Evaluating the Potential of a Business Idea: Market Research for Strategic Planning
by Pablo Arroyo | November 21, 2024
In the previous articles, we talked about the process of evaluating a business idea and how we go about assessing the feasibility of bringing to market a particular product or service. As we embark on this process, we defined several questions that must be answered. We emphasized the importance of assessing the external environment (competitors, technology, laws, regulations) and the internal environment (capabilities and expertise). We defined useful tools that can help with this task, such as the PESTEL Analysis and the SWOT Analysis. However, there is another tool available to entrepreneurs and business owners, which is fundamental to the business planning process, which is market research data.
Considering Market Research in the Strategic Planning Process
If we are planning to start a business or considering new revenue streams for our existing business, we need to know in detail the stage and outlook of the industry in which we are operating. This is important because there are key implications for our business, depending on whether the industry is stable or growing as opposed to stagnant or declining. Certainly, we want to invest in an industry that is in the growing phase, but there are other factors that should be considered such as market saturation, consolidation, and technological innovation.
Available Market Research Data
There are various types of market research data accessible to business owners and much of this data is usually available through local resources and databases. We should keep in mind that data we obtain from existing sources and databases is considered secondary data. Primary data is the data obtained from our own market research, such as interviewing potential customers, conducting surveys, and talking to industry players.
Real-Life Example
In the case of the auto repair shop, databases are able to provide Industry Profiles, which allow us to conduct an in-depth analysis of an industry. If you are creating financial projections for your business, databases are able to provide the Financial Standard, which describes the financial performance of similar businesses and how they are trending over time.
Competitive Data
In terms of the competition, there is data that can point-out the location and density of a particular type of business in a specific geographic area. On the other hand, there are reports which can provide economic and demographic data, estimates of supply and demand, consumption level per household for products and services and general attitudes and preferences of customers when shopping.
The Value of Data and How it Can be Used
Market research is an invaluable tool that can provide a foundation on which to create the concept and strategy for a business. The research phase is critical in the planning phase of a business. In fact, one of the most common reasons for business failure is insufficient or inadequate research and analysis. Before we invest our limited resources, it is wise to take a look at the industry we are getting into and validate our assumptions.
In our example, if we look at the profile for the auto repair shop industry in the United States, we will be able to see the current conditions, the structure of this industry, the relevant trends, the forecast for the next five years, and the financial parameters. All of this is important because if we are going to invest in this industry, we want to make sure there is growth, generating demand and creating opportunities for new entrants. After looking at this report, it revealed that while there is strong demand for auto repair services in the U.S., there are some challenges that must be faced such as a shortage of qualified technicians, the implications of the shift towards electric vehicles, and the increasing competition from auto dealerships.
Designing a Competitive Strategy
In any business endeavor, there is going to be a level of competition that can have important implications on our operations. Competition is healthy and drives efficiency and innovation, however as a business owner, we need to design a competitive strategy to position ourselves against those competitors. The objective is to find a niche or discover an unmet need that has not been served and design a solution for that. It is necessary to evaluate our direct competitors and determine their weaknesses and gaps in the market.
For example, if we analyze competing auto repair shops, we can find out their service offerings, hours of operation, quality of service, pricing and customer service offered. Through our analysis, we might find out that competitors are lacking key basic service offerings, have limited hours of operations in the weekends, their quality of service is deficient and there is a less-than-optimal customer service. Then, we come in with a solution to cover those gaps and make that part of our differentiation strategy. In our marketing strategy, we will emphasize why we are the best in delivering that solution and how we go above and beyond our competitors. After all, when was the last time our mechanic provided on-site service for minor repairs? Provided a loaner car while our vehicle was repaired? Offered the convenience of an online booking system? Gained our trust for their expertise in providing a solution at an optimal cost? All those are issues in the customer’s mind.
Requesting Market Research
Any entrepreneur or business owner is able to access data and information when working with a legitimate source, such as the Florida SBDC at USF or another third-party organization with access. A consultant or advisor can then help you analyze the significance of this data and the implications for your particular business. Then you can use this data to inform your business strategy and planning. More likely, you will gain new insights, discover opportunities, validate/correct your assumptions and align your business concept with the needs of the customers you will be serving.
If we add market research to the set of tools we described previously, we will be able to complete an in-depth analysis of the external environment for our business. In the next article, we will look into the internal environment more closely, when we discuss the topic of creating a business plan and the ideal timing for that.
Pablo Arroyo, MBA, CGBP, CME
Arroyo, Consultants, International Consultants 2, International Trade, TampaSpecialties: International Trade, Marketing, Business Planning, Startup Assistance Pablo Arroyo has 17 years of experience in business development as an owner and business consultant in the public and private sectors. He is a Certified Global Business Professional (CGBP) and a Certified Marketing Executive (CME). He holds a bachelor’s degree in animal science, concentrating on international agriculture and agriculture economics, from the University of Missouri, and an MBA from the University of South Florida in marketing and international business. Arroyo was involved in strategic market expansion for companies from diverse sectors with emphasis on manufacturing, technology, agribusiness, food, tourism, hospitality, entrepreneurship and value-added enterprise development. Originally from Puerto Rico, he is fluent in Spanish and English.