Chapter 5

Conducting start-up market research

Chapter 5

In this chapter we will look at market research for start ups with limited budgets

Sources of secondary and primary dataSampling methodsQualitative and quantitative data

Learning Objectives At the end of this chapter you will be able to

Explain the different methods of secondary and primary research available and realise that limited resources will determine what data is collected and how it is collectedUnderstand the benefits of various methods of collecting market research and that limited resources will lead to a less than perfect picture of the marketExplain the differences between qualitative and quantitative data and how they are likely to be collectedAnalyse how sampling can be used effectively and the factors behind sampling decisionsEvaluate the usefulness of various research methods for small business start-ups and be able to make justified recommendations on the most appropriate market research strategy in a given situation.

Setting the Scene Read Star Financial ServicesDiscuss points 1 & 2 in pairsClass discussion

Start-up market researchHaving a passion and knowledge is good but not good enoughThere needs to be evidence of demandGathering evidence can be costly and money is in short supply in the beginningHave to balance the need for data and the costEntrepreneur decision - do I use data that exists (secondary) or collect data that is specific to my purpose (primary)? – often best to have bothNo perfect data but some is better than none!

Serial entrepreneur and Dragons’ Den investor Peter Jones says that many small business owners fall short when it comes to appreciating the importance of research.‘The biggest cause of business failure at the moment isn’t that they’re struggling for cash and working capital, it’s a lack of research,’ says Jones.‘You need to have the right research before you launch a business, and actually, if you have an incumbent company that’s been growing, a lot of people don’t focus on the key things that can improve a business.’

Secondary market research dataAn existing company will have lots of existing info but a start-up will not therefore they will need to do some research using sources like

Phone bookTrade associationsThe Chartered Institute of MarketingChambers of CommerceEnterprise AgenciesBusiness LinkThe trade pressSurveys and directories held on web sites such as the Institute of DirectorsCompetition

Other information to understand the economy, and the demographics of the country or region include

Government publications such as the National Statistics onlineCan be purchased from companies that specialise in collecting and analysing market information e.g. Mintel and Dun and Bradstreet

Secondary market research data: data that already exists that has not been collected specifically for the purposes of the entrepreneur

• Insert table 7.1 P34 marcouse

Primary market research dataIf an entrepreneur wants detailed, precise information about the market it will need to be collected specifically for that purposeBecause he is unlikely to be able to afford to pay for a company to do this he may have to do this himselfA couple of decisions have to be made

Who shall I collect the information from?How shall I collect the information?

Primary market research data: data collected by the entrepreneur, or paid to be collected, which does not already exist

Applying real life examples when discussing the theory will get you that A grade!

When Toyota launched its MR2 sports car it was very successful except in France. When they did some research (which they should have done before the launch!) they found out that MR2 is pronounced Em-Er-Deux (like the French word Merde!)

Primary market research data – Who?Ideally it would be everyone but they are unlikely to have the resources, time and skills so a choice has to be made to sample – select a proportion of those people that could be researchedRandom sample – selecting respondents to ensure that everyone in the population has an equal chance of being interviewed

Research companies will do the followingPick names at random from the electoral register (e.g. every 50th name)Send an interviewer to the address given in the registerIf the person is out they will visit 2 more times and then give upThis is effective but slow and expensiveA small start up would be unlikely to use this method

Primary market research data – Who?Quota sample – the characteristics of the market are mirrored in the sampleIn this example the chocolate company has decided to survey 200 peopleIn general 60% of the chocolate market is made of womenTherefore 60% of the 200 (120) will be womenThe other 40% will be menThis method allows interviewers to head for the high street and interview whoever comes along (they just have to meet their quota)This is relatively cheap and effective and is more likely to be used by start-ups

Giftag Chocolate Box was set up by former printer Graham Golisti and his wife Jane and opened in Thirsk September 2009.Despite difficult economic conditions the business has proved successful with its 'Killer Heel' chocolate shoes proving a big hit with customers.

Primary market research data – Who?Stratified sample – this involves interviewing only those with a key characteristicProducers of Olay may decide only to interview women between the age of 30-45 because they are the age of their typical customerThe research company would select all the women on the electoral listThey would then randomly select a sub group of those that were 30-45

Factors affecting choice of sampling methodsAvailable finance – any marketing is likely to be low cost or freeThe nature of the product –

it may be easier to research attitudes to existing products that people know about than those that are new. Products may be easier to research than services because there is something physical to try out. Local products will be easier to research than larger geographical areas

Level of risk – the newer the product the greater the risk (but perhaps higher reward). The greater the risk the more need for research and for accurate outcomesThe target market – a clearly defined target market in terms of age, income etc will make it easier to decide how to sample

Primary market research data – How?Observation – an entrepreneur could just stand in the competitor’s environment and watch the customer’s behaviourIT – if the business was an existing company they could use records of sales, loyalty card systems etcWritten questionnaires

Benefit – easy to distribute using emailDisadvantages

this method is over used and people don’t tend to respond in great numbersIt is very difficult to write good questions – must not be leadingResponses don’t tend to give extra information

Primary market research data – How?Face to Face questionnaires – difficult and time consuming but good information can be gainedTelephone surveys – again good info gained and much cheaper and quicker than face-to-faceFocus groups

can be good if a groups through discussion may reveal info and opinions that individuals may not have thought about. Good for uncovering the psychology of buying e.g. peer influences and image.Danger in drawing conclusions and applying them to the whole market

Test Marketing – selling a product in a small segment of the market before expanding can give good information but is probably not feasible for a start up

Quantitative and Qualitative dataSome data collected will be numerical that can be used to create statistics – QuantitativeOther data collected will be opinions, attitudes and feelings – QualitativeQuantitative methods – questionnaires, telephone surveys, online surveys (good for establishing key information about a business and its market). Reveals ‘what’ is happening.Qualitative methods – in-depth interviews, group discussions (more difficult and expensive but revealing). Reveals ‘why’ it is happening.Eight out of 10 cats prefer Whiskas – this is quantitative information (if they found out why the other 2 don’t then they would have qualitative info)

Watch video - always ask your customer! Lord Karan Bilimoria

Application Read Bladonmore case study P31 Q1, 2 and 3 - Make notes Class discussion

Learning Objectives – did we achieve them?At the end of this chapter you will be able to

Explain the different methods of secondary and primary research available and realise that limited resources will determine what data is collected and how it is collectedUnderstand the benefits of various methods of collecting market research and that limited resources will lead to a less than perfect picture of the marketExplain the differences between qualitative and quantitative data and how they are likely to be collectedAnalyse how sampling can be used effectively and the factors behind sampling decisionsEvaluate the usefulness of various research methods for small business start-ups and be able to make justified recommendations on the most appropriate market research strategy in a given situation.

Talkabout ‘Market Research’

Pick a name out of the hat – that person leaves the class room Class thinks of 10 things that person should mention in their 60 seconds of talkabout Whilst the speaker talks the class listens for terms and makes a note of the ones that were mentionedRate that person out of 10 (the number of terms achieved)