How Market Research Works

Let's go back to the first situation we examined at the beginning of this article. You are currently working as an employee, and you have an idea for a new product or service. The product could be anything -- a new way to package ketchup in a grocery store, or dry granules that you can use to "wash" your car without water, or a very cute stuffed animal. How do you find out if anyone wants or needs your ketchup package, your car granules or your stuffed animals?

Short of manufacturing the new product and selling it to see how many people buy, there really are only two ways to answer marketing questions ahead of time. You can find out directly or indirectly.

Let's look at the direct way first. To find out if people like your idea, you have to talk to people and see what they are thinking and feeling. You've probably been talking to people all of your life, so you are familiar with the many different ways to reach them. You can:

No matter which technique you are using for market research, your goal is to ask a set of questions and get back: A) a set of answers to your questions, and B) new ideas. Part B is important. In many cases you learn things that you never thought about by talking to people. For example, you might find that no one in the south wants your dry car-washing granules, but in the north, where water freezes in the winter, dry granules are just what people have been looking for. If you had not realized that previously, it can be a big revelation -- it can save you a ton of money that would have been wasted advertising your granules in Florida.

The indirect way to learn about the marketplace is to look at what's already out there. How many companies are making a competing product? What are their products like? How do they market them? The fact that there is a competing product tells you that there are some customers out there, and you can access your competitor's market research by looking at the products your competitor is producing. Assuming, that is, that the competitor did any market research.

In this article, the author asks three very important questions about your potential product:

These questions have a business focus, but they can be generalized to handle any product. For example, in question 1, no one had a "real need" for pet rocks or singing fish, yet these products sold very well. So we might expand the question to include "desires" and "whims" as well as needs.

Similarly, in question 3, people often buy things for reasons that have nothing to do with making or saving money. For example, Egyptian cotton sheets neither make or save money, but they feel good when you are falling asleep. So we can expand question #3 to say, "Does the product appeal to a customer in a way that would cause him or her to pull out the wallet?" The word "appeal" can be very broad -- everything from breast implants to chrome wheels to food processors can fall into that category.

Now that you have these three "big picture" questions in mind, you can start to think about the specific questions that you would like to ask your specific audience. Normally you come up with a set of questions that help you to understand how the audience is thinking and feeling about your product.

The goal of all of these questions is to gain intimate knowledge of your customers. You want to know exactly what they are thinking and feeling, and why.

Now that you have a list of questions, your job is to figure out the best way to ask them. Here are some of the possibilities:

Of all of these techniques, the most familiar is probably the focus group. It happens to be the most expensive technique as well. Firms may pay participants up to $100 for participating in a focus group. The company sponsoring the group also has to pay for the space, the facilitator, refreshments, etc. The advantage of a focus group, however, is that it tends to generate lots of new ideas. It also lets people actually see and/or try out the product, and then interact with one another as they discuss their likes and dislikes.

A typical focus group will bring 10 to 15 people together in a room with a facilitator. The facilitator works with the group to answer the pertinent questions and stay on track. In many cases, the interactions between different people in the group bring out new ideas or discover concerns that might have been previously hidden.

Focus groups work, but they can be so expensive that they tend to be used more by large companies and in the latter stages of product refinement. If it costs $20,000 to get the opinions of 100 people, the price can be prohibitive. Both small companies and large companies often use less expensive techniques.

Phone calls, mailed questionnaires and online surveys all offer advantages and disadvantages for companies performing market research. For example, a company might buy a list of addresses from a magazine, and then send questionnaires to subscribers. Many magazines sell subscriber phone numbers as well. Magazines are a popular source of addresses and phone numbers because magazines tend to concentrate customers with certain interests. For example, a woodworking magazine tends to have subscribers who are woodworkers. If you want to do research on a product for woodworkers, the woodworking magazine offers you an easy way to find potential customers.

Telephone and mail surveys tend to be fairly expensive. For example, if you have to mail out 20 surveys to get 1 response, it can cost $10 to $20 per response. Telephone surveys can cost even more.

That's where the Internet fits in. By using the Internet, either in the form of e-mail surveys or online questionnaires, the cost of market research goes down. E-mail surveys now have the problem that they look and feel like spam, and are often eliminated by spam filters. That leaves online surveys as a great way to reach lots of customers. The other advantage of Internet surveys is that they can be very fast. You can post a survey and get preliminary answers within 24 hours.

The survey system now available on HowStuffWorks is typical of this form of market research. Here's how it works:

As you can imagine, this technique can generate results very quickly. Answers start coming back within minutes of posting a survey and sending out an e-mail.

By using questionnaires and focus groups, companies can gain a great deal of information during the product design process. This allows companies to increase the probability of success for any new product or service that they create.