Your favorite grocery store items are placed at eye level on shelves for a reason.
Those ads for cat trees you see in your Instagram feed know you’re planning on adopting a kitten.
The emails popping into your inbox offering meal kit delivery discounts were targeted to your specific consumer behavior.
What do all of these scenarios have in common?
Market research into our buying habits informed those marketing decisions.
Why market research is important for your business
Market research arms your business with insights into customers and competitors. During times of economic uncertainty, it’s even more critical for businesses to ensure their marketing strategies are targeted specifically to their customers’ needs.
“Market research is any data and information that informs the market that your business is in,” says Sabrina Parsons, CEO of Palo Alto Software.
“It helps you understand that market from an industry, customer, and competitor perspective.”
Understand your target audience
At its simplest, market research helps you figure out who wants to buy what you are selling. Like a reality check for your business ideas, it tells you if there’s an audience who is actually interested in what you’re doing.
It uncovers basic information about your target customers, like:
- Age and gender breakdown
- Income and education levels
- Interests and hobbies
It also addresses behavioral insights into their purchasing decisions:
- Where do they shop?
- How do they use products?
- What makes them choose one brand over another?
Conducting this research ensures that your marketing strategy aligns with what your target market is looking for and meets them where they’re looking for it.
Validate business ideas
Is there even a market for your business?
Market research plays a critical role in validating your business idea. Researching your customers helps you assess their reactions to your idea and gives you an objective evaluation of your concept’s potential.
Here’s how research contributes to the validation process:
🧪Concept Testing: Market research facilitates testing your idea in the real world, enabling you to understand its appeal and functionality.
🍽Market Appetite: It reveals the true level of demand for your product or service, offering a glimpse into expected market performance.
📉Risk Reduction: By validating your idea through research, you can sidestep the pitfalls of investing in a concept that the market may not welcome.
🤔Informed Business Decisions: With insights gained from market research, you’re better equipped to make data-backed decisions that increase the likelihood of your business’s success.
Minimize business risks
Market research is not about getting rid of all risks — it’s about acquiring enough knowledge to manage them intelligently.
“If you do market research correctly, you can minimize your risk by understanding what your competitors are doing,” Sabrina says. “And if you understand what your competitors are doing, then you know what you bring to the table.”
Although risk is inherent in any business, conducting market research before you make big decisions gives you a sense of the risks and opportunities of any possible move.
Monitoring the competitive landscape requires continuous market research. It can be as simple as keeping track of businesses in your area that offer similar products or services.
But taking time to dig deeper into your competitors can uncover valuable data points to inform your decisions:
- Track Competitor Moves: Understand competitor strategies for product launches and market positioning.
- Evaluate Your Standing: Compare your offerings to identify strengths and areas for improvement.
- Identify Gaps: Spot unaddressed market needs and create a plan to fill them.
- Improve Offerings: Assess competitor weaknesses to enhance your services or products.
- Adapt Quickly: Use fresh data to swiftly adjust to market changes and consumer trends.
Optimize marketing efforts
Marketing your business does more than increase your visibility for potential customers. It informs them exactly how your product or service will address their pain points.
Your messaging needs to resonate with them. So you’ll need to identify the right channels to get their attention.
That’s where research informs effective marketing tactics:
💌Tailor Messages: Use market research to understand customer needs and craft messages that connect.
📲Select Channels: Determine where your audience is most active (social media, email, blogs, etc.)
💰Budget Efficiency: Allocate your marketing spend to channels and messaging that yield the best ROI.
By fine-tuning your marketing strategies with the guidance of solid market research, your marketing budget is spent more efficiently.
Allocate resources based on market realities
Setting realistic targets is essential for the growth and sustainability of your business:
“When you look at customer information and competitor and pricing, that’s what you need to set realistic expectations,” Sabrina says. “You really need to understand how many potential customers there are in the area that you’re selling. Finding that is all based on market research.”
You only have so much money to dedicate to marketing. So you need to make sure you’re putting your resources where they’ll really help your business grow.
Here’s how market research aids in this process:
- Market Understanding: Gauge the market size and potential to set informed goals.
- Areas of Focus: Depending on market conditions, concentrate on market share expansion, customer retention, or increasing customer lifetime value.
- Informed Investments: Direct resources towards products and services showing high profitability and demand.
- Refined Offerings: Focus on enhancing and expanding services that receive positive customer feedback.
Market research provides the intelligence to make strategic decisions about where to invest in your business. It tells you which parts of your business are worth the extra budget and which parts need to be trimmed down.
Build credibility with investors
Grounding that financial plan in market research shows potential funders that you’re prepared for the realities of ongoing business management.
“Investors are going to ask you questions. If you can talk them through the answers, they’ll know you’ve done your homework,” Sabrina says.
“Sometimes people just pull numbers out of nowhere. But you need to validate those numbers. That bottom-up forecasting shows that you understand how many customers there are, so you can outline what percentage of them you’ll reach and what you’ll charge them.
So that research gives you an actual revenue number based on data and facts.”
Measure business success
Understanding if your business is doing well isn’t just about tallying your cash flows. It’s also about understanding why things are going the way they are.
Are customers who purchase from your business returning to you? What types of feedback are you getting, and how does that feedback compare to what people say publicly about competing businesses?
Ongoing market research gives you the clear picture you need to measure the success of your business:
- Establish KPIs: Identify crucial metrics like sales, market share, and customer loyalty.
- Monitor Performance: Consistently compare these metrics against collected market data to gauge progress.
- Identify Preferences: Determine what customers value where they want to see improvement.
- Refine Tactics: Utilize the insights gained to fine-tune or overhaul strategies as necessary.
Market research is critical for any business plan—providing a clear view of what customers want and the competitive landscape.
Integrating market insights into your business plan allows for agility and relevance in a changing environment – it transforms your plan into a dynamic tool that helps your business evolve and thrive.
Ready to get started? Check out our guide covering the basics of market research for beginners.
You can also get instant access to industry benchmarks and statistics with LivePlan to help you create realistic budgets and forecasts.