How to conduct market research for a small business

You have a game-changing business idea. A product that's going to make a difference to people's lives. The next stage is to start talking to people about it. Do they love the idea? Do they want to buy it?

Figuring out customers' challenges is the key to entrepreneurship. You need to do market research to gauge how much demand there is and how you should present your product to the target market.

In this blog, we explore the essential market research methods you can use to develop a really effective marketing strategy.

Want to understand more about what market research is? Read our guide

The market research process step-by-step

Step 1: Know what you want to get out of it

Every successful project begins with clear goals and market research is no different. Before you start, ask yourself what you hope to achieve.

Why is this important?

Goals provide direction. Without them, it's easy to collect irrelevant data or spend time and money on research that doesn't help your business. Here are some questions to ask yourself:

1. What problem am I trying to solve?

2. What decisions will this research help me make?

3. What do I need to learn about my customers, competitors or industry?

Examples of goals for market research

• Better understand your customers (for example, in terms of age, income or buying habits).

• Find out if there's demand for a new product or service.

• Identify market gaps that your business can fill.

• Analyse how your competitors are performing and what they offer.

Say you run a bakery in London and are considering introducing vegan options. Your goal could be to find out how many people in your local area are interested in vegan products, and what flavours or types of baked goods they prefer.

Tips for setting goals

• Keep them SMART (specific, measurable, achievable, relevant, time-bound).

• Focus on one or two main questions at a time to avoid getting overwhelmed.

VIDEO: SMART objectives and the six steps to success

In this webinar, learn what SMART goals are and why setting them is really important to your business:

Step 2: Identify your target audience

Your target audience is the group of people most likely to buy your products or services. Knowing who they are will shape every part of your market research.

Why is this important?

If you try to appeal to everyone, you may end up appealing to no-one. Having an in-depth understanding of your audience helps you tailor your products, marketing efforts and messaging to their specific needs and preferences.

How to define your target audience

• Start with what you know: Think about your current customers. Are there patterns in their age, gender, location or buying habits?

• Consider who you want to attract: If you're launching a new product, who is most likely to need or want it?

• Research competitors' audiences: Look at who your major competitors are targeting. You can do this by reviewing their websites, social media pages or customer reviews.

Key audience characteristics to consider

• Demographics: Age, gender, location, income, job.

• Psychographics: Interests, values, lifestyle, spending habits. 

• Behavioural traits: How they shop, how often they buy, what influences their decisions.

Use resources like the Office for National Statistics (ONS) to gather data on your local area. For example, if you're opening a café in Birmingham, ONS data can help you understand the population size, average income levels and age distribution of people in your neighbourhood.

VIDEO: Finding your brand's target audience

Brand strategist Kiki Bhaur explains how to identify your ideal customers through market research and then connect with them:

Step 3: Gather your data

Once you've defined your goals and audience, it's time to collect information. There are two main types of market research you can use:

Primary market research

This involves gathering new data directly from your target audience. It's often the most valuable because it's specific to your business. Here are some ways to do it.

• Online surveys: Ask people questions about their preferences, needs or customer satisfaction levels. Tools like Google Forms or SurveyMonkey make this easy.

• Interviews: Have one-on-one conversations with customers to dive deeper into their thoughts.

• Focus groups: Gather a small group of people to discuss your product or service. 

• Social media polls: Quick and free, these are great for getting instant feedback from followers. 

Secondary market research

This involves using data that already exists. It's often faster and more affordable than primary research. Some sources for secondary research include the following:

• Government reports: The ONS offers data on population trends, consumer behaviour and industry performance.

• Industry publications: Read trade magazines or reports for your sector.

• Competitor analysis: Study competitors' websites, social media and reviews.

• Online tools: Use platforms like Statista or Google Trends to see what's popular in your industry. 

If you're a small clothing retailer, for instance, you could use secondary research to find out which fashion trends are growing in the UK, then plan your stock accordingly.

VIDEO: How to craft smart customer surveys

Katie Tucker tells you how to create smart surveys that will increase your chances of getting the right insights for your business:

Step 4: Analyse the results

Data is only useful if you know how to interpret it. This step involves looking for patterns, trends and valuable insights you can put into practice.

How to analyse your data

• Organise your findings: Group similar answers or data points together.

• Identify key trends: What do most people agree on? Are there clear preferences or common complaints?

• Look for gaps: What needs or desires are going unmet in your market?

Example: If your survey shows that most customers prefer online ordering but find your current system difficult to use, this insight highlights an area for improvement.

Tools to make analysis simpler

Use spreadsheets like Excel or Google Sheets to sort and filter data. Free tools like Canva can help you create visual charts or graphs to display your findings.

Step 5: Take action based on what you've learned

Now it's time to use your research findings to make informed decisions and implement changes.

How to apply your insights

• Refine your offerings: Add, remove or alter your products and services based on customers' preferences.

• Target your marketing: Focus on the platforms, messages and formats your customer base responds to most.

• Solve problems: Address complaints, pain points or barriers that prevent customers from choosing your business.

Say you're a small gift shop in Brighton. You discover from your surveys that customers want eco-friendly products. In response, you start stocking sustainable items and promote this feature in all your marketing campaigns.

Step 6: Monitor and adapt

Market research is an ongoing process. As your business grows and your market changes, it's important to stay updated.

Why is this important?

Markets evolve – new trends emerge, competitors come and go and customer preferences shift. Regular research helps you adapt to these changes, maintain your competitive edge and provide an excellent customer experience.

How to stay on top of your market

• Schedule regular research updates every six to 12 months.

• Monitor customer feedback through reviews, surveys and social media.

• Stay informed about industry trends through trade publications and online tools.

Take advantage of free resources like Enterprise Nation and the British Library Business & IP Centre, which offers workshops, research tools and expert advice for small business owners.

How to start talking to potential customers

You need to ask questions about the problems and challenges your customers are already experiencing. Don't pitch product features or talk about hypotheticals straight away because everyone will just say your product's great.

Explain your idea later in the conversation. That way, you don't risk biasing people's comments. They'll also have more nuanced feedback on your product ideas when you start talking about them.

The aim is to get a number of actionable insights you can use to shape your product and the way in which you'll sell it.

Here are a number of useful questions for these conversations:

• How do you do X?

• What's difficult about the process?

• How often do you have to X and when did you start doing it?

• Have you tried to find other solutions?

How important are your customers' problems?

The initial questioning process helps discover more about your product's potential use case and how important it is, and make crucial business decisions about selling the product to your target market.

You have lots of challenges to deal with in everyday life – what's made you go and spend money solving one of them?

You can usually measure how important a person's challenge is in time and money. A business owner might spend a day per month completing a complicated accounting process.

They're likely to be willing to pay for a £20 per month subscription for accounting software, which automates much of this work.

The key questions to answer

• Do people know they have a problem? You can create a need or educate people on a problem they didn't know they have, but it's much more difficult.

• Does your solution fix a process where there are real, measurable consequences?

• How much are people willing to pay to fix the problem? This is difficult but a key sign is whether people are already paying money to solve the problem in a different way.

• Is fixing the problem unavoidable?

What are your company's superpowers?

Your product doesn't have to do something completely original, but you do need to have something that sets your offering apart. What makes you awesome? In such a competitive landscape, what's really going to swing people's purchasing decisions in your favour?

Your initial hypothesis will likely be based on you and people around you. It might come out of your experience. You then need to start talking to prospective customers, doing market research and competitive analysis, and making test sales to understand the opportunity.

Finding product-market fit is tough. You need to test, iterate and then repeat the process.

Summary

• Understand your audience: Clearly define your target customers and their challenges to make sure your product or service meets their needs.

• Set clear goals: Identify what you want to learn from your market research to guide your decisions effectively.

• Use diverse research methods: Combine primary research with secondary research for a detailed understanding.

• Take action on insights: Use your findings to refine your products, tailor your marketing and solve customers' problems.

• Continuously adapt: Regularly revisit your research to keep up with market trends, evolving customer preferences and everything your competitors are doing.

Relevant resources

• What is small business market research?

• What are the benefits of market research?

• Key questions you need to ask in your market research