How to Conduct Market Research for Your Small Business

Doing market research is an affordable and easy way for you to help your small business launch new products, learn if now is the right time to open a new location and where the best spot is, how to price products and services to compete, and to beat the big brands with local presences. And it’s easy to do once you break out what it is and use the tools and technology available to small businesses. 

Market research is the process of gathering and making sense of information about your customers, competitors, and the market you operate in so you can make informed business decisions. These decisions can include: 

• Where to open new locations that cater to your core demographic and have limited competition. 

• Determining how to price a new product launch. 

• If customers will come more often with a loyalty program, and the best way to structure it. 

Market research is equally useful for new launches when you find out 75% of your target market is likely to purchase a new service. When this happens, two opportunities can be adding it as a regular part of your operations, or acquiring a company that offers it so you can hit the ground running.  

This same type of discovery could also help you learn why loyal customers have begun leaving for a competitor. It could be the competitor is offering the products or services and this saves your customers time and possibly money by having it all at one spot. By offering the service and trying a promotion like 3 free months for past customers, you can begin winning them back. 

Data can be collected directly from customers using surveys, interviews, focus groups, or data gathered from industry reports, public datasets, government statistics, and trusted databases. Some examples of data types you will find through market research include: 

• Demographics and Socioeconomic for towns, regions, states, or nations. 

• How likely customers are to purchase, switch, come back, or try something new. 

• Total market forecasts for industries, product types, or consumer groups. 

By starting with the right business questions and matching them to how you collect data, you can cut the guesswork and avoid risking your revenue on unproven assumptions.  

Home cleaning services can make sure there are enough houses in a neighborhood with disposable income and need for assistance to hire a new team; mobile car detailers can verify an area of town isn’t being served; and niche online shops that operate seasonally or year round can figure out the best product to feature on their homepage. 

Market research is a goldmine regardless of your company’s size whether you are starting something new with no customers yet, have a small e-commerce shop, or you’re already growing across multiple locations. Here’s why you should do market research for your small business and how to do it with a simple 3-step process. 

Why small businesses should do market research 

Small businesses should conduct market research to reduce risk and boost profits by making business decisions based on data instead of guesswork. Market research helps you gauge real demand, find new products or services your customers need, and get ahead of competitive moves.  

It’s especially important for you if your small business runs with small cash cushions or thin margins, because it helps you avoid mistakes like raising prices that loses customers or launching products that people “said” were great but don’t end up buying. And when you’re applying for financing like a small business loan or are looking for investors, they’re going to want to know what the market opportunity and ability to grow are. 

The data from good market research answers these questions and more: 

• Is there enough demand in the neighborhoods you serve (like for mobile detailing or home repair)? 

• Should your tutoring business marketing materials focus on after-school packages or test-prep bundles based on what parents actually value and when should you begin marketing based on when parents begin their searches? 

• Is your area price-sensitive, or can you launch a pricier premium option? 

• Are customers churning because competitors offer better speed, convenience, quality, or something else entirely? 

• What is the right location for expansion and how do you need to adjust your pricing and offerings?  

Market research helps you answer these questions so you maximize your chances for success and helps you measure how things are going so you can be proactive and adjust sooner rather than needing to be reactive once the market has already changed.  

How to do market research 

Market research is a three-step process: 

1. Define your objectives and create a research plan. 

2. Collect data and analyze results. 

3. Apply the results to your business and identify the next questions you need answered, then repeat the process. 

Doing market research is different for every business because it depends on your industry, the business objective you’re trying to accomplish, and your ability to execute. Math tutoring businesses need to know how many school-aged kids live in an area and pool cleaners need to know how much to charge, so customers won’t call their competitors. Both are going to need to know when to begin advertising to build awareness, and where to place their ads. 

Focus your research on what you can do. If you can’t get a license to import products even though customers demand it, don’t spend money researching a foreign market. Instead use market research to find a different category, like how Play-Doh switched to children’s play from being a wallpaper cleaner or how a 3M scientist was working on a super-strong adhesive but ended up creating a weak and pressure sensitive one that turned into the glue for Post-It Notes.  

Defining objectives and creating a plan 

To define your objectives and questions, start by writing down the decision you need to make or the business goal you want to accomplish, then write down 5–10 questions where you don’t have data to prove what the right answer is.  

Here are some common research questions small business owners ask:  

• What are the consumer demographics, how are they changing, and how does that change impact their likelihood to buy?  

• What’s the total market size for each of my offerings?  

• If I change price (up or down) how does that change total volume and based on the combined change, how does that change my revenue, costs, and profit?  

• Are my direct competitors in the market priced higher or lower, and do I compete on price, quality, or service? 

• How do I compare to competitors on things most important to my customers?  

• Are there any local or regional needs that are different from my other locations?  

Put these questions into a “Research Brief” that you can refer back to throughout the process and include the target customer for the research, your budget, and timeline.  

Here’s a sample research brief: 

• Objective – Decide whether to add a customer loyalty program and how to structure rewards.  

• Market area – Two zip codes you already serve, plus one nearby area you’re considering. 

• Target Customer – Busy professionals and small office managers (if possible, give additional details about what they need, how they shop, etc). 

• Competitors to include – give 3 or 4 direct competitors and 1 or 2 substitutes where they don’t directly compete with your products or service but customers might choose them as an alternative to you or your direct competitors.  

Once you have the brief, develop the plan based on what you need to learn by choosing from the two primary types of research: 

• Quantitative methods like surveys or advanced analyses like a conjoint analysis (a detailed analysis with customer sentiment on price, features, etc…) where you’re able to find customer preferences for upgrades you’re thinking of launching or changes you want to make.  

• Qualitative research like 1:1 customer interviews, focus groups, or in-home visits that work best when you want to dig into the psychology of why people do things or don’t do other things.  

You don’t need a huge budget to get good results either. Online survey providers will help design surveys and recruit participants for a couple dollars per response. Another way to get insights is finding places where your customers have downtime and are open to conversation.  

An example for a kid-friendly restaurant, after school program, or daycare could be:  

• The waiting area where parents congregate while waiting for their kids to get out of school, or setting up a booth at a school event where they attend.  

• Sports practices where parents are just hanging around. 

• PTA meetings and sponsoring one in exchange for them including a link to your survey. 

Collect and analyze the data 

If you’re doing this research over multiple days or have a few people doing interviews in different places, have a central place where you collect the data. This could be a master spreadsheet for quantitative data or a giant whiteboard with sticky notes for qualitative data.  

When you do research over multiple days, it’s best to get your team together for a quick debrief at the end of each day. When you analyze data, don’t cherry pick quotes or numbers just to support what you want it to say. Even the biggest companies in the country make this mistake and end up launching products that never sell. The goal is to learn what your current and potential customers want, not what you want.  

Applying research results to your small business 

Applying the results to your small business means verifying what you found during research by testing it before rolling it out in full. If research showed you could raise pricing 10% without losing any customers, test it by giving a small customer group a private offer before you advertise it to everyone.  

If customer interviews said that you could expand your wedding dress business to include wedding photography, rent the cameras and lighting and book a few jobs before you make a large investment. To test a price increase on clothing, split the inventory into six groups and test three of them.  

Two groups of high demand, two groups of medium demand, and two groups of low demand. Add the 10% increase to one of each and see if sales remain consistent compared to the control group and if they still sell, move forward with the increase. 

If you’re using the data to open a new location because Census Bureau data says the same customer type is in the new region and your surveys showed there is a need, run some ads for a first time customer promotion if the location opens but have a stipulation that it is still in progress and may not happen. Next, survey the people that sign up and gauge if the demand is valid and what their specific wants or needs are, or if they’re people looking for a deal and gave non-working contact information for a coupon.  

By conducting market research with this 3-step process and doing it as a regular part of operations you’ll stay on top of changing customer needs, find places where you can take advantage of competitors’ weaknesses, and find new revenue streams from new markets.  

SmallBusinessLoans does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.