyers known as markets.
Learn how businesses can use and benefit from it, the types of research you can conduct, and how it differs from marketing research.
What Is Market Research?
Market research is the systematic collection and interpretation of data on a particular market of actual or potential buyers through the use of analytical methods and approaches.
The goal of market research is to provide decision-makers with insights into the potential of a market, which can be used in business planning, product development, and marketing strategy.
How Market Research Works
Whether you intend on entering the consumer, commercial, or reseller market, it's important to identify what your market needs and wants before you enter a market or develop products, services, and marketing for it. If you enter the market cold, you could waste time and money on an offering that your market is unlikely to respond to. With that aim, a business typically conducts market research to gauge the viability of a brand or specific products or services.
Market research can take the form of any planned activity that helps a business gain insights into a market and associated customers and competitors. The process boils down to three steps:
- Collecting data: The two types of data are primary data (data you or someone you hire captures first hand) and secondary data (already compiled data that you access). There are many types of research techniques you can use to obtain this data, as discussed later.
- Analyzing data: You'll typically need to organize and reduce (or simplify) the data and then study it. You can, for example, eliminate items from consideration that the data reveals to be of the least interest to customers, a statistical method of analysis known as factor analysis. You can also group items that are similar but mutually exclusive, which is known as cluster analysis.
- Evaluating market potential: Use your findings to identify market size, projected market share, and information about consumers in the market, along with information about the competition, and then make a decision about the viability and profitability of your offering.
For example, let's say that a clothing retailer wants to evaluate the potential of adding shoes to its product lineup. To start, it collects data by using the customer emails it has harvested through a store loyalty program to distribute a survey to those customers to gauge their interest in buying shoes from the company and what features they would most like to see in those shoes. The business then analyzes the data by studying the survey responses and identifying trends in customer interest (for example, the majority of respondents may express interest in buying athletic footwear). Finally, the company assesses the profitability of entering the shoe vertical and uses the feedback to guide it in designing, developing, and marketing the shoes they eventually sell.
Benefits of Market Research
It's advantageous for a business to conduct market research for these key reasons:
- It enables a firm to gauge the viability of a product or service: Market research allows a business to understand a market in depth, including its size, the behaviors of the consumers that make up that market, and how well a product or service meets market needs. Through the data-driven insights collected through market research, firms can objectively assess whether it makes sense to bring a product or service to the market and have it succeed.
- It avoids wasted time and money: By assessing the viability and profitability of a market before entering it, firms can avoid expending manpower and financial resources on products and services that would otherwise fail, which frees up those funds for ventures that are set up for success.
- It helps the firm establish a unique value proposition: Identifying what sets your firm apart from its competitors can help you gain a foothold in the market and build customer loyalty.
- It allows the firm to boost its bottom line and grow: The feedback you glean from market research can help you increase sales and revenues as well as pinpoint opportunities to grow your business in the future.
Types of Market Research
Businesses can take qualitative or quantitative approaches (or a combination of both) to collect the data needed to obtain valuable customer insights.
Qualitative Market Research
These are research methods that reveal customers' experiences, beliefs, and other qualities that cannot be counted. Qualitative market research entails open-ended research techniques, such as:
- Focus groups: These are in-person or online discussions including a moderator and multiple participants who interact with each other according to an agenda established by the moderator.
- One-on-one interviews: These are in-person, online, or telephone sessions between a representative of the company and an external participant, where the representative asks the participant a series of questions to gather opinions and identify trends.
- Observation: This technique involves watching customers as they buy or use a product or service.
If you use the observation technique, strive to be discreet to ensure that your presence doesn't influence customers' behavior.
Quantitive Market Research
Quantitative approaches seek to obtain measurable data expressed in numbers, and include:
- Competitor analysis: This process involves gathering your competitors' prices, identifying their market share, and evaluating their strengths and weaknesses.
- Surveys: Distribute questionnaires to gain measurable insights into your target market, such as demographics.
Certain methods, such as interviews, are conducive to obtaining either qualitative or quantitative data. For example, an interview can also be used to get measurable insights if you ask questions that elicit countable data (for example, "How much do you spend each month on clothing?").
Market Research vs. Marketing Research
Both market research and marketing research involve gathering and analyzing through an investigative process. But whereas market research is the process of gathering and analyzing information with respect to a specific market, marketing research involves reporting information that can be used for a variety of marketing activities, from identifying marketing opportunities to solving marketing problems.
Marketing research more broadly covers all four P's that comprise the marketing mix—product, price, place, and promotion—in order to understand consumer preferences. In contrast, market research narrowly focuses on just one "p"—place, or consumer behavior in one target market—to gauge market demand.
For example, a firm may conduct market research to determine whether there is demand for a brand, product, or service. It may conduct marketing research to fine-tune a marketing or advertising campaign, and to identify strategies for a particular marketing situation that the business faces.
|Market Research||Marketing Research|
|Focuses on a specific market||Focuses on identifying marketing opportunities and solving problems|
|Narrowly covers only "place" in the marketing mix||Broadly covers the four p's of marketing|
|Seeks to identify consumer preferences||Seeks to identify market demand|
- Market research is the gathering and analysis of information about groups of buyers called markets.
- It involves collecting and analyzing data and then evaluating market potential.
- The two main types of market research are qualitative or open-ended techniques and quantitative techniques that yield quantifiable data.
- Market research is more narrowly focused on a specific market, whereas marketing research is broadly focused on identifying marketing opportunities and solving problems.