How to Conduct Effective Market Research: a Step-by-Step Guide for Businesses
Novice entrepreneurs often think that having a good business idea is the key to success. While it's hard to argue with this thought, it is necessary to understand the criteria for considering the idea a good one.
One person's opinion is not enough to confirm or deny the potential success of a product or service. The voice of the target users should provide the best indication of how the software product will be accepted on the market. Sadly, newcomers in business often ignore this voice, relying on their own intuition rather than verified facts.
According to Investopedia, one of the top reasons for startup failure is a lack of market research. Companies entering the market do not understand their customers’ goals and expectations. As a result, they propose a product or service that few people want or need.
Thorough market research and analysis solve the problem of releasing unneeded software solutions. But what is market research, and how should it be conducted? Our guide will provide comprehensive answers.
What is market research?
Put simply, market research is the systematic gathering and analysis of data about target markets, customers, and competitors. It involves researching customers’ needs and problems, analyzing their behavior and activity, learning about the competitive landscape, and surveying industry trends. In essence, it’s a process of collecting information to understand how your customers think and act.
This actionable information helps companies determine how to position their products in order to maximize sales. By understanding customer needs and preferences, businesses can develop more effective products and services – ensuring their success in the competitive marketplace. As such, market research should be an ongoing process that helps you stay ahead of the curve.
Business leaders should view market research as a tool to make informed decisions regarding product development and promotion. However, to use this tool effectively, they need to know what data to collect, how to analyze it, and how to apply the received results.
To that end, it’s important to stay on top of the latest industry trends and best practices. Additionally, businesses should enlist the support of marketing professionals who know how to navigate the complex maze of customer preferences.
Benefits of market research
Companies that pay due attention to idea validation and strategy planning get predictably good business results. Market research plays a crucial role in understanding the target audience and developing an excellent customer experience. It also benefits organizations in many other ways, helping them succeed in a dynamic business environment.
Specifically, market research will enable the following:
Market demand evaluation. You can determine the potential demand for new products or services in a particular market, as well as identify market trends and changes that may affect demand.
Competition assessment. Market research will help you understand the competitive landscape of a specific industry, and identify key competitors and their strengths and weaknesses.
Risk mitigation. You will reduce the risk of costly mistakes and develop an informed marketing strategy based on data-driven insights.
Improved decision-making. Market research will help you make sound decisions based on data and facts rather than guesses and assumptions.
Enhanced customer satisfaction. By identifying customer needs and preferences, market research will help you improve customer satisfaction and loyalty.
Types and methods of market research
There are two types of market research, each of which has its specific methods. Here's a quick breakdown of the types of market research you should be aware of:
Primary research
Primary market research means first-hand data collection. This implies the researcher collects the data directly from customers and potential customers rather than relying on available reports or published studies. This type of research is invaluable for getting direct insights from the people that matter most—your target audience.
Primary market research can be quantitative and qualitative.
Quantitative market research means collecting numerical data that can be analyzed statistically. For example, when researching the video conferencing app market, you could ask about the preferred time of one session, the number of conference participants, or the subscription fee size.
Qualitative market research means collecting non-numerical data that provides insight into consumers' attitudes, opinions, and behaviors. In the case of video conferencing apps, this could be preferred conferencing themes, collaboration features, and video quality requirements.
Quantitative and qualitative market research can be conducted using the following methods:
Interview. This is a method of data collection where a researcher engages in a conversation with a participant to gather information about a specific topic or subject. Interviews can be conducted in person, over the phone, or online, and can be structured or unstructured, depending on the goals of the research. Interviews help better understand the target audience and make informed business decisions for the market strategy. However, interviews can be time-consuming and costly and require skilled interviewers to ensure accurate and reliable data collection.
Survey. Unlike an interview, which is a one-on-one conversation between a researcher and a respondent, a survey is a written set of questions that are distributed to a larger sample of respondents, either online or in print form. Surveys are typically easier and faster to administer than interviews, but may not allow for the same level of in-depth understanding as interviews. When developing a survey questionnaire, it is necessary to find an optimal number of questions. A long questionnaire may bother the respondents, while a short questionnaire may not provide sophisticated information to the researcher.
Focus group. This involves gathering a small group of people, usually 6-10, to discuss a specific topic or product. The participants are selected based on certain criteria, such as age, gender, or consumer behavior, and are led by a moderator who asks questions and facilitates the discussion. The goal of a focus group is to gather in-depth information and insights about the attitudes, opinions, and beliefs of the participants toward a product or service. Focus groups can be conducted in person or online, and are often recorded and transcribed for analysis.
Social media polling. This is a powerful tool for obtaining a large amount of data quickly and inexpensively from the target audience. By posting polls on social networks, researchers can easily capture the attention of users, who are often willing to share their opinions and provide valuable feedback about the software product. Additionally, social media platforms often provide detailed analytics that can help researchers to further analyze and interpret the data collected through social media polling.
Observation. This involves systematically watching and recording the behavior of individuals or groups in their natural settings to gain insights into their attitudes, motivations, and behaviors. Observational research can be conducted overtly, with participants aware of the observation, or covertly, where participants are not aware they are being observed. You can conduct the observation of software users in a controlled lab setting or a natural setting such as the participant's workplace or home.
Secondary research
Secondary market research means the collection of information from existing sources, such as government data, industry reports, market studies, and academic research. This type of research typically involves analyzing data that has already been collected by others, rather than collecting new data directly from the source.
Secondary research is often used to support primary research and helps provide a broader context for analyzing primary research data. It is also often used as a starting point for companies or organizations that are new to a market or industry and want to learn more about the landscape before conducting primary research.
There are several sources of secondary market research:
Industry reports and publications. They provide valuable insights into market trends, user needs, and competitor strategies.
Academic research. This gives information about user behavior, human-computer interaction, and other aspects of software design and development.
Online forums and user communities. You can use them to study what users like and dislike in similar products.
Competitor analysis. Analyzing the features, user interface, pricing, and marketing strategies of competitors can help identify areas for improvement or differentiation.
Regulatory documents. Depending on the product specifics, these may include PCI DSS, HIPAA, GDPR, or other regulations which affect the development of the software product.
Social media and online reviews. These allow you to understand user experience with similar software products and identify areas for improvement or differentiation.
Steps in the market research process
There is a generally accepted algorithm for conducting market research before launching a software development. Here are the steps to follow:
Step 1. Define the research objectives
Clearly answer the question: "Why am I conducting market research and what outcome do I want to receive?" List the research objectives and make sure to build your market research strategy around them. Here are examples of the objectives the researchers may pursue:
to explore opportunities for new product development or product improvements
to assess market demand and potential
to evaluate pricing strategies and pricing sensitivity
to determine the effectiveness of advertising and promotional campaigns
to identify market trends and changes
Step 2. Design the research
When you know what you want to achieve with market research, you should understand how you will conduct that research. Given this, it is important to design a coherent research strategy that would allow you to collect and analyze data and use obtained results for the benefit of your company.
The designing of the market research strategy involves:
defining target audience
selecting research methods
creating the schedule of research activities
setting up research deadlines
As a part of the research design process, you will identify primary and secondary market research methods as described in the article above.
Step 3. Collect data
This is when the research itself begins. At this stage, you should collect three types of data:
industry-related data
competitor-related data
customer-related data
This is what you should identify as a part of each aspect of data collection:
Industry-related data
We recommend using Porter's Five Forces model when conducting industry research. This includes an understanding of:
The number of competitors in the industry. The larger the number, the less powerful the company is when entering the market.
The possibility of new players entering the industry. The easier it is for new businesses to enter the market, the weaker the position of the established companies is.
Power of suppliers. This is the number of suppliers the company depends on. The smaller the number, the less ability the company has to save on input costs.
Power of buyers. This is the capacity of buyers to push prices down. When a company has a smaller customer base that holds greater power, it becomes easier for customers to negotiate lower prices. Conversely, companies with numerous smaller customers find it simpler to increase profitability by imposing higher prices.
The threat of substitute goods. Firms that provide unique products or services with no near alternatives tend to possess more authority to raise their prices.
Competitor-related data
When gathering data about competitors, it is necessary to collect comprehensive information about:
products in the same category that are comparable (for example, Zoom and Google Meet)
products in the same category but with varying features (for example, Zoom and Slack)
products from other categories that customers can opt for instead (for example, Zoom and WhatsApp)
It is also helpful to create a functional decomposition of main competitors and distinguish their customer-winning features. We recommend analyzing not less than five competitors to understand the pattern of user preferences. Below, you can see an example of the functional decomposition of Zoom.
Customer-related data
This involves gathering customer data in relation to your product or service. At this stage, you should understand how your product fits customers' expectations and what benefits your target audience will gain from using it.
Understanding your Ideal Customer Profile (ICP) and developing buyer personas are crucial steps in conducting effective customer research.
ICP refers to the characteristics and attributes of the ideal customer that your product is targeting, such as demographics, industry, company size, pain points, and needs.
Buyer personas, on the other hand, are fictional representations of specific individuals within the ideal customer group specified in the ICP.
Below, you can see examples of ICP and buyer personas developed for the Zoom app.
We recommend using the following methods to create ICP and buyer personas:
Voice of customers (VOC). This analyzes customers' direct and indirect inputs. The first refers to what customers openly say about the product (mentions in social media, feedback on forums and app stores), while the second analyzes how customers behave when interacting with the product (monetary transactions, product usage data).
Lean Canvas model. While Lean Canvas is used to create a complete business model, its individual sections can be used for efficient customer research. Particularly, you can use the customer segments, customer relationships, and value propositions sections to understand how your product can benefit the target audience.
Interviews, surveys, focus groups. As mentioned above, these methods will help you collect first-hand data and get closer to understanding customers' pains and needs. To make the data collection process faster and more efficient, we recommend using automated tools such as SurveyMonkey, Medallia, Crowdsignal, and MonkeyLearn.
Step 4. Analyze data
The process of analyzing data obtained during market research typically involves several steps. Here is a general framework for analyzing market research data:
Data cleaning. This involves checking the data for errors and inconsistencies, and correcting or removing them as needed.
Data transformation. At this step, you should convert raw data into a format that is suitable for analysis. For example, you may need to convert survey responses into numerical values, or group data into categories.
Data exploration. This is when patterns, trends, and relationships in obtained data are identified. You may use statistical techniques such as regression analysis or factor analysis to help identify these patterns.
Data analysis. Here, you would use statistical methods to test hypotheses and answer research questions. For example, you may use a chi-square test to determine if there is a significant relationship between two variables, or a t-test to compare the means of two groups.
Results interpretation and data visualization. Data presented in structured reports and visual graphs and charts will help you communicate your findings to stakeholders.
It is important to note that the specific methods used for data analysis will depend on the type of data collected and the research questions being addressed.
Step 5. Communicate findings
Once the market research is completed, it's time to present the results to business owners, the development team, and other involved persons.
Typically, the presentation of the results involves delivering the market research report and discussing its findings with stakeholders.
The common structure of the market research report is as follows:
Introduction. A description of the software product, its features, and the target audience.
Research methodology. A detailed explanation of the research methods and techniques used to gather data.
Data analysis. A thorough analysis of the collected data, including charts, graphs, and tables to support the findings.
Findings. A summary of the key findings of the research, including customer preferences, competitors, market trends, and growth opportunities.
Recommendations. Suggestions for improving the product, targeting the audience, and increasing sales.
Conclusion. A final summary of the report and its implications for the software product, including future research recommendations.
Appendices. Additional data and information that supports the research findings, such as survey questions and raw data.
Challenges and limitations of market research
In-depth market research provides businesses with essential information about their customers, competitors, and market trends. Market research shapes the marketing strategy of the product, its pricing policy, functionality, customer experience, and user support. As such, market research must be conducted by professional business analysts and product development experts who understand and can address the challenges associated with the research process.
Sampling biases and limitations
Sampling biases and limitations are common challenges in market research that can affect the quality and accuracy of data. The reasons for this can be:
selection of inappropriate sample size
presence of non-response bias
sampling from a non-representative population
To address these issues, you should do the following:
Consider the source of the sample. You must obtain data from data sources that suit your research goals. For example, using a convenience sample, such as customers who are easily accessible, may not be representative of the entire population
Carefully design the survey questions. At this stage, it is crucial to avoid leading or biased questions. When framing the question, you keep a neutral stance and provide the answer options.
Example of a biased question: “How great was your experience with our support team?”
Example of an unbiased question: "On a scale of 1-10 how satisfied were you with our support service?"
Consider the mode of data collection. When choosing among online surveys, phone surveys, or in-person interviews, make sure that the mode is appropriate for the target population. For example, phone surveys and in-person interviews may be more suitable for elderly people, while online surveys may be a better fit for millennials and Gen Z.
Cost and time constraints
Market research can be expensive and time-consuming, making it a significant challenge for businesses. Gathering data through surveys, interviews, or focus groups can be costly and requires significant resources, both in terms of time and money. The cost and time constraints associated with market research can limit the scope and depth of the research, which can affect the accuracy and usefulness of the results.
To optimize the costs associated with market research you can do the following:
Use secondary research when possible. Obtaining information from industry reports, government publications, and academic studies is much cheaper than questioning the target audience. So, when secondary research methods are applicable, use them instead of primary ones.
Utilize online tools. Online tools can greatly speed up the process of data collection and reduce costs associated with questionnaire development and posting. For example, online tools can provide survey templates, propose the platforms to place the survey, create a chain of questions depending on the previous user's answer, automatically send surveys to new users, etc.
Work with a research partner. Consider working with a research partner or consultant who has expertise in market research. They can help you design and execute the research project efficiently, and guide how to maximize the use of your resources.
Ethical considerations
Collecting data from individuals without their consent, misrepresenting the purpose of the research, or using misleading or biased questions is unethical and can compromise the validity and reliability of the results. It is essential to ensure that the research is conducted ethically and that the participants are treated with respect and dignity. Here are some ways to address ethical considerations during market research:
Obtain informed consent. This means that participants understand the research's purpose and procedures, and they voluntarily agree to participate.
Protect participant privacy. Ensure that participants' personal information is kept confidential and only accessed by authorized personnel.
Ensure research is voluntary. Avoid any form of coercion, such as offering incentives that may influence participants to participate or continue with the research.
Eliminate potential harm. Avoid any actions that may lead to psychological, emotional, or physical harm.
Maintain objectivity and honesty. Avoid manipulating research findings or data to achieve a particular outcome. Any findings or data should be presented truthfully and accurately.
Follow ethical guidelines. The Codes of Ethics by the Marketing Research Association (MRA) and the American Psychological Association (APA) provide frameworks for conducting ethical market research.
Market research outsourcing
Market research is essential for businesses that want to stay competitive and informed about their target market. The various types of market research methods allow businesses to gather vital data about their customers, competitors, and industry trends, and consistent steps of research help effectively allocate resources and obtain information that is of value to the company.
Conducting market research requires deep knowledge of branding, product positioning, consumer behavior, pricing, statistics, and industry trends. It also requires significant time and money investments in order to collect raw data and transform it into meaningful insights.
With this in mind, organizations often consider whether to conduct market research in-house or delegate it to a specialized agency. This question is especially relevant for startups that have limited resources and often do not have an internal marketing department or single specialist.
Market research outsourcing provides numerous benefits to organizations, such as
cost saving
access to specialized expertise
access to advanced tools and technologies
accurate results in agreed deadlines
At Erbis, we've been conducting market research on different products for 11 years. Our mature product development team helps organizations translate their business ideas into actionable marketing strategies, using modern research approaches and cutting-edge tools.
On top of that, we provide market research as a standalone service or as a part of full-cycle software development. So, if you are interested in launching a profit-generating product, don't hesitate to get in touch.
