WESST Blog

There is only way to answer the questions, “Can I sell my products or services?” “Who will buy what I sell?” and “How do I know if my products or services have value?” The answer to all questions is market research.

Mrs. Fields Cookies wanted to know if people would buy her products; what would they be willing to pay for a gourmet cookie; and, as a group, what did these people have in common? To find the answers, she literally took her cookies to the street. In fact, she gave away cookies, day after day, on corners in the community where she wanted to open a shop. Then, she asked for feedback (a list of questions) to find out if the cookies would sell, at what price, and who would buy them. The rest is history because Mrs. Fields opened shop after shop, nationwide, based on her research and she was successful.

In the most general terms, a business’s market is the world of people or other businesses inclined to buy its product or service. Once a business knows where to sell (the market), it has a direction. The next strategy is to target a well-defined, highly-focused section of the market known as a niche (an area not being well served by other businesses). Small businesses in particular (as opposed to national chains) usually find more success in focusing on a market niche instead of trying to appeal to a broad range of potential customers.

Demographic characteristics (identifying markers of a population being served) help businesses target (aim their products and services) their marketing strategies. Characteristics like age, income levels, buying habits, gender, and marital status are among some of the key factors that identify potential customers.

The reason for gathering this information is to better target customers like professional women, middle-income automobile owners, teenage girls, or an unmarried population in their 20’s.

Understanding the demographics gives the business an advantage when deciding where or how to market. Will professional women read teen magazines? Will middle-income automobile owners read Mercedes or Jaguar publications? Possibly (planning for a time when they can afford one), but not likely. Will young unmarried adults listen to radio programs that target married seniors?

“Market research” is a term used to describe a broad range of ways to find out information about target customers, competitors and industry. When doing research, it is important to be clear about which aspect of the market is the subject of the research: customers, competition or industry. For each aspect, be specific about what questions need to be answered and consider various methods of answering those questions. Most small businesses don’t need to spend lots of money on market research services because many of the methods in the table below are low-cost or free.

 

An important factor in determining a business’s potential success is whether it prices its products or services at a profitable level. If prices are set too high, fewer customers will be willing to pay those prices. But if prices are set too low, a business may not be able to cover its operating costs. Research can help to find profitable ranges (based on the market the business wants to target).
Most pricing falls within three market ranges: high-end, middle-end, or low-end.

Their distinctions are:

• High-end shops can charge high prices as long as they offer something in return, such as a great selection of hard-to-find or highly specialized products, extraordinary customer service, an exclusive atmosphere, or simply top-of-the-line quality.
• Middle-end shops charge average prices, and succeed on the basis of other factors such as selection, customer service, convenient hours and locations, quantity, etc. None of these factors are so exceptional as to justify high-end prices, but they are attractive enough to draw customers who aren’t necessarily looking for the very lowest price.
• Low-end shops succeed by foregoing some amenities such as a reliable selection or a convenient location, and attracting customers by offering the lowest prices available. Customers might have to dig through bins of merchandise or drive across town to a cold, cheerless no-frills store, but they want a bargain.

Whichever strategy is employed, it’s important to stick with it and use it consistently. A sure way to confuse customers and push them toward competitors is to offer a confusing mix of high- and low-end items or services within the same business.

Regardless of the pricing method, businesses must make sure they cover costs associated with delivering their services or products.

 

Retail businesses should do research as well to learn how similar businesses mark up their goods. Some businesses mark according to the suggested retail price (MSRP) recommended by the manufacturer. Most MSRP is set to allow for sales and markdowns. An item could easily be priced with a 200 percent markup so that if the store offers a 50 percent off sale, it still makes a profit.

When a small business manufactures its own products, it is important to understand both variable and fixed costs before pricing products. Whether making burritos, jewelry, hats, sweaters, knitting, or furniture, all costs (including labor) should be included in the pricing. Otherwise, the business will lose money.

After the pricing is set, the products are packaged and/or the store is ready to open, there is still time for additional market research. Walk-in and Drive-by traffic (knowing too that the location is exactly where the niche market will shop) should be studied, and convenience in serving customers. It is never wise to have a business on a one-way street unless it is one-of-a-kind or unique business or the type of business that has its clientele and does not depend on drive-by traffic (accountants, hair salons, insurance). Studies show that one-way streets do not necessarily allow for several perspectives. Traffic moves in one direction and depending on what side of the street a person drives, the business can be easily missed. Likewise, businesses should not be landlocked (in an area to difficult to get in and out of).

Considering all of the elements involved in research, a business can be more assured that when ready to sell, it has a good understanding of what to expect and can answer those major questions: Will people buy the products or service? What will they pay? How will the business reach that population?

Businesses that do not research prior to opening are playing a guessing game at best and run the risk of failure. Even though there are no guarantees for success when a business does its research, the chances of failure are less and the market knowledge gained is phenomenal.