ZEYUNI.

WHY YOU NEED A MARKET RESEARCH ON YOUR IDEA AND HOW TO DO IT

Market research can be for a new business or for an existing business that needs to see how they are looking compared to other businesses in terms of pricing, product quality, packages or distribution process and technology etc. It also helps to understand the supply side of products apart from the demand side, meaning knowing the full value chain of the line of business.

Market research is also useful if you are thinking of a business plan to use to run a business and especially to raise funding. From here onwards, whatever we will discuss will be leading to a financial analysis that you will need to carry out to see if the business can make you profits or not after you understand the market dynamics.

Before you can make a financial analysis, you will need more information in terms of marketing cost from your marketing plan, and labour costs from your planned organisational structure which we will discuss in the coming chapters.

For now, lets start with market research.

We will discuss in terms of a new business, information that an existing business can still capitalise on. The aim of a market research is to ensure that your idea is something that has potential customers, how many they are, where they are, who they are and if there is enough room for you to enter the area of business considering competition or government regulations or supply side of goods if you are looking to deal in goods. You don’t need to overlook important information, and also you don’t have to be academic about it. Keep it practical and comprehensive enough to help you make a sound financial analysis at a later stage.

Market research is done through information search, in some situations you will need to meet people, hence you need to look neat and speak confidently and work like a spy. Make a plan of what information you need so that you know where to look for it. The information you are looking for must answer questions relevant to your idea.

STEPS IN MARKET RESEARCH

Step 1:

Typical customer target group. Who do you think is the main customer i.e. age, gender, geography, income level, education level etc then Interview as many as possible. This may change to another target group with new information that you discover. Determine if its a real problem and there is need for a solution. Its important to be specific about the target group as this will help you narrow the scope of marketing strategy. If your target is any gender, any age, any geography and any income level, you still need to know that anyway.

Estimate how many people would like to access your services or products. Use demographics from Central Statistical Office or open source information or organisations that deal in that area of information you are looking for. E.g., if you need to know how many school leavers there is each year and you have a product or service aimed at them, ask Examinations Council of Zambia. E.g., if you need to know how many companies do agro business, ask Patents and Company Registration Agency or farmers association. Get an idea about their geographic locations and their size in terms of levels of income and if they can buy your product or service.

Total addressable market(TAM) is the market that you think you can reach. Estimate your market share and determine the possible achievable market size for your potential business. This will help in making financial analysis at a later stage. If there is isn’t enough people, who will buy to make profit for you? To know the TAM, you make reasonable assumptions based on the population size of your target market in the area you want to operate when you start and in the future.

Step 2

Industry analysis-Value chain analysis

How do people access this service or good at the moment? What is the most on demand service or good and what drives that demand in people’s minds? Interview sellers of the good or service. Interview buyers as well. Interview the sources i.e. wholesale suppliers of the goods if possible to see why people want to buy what they buy.

If its concerned with manufacturing peanut butter, ask where groundnuts come from and the price, how prices change with season, how to transport and the cost, where to store when you bring the nuts to town and the storage cost, the cost of the machine used to grind, mix, package and also packaging material. Draw the whole process i.e. the value chain and determine the cost for each stage and how it changes with seasons to come up with the best case and the worst case scenarios. This will help you make a proper financial analysis at a later stage which we shall cover in a chapter ahead.

You might want to only fit in the value chain in the middle as compared to end to end value chain business which may require high capital or may be risky. This means in the peanut butter business, you don’t need to necessarily do the business end to end, you for example just supply groundnuts, or own a peanut making machine and package for other people to sale etc depending on the financial analysis and risk you come up with. Fit in the value chain, otherwise to do business from end to end may be capital intensive and maybe risky to start with.

Step 3

Competition analysis

What companies are the most active and what do they supply exactly and from where? How do they distribute their goods or services. What is their target market? What is the price and what’s the package? This will help you determine if there is a market that hasn’t been attended to that you can take advantage of or if there is a chance to make your business cheaper, faster or better.. E.g., money lenders offer service to the people that banks cant offer loans to. Very short term loans.

Tabulate all information i.e. companies, price, packaging picture, distribution style(franchise, supply then get cash later from the reseller, supply daily to the reseller, supply on cash etc). Shops they deal with etc in case you want to supply goods to shops at wholesale price. This will help you make a sound financial analysis in terms of your product quality, packaging, pricing, distribution styles and marketing plan once you notice some weaknesses in the way the potential competitors do their business.

Step 4

Potential challenges

From the survey, you can highlight what potential challenges would be in terms of price, product or service packages or how to source raw material, and how you could potentially handle that.

Step 5

Government regulations and compliance. This can cost you a business. Be aware of what you need to operate in terms of permits etc. If its a bar, you need a license, if its a butchery, you need necessary documents and permits. Find out what those documents are in the type of business you want and see if you can afford them.

Step6

Determine the results and check if your idea is still a problem that need to be solved. Check that there is no one dealing with it, or there is someone dealing with it but not exactly the way you would like to do it or they are not covering everyone. Determine the market size, the potential pricing, the potential package of the service or goods and the distribution style.

This will then be used to make a financial analysis to see if it can be profitable to do that Business.

At this point, you know how you can enter the market in terms of target market, what products or services they need, what packages works, what price works, where to source goods, how much machines cost to buy and maintain, what government regulations are like etc. Be open minded to new arising ideas in the research and be ready to change your idea to another thing. Example: Tractors for timber are delaying loading, instead of continuing with timber business, supply the timber businesses with a tractor to help them load faster and stop the timber business or do both.

Think of how to start small here and market testing strategy. E.g., If you are considering a peanut butter business, consider to buy nuts in town and not from far places, use someone’s peanut making machine, use a general bottle as package with no special design, design label and sale peanut at wholesale. Or choose the value chain stage to work in based on your risk assessment. This decision will be the basis for your financial analysis.