MECC Small Business Development Center: Understanding Your Market

Understanding Your Market

Market evaluation is the most critical element of successful business planning. It provides the basic data that will determine if and where you can successfully sell your product or service and how much to charge.

While it may sound deceptively simple figuring out if a market exists for your product or service, it's probably one of the most challenging requirements of business. The process involves scrutinizing your competition and your customer base and interviewing potential suppliers.

The information collected can help you, if necessary, adapt your product or service to better meet customer needs. In some rare cases, it might lead to a totally new, but financially rewarding venture.

Market Research

Conducting market research can help you:

create primary and alternative sales approaches to a given market,
make profit projections from a more accurate base,
organize marketing activities,
develop critical short/mid-term sales goals and
establish the market's profit boundaries.

So, how should you go about conducting your research? Two of the most important first steps are defining your goals and organizing the collection/analysis process. Maintain a set of well documented and easily accessible files so you can store and retrieve data as needed.

Questions To Ask

Your research should ask these basic questions:

Who are your customers?
Where are they located?
What are their needs and resources?
Is the service or product essential in their operations or activities?
Can the customer afford the service or product?
Where can you create a demand for the service or product?
Can you compete effectively in price, quality and delivery?
Can you price the product or service to assure a profit?
How many competitors provide the same service or product?
What is the general economy of your service or product area?
What areas within your market are declining or growing?

Market Data

Knowing your market not only requires an understanding of your product, but also an understanding of your customers' socioeconomic characteristics. In conducting your research, you can access relevant market information from these sources:

The Small Business Administration's OnLine computer-based electronic bulletin board can be accessed by modem. It provides immediate, round-the-clock information on the SBA's services, publications and programs. Users can access a national calendar of events such as training programs, small business seminars and international trade fairs. Most information is available at no cost. Some interactive services involve a connection fee.

Other sources include:

Your local or university library.
Trade association studies and journal articles.
Regional planning organization studies on growth trends.
Banks, realtors and insurance companies.
Customer surveys in your market area, which you can conduct on your own by searching out existing material.

Finally, research on competitors is extremely important. Visit industry trade shows to find out what your competitors are selling and how they are marketing their products. Similarly, stay current on information in industry magazines and publications.

Once you have obtained and analyzed this information, it should become the foundation of your business plan. Research data also will help you develop the basic assumptions in your financial projections, which will tell you whether or not to go into business. You should not view market research, however, as a one-time activity. Once you establish your business, you should be in touch with your customers on a continuos basis. You may have to adapt your product/service and/or marketing strategy to keep up with your customers' changing needs.