Identifying Customer Needs

Why This Lesson

Market research is a critical step in the entrepreneurial process for entrepreneurs

pursuing social or not for profit ventures as well as those pursuing commercial business
opportunities. Market research is the process of gathering information about the
market and understanding the potential customer base. Entrepreneurs need to
spend significant time learning about the customer base for their product or service.

Market Feasibility Analysis

The primary goal of market feasibility analysis is to gather information on customers so

that you can ultimately segment the market and choose a target segment for your
product or service. There are two types of market research: primary and secondary.
Primary research is the process of finding and analyzing information that comes
directly from potential customers. Secondary research is finding and analyzing
information that has already been collected by someone else for another purpose.
Table 4-1 describes the pros and cons of both types of market research.

Table 3-1: Primary and Secondary Market Research

Advantages Disadvantages
Primary • Timely data • Time-consuming
• First-hand knowledge of the • Resource consuming
market • Identifying sources can be
• Unfiltered information difficult
• Ability to ask specific questions • Confidentiality issues may
and customize the research prevent people from sharing
• A narrow view of the market • Data are not always easily
aggregated
Secondary • Broad overview • Not always current
• Aggregated data • Filtered information
• Authority of source (i.e., a • Need to verify the authority of
research firm) the source
• Readily available • Potentially too much
• Inexpensive information to review
• Wealth of sources • No ability to customize
• Information in the public domain • Some sources can be
expensive (e.g., analyst reports)

It is important to conduct both types of research whenever possible to get a thorough

picture of the market. An entrepreneur who is new to an industry or a particular market
segment may have to spend more time on market feasibility analysis to understand
better the customer base.

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Primary Market Research

After you have reviewed secondary sources and gathered as much information
about the market as possible, it is time to collect primary data. Primary market
research is the collection of the original information from sources within the industry
such as customers or other stakeholders. Primary research fills the gaps in the
secondary research and helps to validate the information that you discovered during
that research.

Once you have identified the customers to talk to, how do you get the information
from them? The best way is to ask them directly through surveys, focus groups, or
individual interviews.

A survey is a tool that can be targeted to one or more specific type of individual.
Writing survey questions is an art, as questions need to be asked in a way that ensures
that the responses are unbiased and valid. This is an opportunity to ask for exactly the
information you need to understand how your company, product, or service will fit
into the existing market.

Conducting a focus group is a process in which you talk to a group of people at one
time and ask them about their thoughts, opinions, beliefs, and attitudes toward a
product, service, or idea. As in conducting a survey, it is important to ask specific
questions that have been prepared for this purpose and to ask them consistently in all
focus groups so that you gather many answers to the same question. This form of
primary research typically reaches fewer people than a survey does, but the big
advantage to conducting focus groups is the interaction and dialogue within the
group.

An individual interview is a process of talking to one person at a time. It is like a focus

group in that you can ask a set of consistent questions and then delve deeper into
any areas that interest or surprise you. Like creating surveys, conducting interviews to
gather useful and valid information is an art.

Secondary Market Research

The first step in any market analysis is to examine secondary data sources. Secondary
research helps learn about the customers and the market as well as for gathering
information about primary sources that you may use later to fill in the gaps where the
secondary sources do not contain the information you need.

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This type of market research is possible even with a small budget because secondary
sources include the kinds of materials you might find in a library or online, such as
books, white papers, case studies, analyst reports, reports and data from industry
associations, trade or consumer magazines, business data or economic statistics, and
government publications. When you are starting your research, a good place to
begin is the general business press, where you can find high-level information about
the market, learn about the needs and buying habits of potential customers, and get
ideas for additional resources.

Industry associations and trade magazines are good sources for this kind of secondary
market research. Industry associations often gather and publish statistical information
about the market and the competition, although sometimes the detailed information
is available only to members. Trade magazines are specialized magazines that focus
on the business of a single industry, so they contain articles and even advertisements
that can shed light on customers and trends in the industry.

Analyst reports are another good source of information. The job of an analyst is to
research an industry, talk to key people, and make assessments about the health and
stability of particular companies or industry segments. As such, they contain a wealth
of information that is useful for entrepreneurs who wish to conduct business in that
market segment.

Analyst reports and secondary information are usually available for large or common
industries, such as food and beverages, consumer goods, and computer technology.
However, some industries or market segments do not have analysts that research
them. Many of those industries also have very few mentions in the general or business
press, although many such industries are represented by industry associations or trade
magazines. This happens when an industry or segment is not yet big enough to
warrant wider coverage. It can also happen when many companies in the industry
are privately held and therefore keep most information confidential.

Segmenting, Targeting, and Positioning

The goal of market research is to better understand your customers. As you conduct
secondary and primary market research, you will find information about your
potential customers. Segmenting, targeting, and positioning is a process that enables
you to use that information to target a specific type of customer and determine the
best choices for creating a marketing message to that audience.

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Segmenting

Segmenting customers is a process of using specific criteria to divide a larger diverse

group of customers into smaller groups that share similar characteristics. For example,
demographic segmentation is a way to divide customers into groups based on
demographic information such as age, gender, income, and occupation. This may
be combined with geographic segmentation—dividing the market by the location
where the individuals live, work, or play. These are some ways in which markets can
be segmented:

• Demographic—i.e., age, income, gender, education

• Geographic—i.e., rural, urban, suburban
• Product benefits—i.e., status, appearance, economic
• Product usage—i.e., heavy, medium, light
• Psychographic—i.e., values, personality, lifestyle

Psychographic segmentation is a way to divide customers by their behaviour, using

characteristics such as personality, values, interest, and lifestyle. Segmentation by
usage is also a useful way to divide customers into groups—by how often they use
the product or service or by the time of the day or year when they buy it.

One popular way to understand your customers is to create customer personas, using
segmentation techniques to identify an imaginary version of your ideal customer
based on demographics, psychographics, usage, and so on. This enables you to
imagine the perfect customer for a particular segment and think about how to
market and sell to this person.

Targeting

Once you have segmented the market, it is time to find your target market. That is,
you choose the segment that is most ideal for your venture, product, or service. You
can target a segment based on many criteria: number of potential customers,
frequency of purchase, a segment that is currently underserved by the competition,
or the segment whose needs are best aligned with the features of your product or
service.

Starting a new venture is an exciting experience, and many entrepreneurs see

multiple uses and many potential customers for their product or service. The real
value in segmenting and targeting a market is that you can focus your limited
marketing resources on reaching and acquiring the most profitable customers.

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Positioning

Once you have segmented and targeted your market, it is time to position the
product or service about the competition. Positioning is the process of creating an
identity or image for the brand, product, or service in the minds of the target
customers relative to the competitive offerings.

This is where you help your customers to understand why they want or need to buy
your product or service at this time. For example, if you sell fresh fruit juice without
added sugar professional women in their thirties, you could position it as the juice of
choice for professional women because it is refreshing, low-calorie, and inexpensive.

Once you have completed the segmentation, targeting, and positioning, it is time to
start thinking about the marketing mix. A marketing mix is a tool that helps you to
identify the unique selling proposition of your product or service. It is a way to think
about your product in the market—what it is, where to sell it, how much it should cost,
and how you will promote it. The marketing mix is often called the four Ps: product,
place, price, promotion.

Product is what you are selling to the customer, such as fresh drinking water or
automobile supplies. The place is how you will distribute the product to your
customers, such as online or in retail outlets. Price is how much the customer will pay
for the product. Promotion is how you will communicate the value of your product or
service to your target market, such as with radio advertisements or with a direct sales
force.