What Goes In to Market Research and How Much Does it Cost?

Market research, the process of gathering information about consumers’ preferences, is an important component of your startup’s marketing plan. It provides vital feedback about your offerings and those of your competitors, and it can include product trials, focus groups and direct observation. Market research can get expensive, so you might need to consider ways to finance it from sources other than cash flow.

Planning

If you are a startup revving up your first product or service offering, the need for real-world feedback is crucial to success. Designing new offerings is expensive and has very little point unless they address a consumer need in a manner that will motivate sales. Consumers have tastes and preferences that can’t be ignored. Your market research plan should lay out the specifics of discovering how the market will react to your offering.

The plan should include procedures for finding out where you will get the most customers, what they will want to see in your product or service, who your competitors are and how your offering compares to theirs. The plan should be specific in terms of the methods of research, the questions to be answered, the size of the project and a budget and timeline. Larger companies with marketing departments might plan and execute market research in-house, but startups and smaller businesses often outsource the research to market research companies.

Related: Using Market Research to Create an Actionable Business Plan

Secondary data

Before you deploy market researchers into the field, it is customary to collect secondary data (that is, data that already exists) from which you can extract relevant consumer information.

External sources of secondary data include business literature, published surveys and government census data. Bear in mind that older data is less useful and can be downright misleading. In this phase, you’ll want to build your understanding of the supply and demand factors your offering will encounter when released into the marketplace.

Primary data

The objective of your market research project is to gather new information from the public. Basically, you’ll collect consumer responses to surveys and/or experiments that will help you evaluate the strengths and weaknesses of your offering and how much consumers would be willing to spend to acquire it.

Primary research methods include:

• Surveys: These are the mainstay of market research and can be conducted in many ways. That little feedback card at your local restaurant is a survey, as are those frequent survey requests that pepper your email inbox. Surveys make sense when you seek to objectively measure something among a relatively large sample of consumers and you have the budget to conduct them. If you are in the initial exploratory phase of developing your offering, then other collection methods, such as focus groups, will be more efficient at teasing out consumer demand for better solutions. Surveys are administered in many ways, from emails and cards to phone calls, snail mail, text messages and face-to-face interviews. Cost is a major consideration when planning the types and sizes of your surveys.
• Focus groups: A focus group involves gathering people together (physically and/or virtually) to discuss topics of interest. Focus groups often choose participants narrowly, such as “men between 35 and 50 with income above $50,000,” that have significance for your offering. Participants are compensated with money, free products, coupons or other means. A moderator leads the discussion and guides the conversation to cover the topics of interest. The group sponsor might observe the group by sitting in, and some tape the session. Focus groups are used primarily to explore attitudes before the survey stage, but they can also be used post-survey to discuss results.
• Interviews: An interview is like a focus group for one. Different interviewing formats address different goals and range from loosely to tightly focused. Exercises might include word associations, fill-in-the-blank questions and other structured techniques. Interviews, like focus groups, usually precede surveys and can delve deeper into consumer psychology.
• Experiments/field trials: Scientific testing is applied to market research via experiments and field trials that test specific variables and hypotheses. There are many techniques available to testers, but one favorite is A/B testing, in which individuals are exposed to two samples that differ in specific ways. For example, two breakfast cereals may differ by the amount of sugar they contain, and consumer preferences are recorded.
• Observation: This type of research is quite varied, with some forms including interaction with the observed and some strictly hands-off. Observation is valuable because it measures what people do rather than what they say they do. Various forms of observation might cover usability testing, eye tracking, contextual inquiry, in-home and in-store observation, and mystery shoppers who are hired to impersonate real shoppers and then report their experiences.

Data interpretation

After the pieces of data are collected, they must be interpreted to extract insights. Much discussion has been devoted to methods of displaying quantitative data so it makes sense to different stakeholders. Charts and graphs are generally more comprehensible than a matrix of numbers. However presented, the data should help management make strategic decisions that affect the design, distribution and pricing of the company’s offerings.

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How much does market research cost?

There’s no way to put a dollar figure on the “average” cost of market research, because it can vary from thousands to millions of dollars, depending on the size of the sponsoring company and the complexity of the offering. However, some costs are well understood.

The following chart gives qualitative estimates of how the total resources for a market research study should be allocated.

When market research projects require significant amounts of cash, entrepreneurs may wish to fund the work by borrowing the money from external sources rather than relying on internal cash flows. If speed is important, funding sources like online commercial lenders can usually provide money in a few days, whereas banks may take weeks or months.

When funding isn’t an option, startups can cut expenses associated with market research by using a do-it-yourself approach. This includes activities such as:

• Using free or low-cost data: Aside from census data, numerous sources of free or low-cost business data exist. Examples include local government offices, local economic development offices, regional Small Business Administration offices, public or university business libraries, and trade associations and journals.
• Interviewing customers yourself: Talk to current customers to get a sense of what they like or do not like about your offering. These interviews can be conducted in person, by phone or through physical or virtual feedback cards. Even better, interview individuals who are not currently customers of your company. You can find these individuals through referrals from your current customers, man-on-the-street interviews or social media.
• Leveraging social media: Social media is an easy way to access your customers either directly or indirectly. You can directly ask your followers on Twitter or Facebook, for instance, for feedback about your company’s offering. You can also observe how they interact with your brand’s social media accounts.
• Administering free online surveys: Tools like SurveyMonkey allow users to create and send surveys for free or relatively little cost. Consider consulting the market research department at a local university or college where current students may be able to help you craft the survey questions and analyze the data for free.
• Interviewing noncompetitive businesses in your industry: Identify noncompetitive businesses in the same industry as your company. For example, a noncompetitive businesses to a restaurant is a food wholesaler/distributor. Talking to the owner or a member of management can give you perspective into local industry trends.

Startups and sole proprietors, in particular, will likely find the above options more amenable to their budgets and resources than hiring a market research firm. While the results won’t be as scientific as those gained from traditional market research, entrepreneurs can still find valuable insights in the data they do collect.