No matter what the size of the company, all successful business owners must know their markets, competitors, customer needs, and what it takes to be competitive. Marketing research can be one of the most important functions in getting key information about customers’ preferences and marketing your product or service effectively.

Without knowing why people buy your products and services, you may be trying to sell products or services your customers don’t want.

A separate marketing research department is usually beyond the budgetary reach of most small businesses, but you still can gather customer facts and opinions in an objective way. Having that information can help you can focus your business on what people want to buy, not just what you want to sell them.

Determine your research needs and objectives

The first step of marketing research is deciding what you really need to find out. Marketing research can help you:

• Refine a new product
• Adapt current advertising and marketing strategies to be more effective
• Prioritize marketing activities
• Create appropriate sales approaches for given markets

Set your budget

Which market research strategies you use will be shaped not only by your needs, but how much you can afford. One way to establish a marketing budget is to allocate a small percentage of gross sales for the most recent year.

This often amounts to about .02 percent to 1 percent for an existing business. If you are planning on launching a new product or business, that budget figure may be higher -- sometimes as much as 10 percent of expected gross sales.

Because of more restricted budgets, managers of smaller companies have to be more creative and proactive in their marketing research efforts. This means prioritizing research needs to figure out where to apply limited dollars. Small business owners then can either hire research specialists on a limited basis or do the research themselves.
 
Start with what you have

While small business owners may not have the budgets of large corporations, they have the advantage of being closer to their customers and learning much more quickly about their buying habits. Most business owners do informal market research every day without even realizing it just by analyzing returned items, talking to customers, and looking at competitor's prices.

Before dishing out thousands of dollars for a research study, take a look at what information you already have. Sales records, complaints, receipts, and any other records that can show where customers live and work can give insight into how and what they buy. For example, addresses on receipts can help you cross-reference customers’ neighborhoods and the products they bought to check the effectiveness of your advertising.

Employees also can be an excellent source of information about customer preferences and trends. Be sure to keep open lines of communication with your employees, and you’ll be able to hear about customers’ minor gripes about the store or service and requests for items that you may not stock.

Conducting qualitative research

In many cases, such informal information gathering may not be enough to give you the insight you need. Formal marketing research makes the process more orderly, providing a framework to organize market information.

Marketing research falls into one of two general categories: qualitative and quantitative.

Qualitative research provides directional trends and is best when you want to get a “subjective” feel for the topic. It can help you evaluate how key target buyers think about your product and what motivates them to buy it.

The simplest way to conduct qualitative research is through a feedback form. You can gain valuable insight by asking your customers how you are doing, asking them for suggestions, and asking them their opinions. You can provide the form in your store or on your website if you have one.

Interviewing groups of target buyers in focus groups – or moderated discussions with people from your target segment – is another common way to do qualitative research. If you are planning to launch a new line of baby products, for example, your focus group may be composed of parents from the neighborhood where your store is located.

Whereas large corporations often have to hire agencies to recruit people for focus groups, small business owners have the advantage of being much closer to the customer. Offer your best customers special offers or free products or services in exchange for an hour or so of their time. For such a small investment, the information you receive can be incredibly valuable.

Get hard numbers through quantitative research

While focus groups and other qualitative studies may give important insight into customer habits and give you an idea of directional trends, they are not statistically reliable (meaning your conclusions may not apply to the larger population of potential customers).

If you want information that can be numerically calculated, quantitative market research can provide the information you need.

While you theoretically can ask the same questions in both qualitative and quantitative studies, quantitative research requires you to survey a much larger number of people in order to obtain statistically reliable information.

As a general rule of thumb, you'll need at least 100 randomly selected respondents to obtain at least a 95 percent accuracy rate. In most cases, the larger your sample size, the greater your accuracy rate.

The downside of statistical accuracy is that it comes at much higher price. A thoroughly designed study involves developing the right pool of respondents, asking the proper questions in the right order, utilizing the right media – all decisions that can be helped greatly by hiring an outside firm.

You still can conduct quantitative studies on your own as long as you’re willing to trade accuracy for cost. Small budgets, smaller sample sizes, and samples chosen in a non-random manner mean a less accurate – though possibly still relatively reliable – set of results.

If you keep a large enough mailing list, you can send surveys to customers’ homes. Standard direct mail campaigns typically garner just a one percent to two percent response rate, although yours may be higher depending on what kind of relationship you already have with your customers. To maximize response rate, keep your surveys focused and simple, and offer your customers something in exchange for their participation, such as a coupon to everyone who returns a completed survey.

The Internet also provides a more inexpensive means of data collection and analysis for those with technologically savvy customers. Many affordable software packages offer basic marketing research through the Web for small businesses that regularly want quantitative information but cannot afford to hire outside firms to do it.
 
Keep research is an ongoing part of marketing strategy

No matter what form of research you conduct on your customers’ needs and preferences, don’t view your results as the end of the process.

Customer habits shift over time, making it important for you to continually be in touch with them. By staying abreast of what customers think of your product or service, you can adjust your marketing strategy to keep up with your customers’ changing needs.