Marketing Research and the Small Business

Ask most small business owners the best way to improve sales of their
products or services, and you will probably hear a wide range of responses:
“Reduce the prices,” “Increase your advertising,” “Improve service” and so
on. One unlikely reply would be “Conduct some marketing research.”

While marketing research has been a driving force in large companies
for years, small businesses have been reluctant to use it. Marketing
research can be the key to future success for many small businesses if the
buyer or user of the research understands its parameters, strengths and
limitations. Failure to comprehend the proper use of marketing research can
result in useless, or even worse, damaging information.

What is Marketing Research?

Businesses of all sizes are constantly seeking information about their
customers, their competitors, and the market environment in which they
operate. Marketing research is basically the gathering of this data.
However, all “gathering of information” does not qualify as marketing
research.

The American Marketing Association defines marketing research as the
“systematic and objective approach to gathering marketing information which
— when processed, analyzed and interpreted — will help identify problems
and opportunities that allow for better-informed, lower-risk decisions.”

The key to this definition is that the information is gathered,
processed, analyzed and interpreted in a systematic and objective fashion.
Marketing research stresses how the information is obtained and evaluated
as much as what is actually gathered.

At first thought, it might not seem too difficult to obtain marketing
information. For example, the owner of a video store might ask some
customers whether they would rent more movies if the price was reduced by
$1.00. Using this feedback, the owner might decide to reduce the price,
increase the number of rentals and, overall, make more money.
Unfortunately, the people queried may not be typical of all customers. Even
if the owner was lucky enough to talk to a representative sample, how does
he or she know that the customers are telling the truth or that they will,
in fact, rent more movies? This instance of collecting marketing
information lacks the objectivity and uniformity necessary to be classified
as marketing research. The owner in this case may, in fact, lose money by
acting upon it.

How is Marketing Research Used?

Marketing research can be used to meet nearly all the marketing information
needs of the small business person. Every area from developing a business
plan to designing an effective advertising program can benefit from the use
of carefully planned and executed research. Specific examples of how
marketing research can guide and assist small business people include:

Developement of Business Plans:When you first sit down with that blank
piece of paper and dream of owning your own business, you should be asking
yourself questions such as: What am I going to sell? Will people buy what
I sell? How much should I charge? Where should I locate? How much
competition is there and who are they? Questions such as these should be at
the heart of any effective business plan, and marketing research can help
you answer them.

Let’s say, for example, you’ve decided to turn your passion for
fishing into your livelihood, and open your own tackle and equipment store.
You feel there is a need for such a service, and are ready, willing and
able to jump at the opportunity. One of your first steps might be finding
out how many other tackle shops are in your area to get a feel for the
level of competition. A quick glance through your local Yellow Pages would
readily supply you with this information. Congratulations! You’ve just
completed your first marketing research project. As the questions become
more difficult to answer, the marketing research must become more
sophisticated. For example, although you might be able to partially
determine the demand for a fishing tackle shop by talking to your neighbors
and your “fishing buddies,” this won’t tell you how all the people in your
area feel (and you know how those fisherman lie!). A better approach would
be to commission or conduct a scientific survey of a representative sample
of all local consumers.

Much of the background information necessary for a useful, working
business plan can be collected using marketing research.

New Product of Offering: Many new product lines or special offers
(“10% Off!”) are the results of careful marketing research, which can
determine customer needs and wants and allow you to supply them with just
the “right” product or service. Research can be used to determine the
impact of special sales programs, discount offers or even introducing a new
product before the expense of doing so is incurred.

Pricing: Pricing is a crucial marketing element in all businesses,
whether large or small, and marketing research can supply precise
information for pricing decisions. Well designed research can determine the
true trade-off between price and the amount of sales before committing to
a specific sales program.

Advertising: Many small business owners are very concerned with the
promotion and advertising of their businesses. Considering the cost of
advertising today, their concerns are well founded. One of the most
frequently asked questions is “how effective is my advertising?” This can
be determined with many types of formal and informal research techniques.
For example, a separate telephone line with a number that appears only in
your Yellow Pages ad can be installed. By placing a tally sheet next to the
phone, a count can be recorded every time a call comes in on that line. By
the end of the month, you will be able to tabulate exactly how many calls
are generated by your Yellow Pages ad, and can then determine its
effectiveness.

These are just a few of the many possible applications marketing
research has for small businesses.

What are the Various Types of Marketing Research?

All marketing research falls into two basic categories: secondary and
primary. Secondary research involves literature searches, article reviews
and analysis of existing, available data. While secondary research is
limited to the information you have on hand, it is usually much cheaper
than primary research and can be done by small businesses themselves.

There are two general types of primary research. Qualitative research
is used for developing new ideas or to get a “gut feeling” for a given
subject or problem. Quantitative research primarily involves surveys based
on representative samples where data is collected using mail, telephone or
personal interviews. Results from quantitative studies can be projected to
entire populations and therefore used in predicting.

Qualitative Research:

Nearly all qualitative research is done using focus groups. These groups
consist of eight to ten carefully selected and recruited individuals who
participate in a directed discussion concerning some issue. The
specifications for recruiting these participants are based on the
objectives of the study. For example, the owner of a gardening service
interested in expanding into a new geographic territory might want to
explore the demand for these services beforehand by conducting focus groups
among home-owners living in the area where the expansion is planned.

The discussion itself is designed and led by a professional researcher
called a focus group moderator. The moderator follows a specially prepared
script known as a moderator’s guide, which is developed with assistance
from the client and outlines the issues to be covered. It is important that
an independent, professional moderator be used to ensure objectivity, and
that all the relevant issues are covered.

Focus groups are often conducted in special facilities equipped with
one-way mirrors and observation rooms so the client can observe the
discussions first hand without disturbing the participants. The discussions
are either audio or videotape recorded so the moderator does not have to
take notes. After conducting the groups, the moderator will listen to the
tapes, summarize the key points and present the client with a final report
on the findings.

In most cases, three focus groups are conducted for a single research
project. It would be too risky to arrive at any conclusions based on the
results of just a single group, since the chances of only one group being
representative of the population are quite slim. While two groups are
better than one, many times the findings from the second group vary greatly
from those of the first. A third group strikes a balance between the first
and second and allows the client a better perspective.

While focus groups are a legitimate form of marketing research, they
are also the most misused and incorrectly applied of all existing
techniques. They should only be used for exploration and generating new
ideas, and never considered to represent the opinions of the entire
population. The results from focus groups cannot be projected in any way.

On the other hand, focus groups are an excellent method of flushing
out key issues regarding a new idea or potential product or service. They
can also serve as the first stage of the research process by identifying
key points to be addressed in subsequent, quantitative surveys.

Quantitative Research

Quantitative Research: When people speak of marketing research, they
are usually referring to quantitative research. Quantitative research
involves a survey of a selected sample of a specific group using mail,
telephone or in-person interviews. Data is collected by means of a
carefully constructed questionnaire that is pre-tested before the actual
survey. Completed questionnaires are edited, and verbatim responses to
open-ended questions coded using pre-developed categories. The data from
the questionnaires is entered into a computer for tabulation of results.
Final computer output, or “tables,” are then ready for analysis.

It is important for both research buyers and users to understand the
strengths and weaknesses of each of the various research approaches so they
can select the technique best meeting their needs at a cost within their
budgets.

Mail Surveys: Mail Surveys were extremely popular during the 1950s and
60s when the costs of telephone interviewing were prohibitively high. Mail
surveys are still widely used today, although the advent of the WATS
telephone service has made telephone surveys much more cost competitive.

The major strength of mail surveys is still their relative low price.
For the price of postage, materials and printing, a small business can
conduct a very cost-effective research study. In addition, since the
respondent actually receives materials from the researcher, illustrative or
test documents can be included in the mail-out.

The major drawback to mail surveys is their very low rate of return,
or response rate. Even with incentives such as money, and second mailings,
most end up with about a 5% to 15% response rate. This means you do not
know the opinions of 85% to 95% of the people you wish to study.

In addition, those individuals who do not respond to a mail survey are
often different than those who do. For example, older retirees are more
likely to have the time and inclination to fill out and return a
questionnaire while single people between 25 and 35 years old are much less
likely to do so.

Different research techniques such as incentives and telephone
reminders can boost the response rate to as much as 50%, but all these
methods add to the price of the study, defeating the purpose of selecting
this technique in the first place.

In-Person Interviews:
Many of us are familiar with in-person interviews. Every ten years the U.S.
Census Department knocks on doors to conduct in-person interviews and find
out how the population has changed. In-person, or personal interviews,
involve a face-to-face meeting between an interviewer and a respondent.
Using a prepared questionnaire, the interviewer asks the respondent a
series of questions and carefully records the answers. These interviews
take place either at the respondent’s home or place of business, or at a
well-traveled location such as a shopping mall.

Unlike mail surveys, personal interviews usually result in a very high
completion rate. Response rates as high as 95% are not unheard of. In
addition, in-person interviews allow the respondent to physically come in
contact with proposed products, services or advertising under the guidance
of the interviewer. This is why in-person interviews are often used in
researching advertising copy or packaging designs.

The biggest problem with in-person interviews is their extremely high
price. Since an interviewer is required to visit the respondents at their
home or business or track them down in shopping malls, a great deal of
interviewing time is required. Even at low hourly rates for interviewers,
an in-person interview currently costs at least $100. Considering that most
surveys use a sample size of at least 100 people, this approach can get
very expensive.

Telephone Surveys: In recent years, two major developments have given
rise to the widespread use of telephone surveys in marketing research.
First, the introduction of WATS lines and “Least Call Routing” using
different long distance companies has reduced telephone toll charges.
Second, computers have been introduced into the telephone interviewing
process. Interviewers now sit in front of a computer screen and read from
a pre-programmed questionnaire that appears in front of them. Respondents’
replies are recorded directly into the computer system using a keyboard,
which saves time in data entry and coding. Results are immediately
available at any point during the survey. These “Computer Assisted
Telephone Interviewing” or CATI systems are becoming widely used by
research companies and allow for faster, cheaper and more reliable
interviewing.

While telephone surveys are much less expensive than in-person
interviews, they are usually slightly higher in price than a straight mail
survey. Response rates with telephone surveys are much better than mail,
usually 50% and higher, which makes them the ideal choice for most research
applications.

Selecting a Professional Firm or Consultant

If you do decide to seek out the service of a professional marketing
research firm or consultant, the following steps will save you both time
and money:

Think and rethink the question or problem to be solved. In many
instances, clarification of the problem will solve the problem itself.
Write down on paper the general purpose of the research and the specific
objectives you wish to accomplish. Indicate the target market and describe
it as completely as possible. Make a list of the questions you need
answered. The research study should be absolutely clear in your mind before
you share it with a marketing researcher.

Prepare a Request for Proposal (RFP). An RFP outlines all aspects of
the research and asks a research company to respond with a proposal and
bid. It should include all background information on the problem and
proposed project, the purpose and objectives, and what you hope to do with
the results. If you have budgetary limitations, spell them out.

Talk to several research companies or consultants. As with any other
type of professional, marketing researchers vary according to size, price,
areas of expertise and even personalities. Contact several companies, using
the Yellow Pages or through your local chapter of the American Marketing
Association (AMA) or the American Association of Public Opinion Research
(AAPOR). Talk to enough firms until you find several with which you are
comfortable. Don’t hesitate to ask for background materials, references or
examples of past work.

Send RFPs to three firms. While it might be appealing to send RFPs to
a dozen or more firms with the hope of getting back an excellent proposal
at a very low price, remember, you have to review and evaluate all of them.
Three should give you a perspective on the range of prices and ideas. Ask
to have a written proposal returned to you on a set date, including a bid
and work schedule.

Evaluate every aspect of all the research proposals. When you first
look at the proposals, you may be inclined to select a company based solely
on price. This may be a big mistake, and you will learn first-hand that
“you get what you pay for.” Evaluate the approach each firm has suggested,
determine how well the problem is understood, and see if the price makes
sense. If one of the three firms claims it could conduct 150 personal
interviews for you at $125 each, while the other two suggest telephone
interviews at $25 each, you might want to call the first research firm and
verify the project was fully understood.

Select a research firm and notify. Once you have made your decision,
respond in writing to the firm and set a time to meet and further discuss
the project. Make sure you stay involved throughout the project, and that
communication channels are open between the researcher and yourself. There
is nothing worse to have a major “surprise” at the end of the study, such
as cost over-runs or incomplete or incorrect data.
As with any business tool, the more you understand the proper application
of marketing research, the more valuable it becomes to you and your
company.

MARKETING RESEARCH TO BUY OR NOT TO BUY?

In some cases, such as reviewing the Yellow Pages to determine the level of
competition for a specific geographic area, marketing research can easily
be accomplished by small business owners themselves. However, as the
research becomes more complicated, the small business person may wish to
turn to an expert in the field.

Numerous research firms exist throughout California and the U.S. Some
conduct millions of dollars of research each month, such as A.C. Nielsen
and its monitoring of television audiences. Others are smaller, independent
firms that serve specific geographic areas such as Los Angeles or the San
Francisco Bay Area.

Although marketing research can be considered a bargain, especially if
the results of a study greatly increase revenues or cut costs, good
marketing research is not cheap. Marketing researchers are trained,
experienced professionals, not unlike attorneys or architects. Accordingly,
the first-time research buyer may be startled by the prices for research
services. For example, focus groups run about $3,000 each, and a telephone
survey could range anywhere from $5,000 to $25,000 or more, depending on
the number of interviews and length of the questionnaire.

Because costs of this size represent a substantial investment for most
small businesses, owners should ask themselves the following questions
before ever contacting a research firm:

– Is the research really necessary? In some cases, maybe a “best guess”
would prove just as effective as a well-designed research project. In other
cases, however, research may be absolutely necessary. For example, many
lending institutions require a feasibility study of a proposed business
idea, using marketing research, before they make any loans.

– Is the research worth doing? Will the outcome of the research result
in a benefit exceeding the cost of the research itself? Spending $20,000 on
a research project to realize an increase in company revenues of $1,000 a
year simply doesn’t make sense.

– Can I do the research myself? This is probably the hardest question to
answer. You must be able to determine the complexity of the research
problem and the risk involved if the research was not done. To strike an
analogy, several companies offer do-it-yourself legal guides that allow the
small business owner to create contracts, incorporate and so forth. If you
feel comfortable with this type of approach, fine; if not, see an attorney.
The same holds true for marketing research.

About author

SMB Reviews
SMB Reviews 473 posts

SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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