How to carry out effective market research

It’s not uncommon for budding entrepreneurs to dive into a new business venture convinced that they’re onto a winner, only for the project to sink a few months later. Some will stick it out, hopeful that the tide will turn in their favor but the numbers speak for themselves: around a third of French companies don’t survive beyond five years. The idea may have been creative but that doesn't necessarily mean it's profitable.

To put the odds of success in their favor, new business creators need to understand the market they’re getting into. They need to be able to test their idea to prove that it can make money. 

How? By researching the market thoroughly in advance.

So why does it matter so much and what exactly does effective research entail? Let’s find out.

Understanding the target market is crucial for anyone setting up a new business. Collecting and analyzing data - both quantitative and qualitative - will establish whether you’ll have enough paying customers to stay in business. Market research can give you:

• a clear overview of the target market before launching;
• confirmation that your future company will have a distinct value proposition...
• ...and the chance to adjust your product to the market if that’s not the case;
• evidence that your business can be economically viable.

If you’re seeking financing for your business from a bank or other investors, solid market research will be important in convincing them to give your project financial backing.

Even after launch, your insights into the target market will be useful in building a sales and marketing strategy.

Market research lays the foundation for your business and should therefore be one of the first steps in the company creation process, coming even before the business plan (link in French). It allows you to learn about your competition and will tell you what your prospective customers want.

There other occasions later on in the life cycle of a company when market research can come in very useful:

1. If you want to break into a new market. If your business is growing nicely in your domestic market, you may wish to expand abroad. Researching the new, local market thoroughly can reveal cultural specificities and nuances that can help you tailor your offer accordingly.
2. If you’re launching a new product/service. You may have already carried out market research for your initial product or business. If you then expand your offer with another product or service, or if you diversify your business activity, you’ll need to make sure that it aligns with your customers' needs and gauge the level of competition in that new space.

Researching a new market can be an intimidating project if you’re an inexperienced entrepreneur. However, it is possible to do it yourself. You should know your business better than anyone else and there are plenty of complementary resources available online to help you.

Alternatively, you can outsource the job to a professional market analyst. This may be a business guidance advisor from a French state-backed agency like the Chamber of Commerce (CCI) or the Réseau Entreprendre, in which case the service is likely to be inexpensive or even free. Private sector agencies, analysts and certified accountants can also handle your market research, although are likely to be more costly.

Even if you do decide to outsource, you will need to be reasonably involved in drawing up the market research plan. Solid knowledge of your company’s target market is an important factor in the longer-term success of your business.

Let’s imagine you are looking to launch an online shop. With 27,000 new e-commerce websites created in France each year, there will almost certainly be competitors operating in your sector. So what is the current state of the market? What do consumers want and need? Is the industry undergoing change? Your market research will answer these (and many other) questions.

You can break up your research into 4 key areas: defining the market; analyzing demand; analyzing the supply; and analyzing the context.

For this first step, the idea is to establish who the target customers are, how many there are, what their expectations are and how they’re evolving.

This is also the time to list the other players within the market. For example, who are your competitors (both direct and indirect)? Who are your potential customers and leads? What other third parties are in the picture (suppliers, transporters, regulators, prescribers etc.)?

Step 1 will already give you an idea about the level of demand in your target market. Now you need to dig a little deeper into that domain.

• Identify the main industry numbers, including: What is the size of the market in terms of demographics and value? How has it evolved over the last few years? How might future developments influence it? What proportion of the market is online/offline?…
• Define the habits of your future customers, for example: What do your future customers like? What do they buy? Where and how often do they buy it? How much do they spend? What is it they want but can’t find with existing solutions?…

Just as you did for demand, you should develop a deeper understanding of the existing commercial offer out there. Who is already supplying your target market? What exactly are they offering and for how much? Do any of them dominate the market?

You should also investigate the strategic decisions of the competition. What is their business model? Their distribution strategy? Where do they focus their marketing?

The political, economic, legal, social and cultural context of the market you’re targeting are among other factors that will have an impact on your business. Some may be industry-specific, such as the regulatory context. Other factors like environmental sensitivities may result from more global trends.

Understanding these contextual aspects will help you build an offer that is able exist and succeed in its own environment.

The more quantitative and qualitative information you can include in your market research, the better. So how do you collect that information?

There are 3 approaches to collecting and presenting your market research:

• Quantitative research The ‘tick a box’ approach. Here, you base your market study on data, numbers and statistics. The results are broad, concrete and objective, albeit with little detail.
• Qualitative research More anecdotal than the above, this requires taking more time to ask questions and record the answers. In these cases, the sample size is usually smaller than with a data-based, quantitative approach, but the results are more detailed.
• The documentation review This method involves researching and analyzing documents that already exist on the subject. Digging through articles and reports — both online and offline — is useful for finding market numbers covering whole sectors of activity, for example.

There are many tactics to help you in your market research strategy. Here are just a few:

• Online search engines are probably the first place most of us would think to start looking. It’s the quickest way to access information from national statistics offices (in France, l’INSEE) but also from the specialist industry press and the economic media. It’s the internet, so you’ll find all sorts of misinformation too, so it’s a good idea to rely only on credible and multiple, concordant sources if possible.

• Interviews, questionnaires and focus groups will tell you what potential customers want, need and like in their own words. These very words may prove very useful further down the line when you are working on your marketing, communications and general messaging.
• Public events are another source of information. Business conferences, trade fairs, seminars and local council meetings are good places to meet people who may possess key information about your particular sector or geographical area of operation.

Once you’ve got your market research finished, what next? 

The information you’ve collected will confirm (or otherwise) the viability of your project. If the results support your idea, you can move onto drafting a business plan that will put the chances of success in your favor.

Even if the evidence you reveal in your market research doesn’t support your original idea, all is not lost. You may just have to make some readjustments to your product or service to align it with what the market wants.

Then, when you’re ready to launch your business you’ll be needing a business account. With Qonto, you can open such an account in just 10 minutes, 100% online and with step-by-step guidance in depositing your capital.