The 5 Pitfalls of Market Research

By Timothy Barton
Posted Thursday, September 2, 2004

So what are the most common mistakes companies make in their market research.

There may be more than 5, but here are the most common ones.

#1 A company chases an untried and unproven market-but neglects the solid available business that is right under their nose....their current customers!

It is easy to get caught up in the excitement of a new market!

It happens a lot. You launch a new product or a new service, and you are certain that this will be the one that gets you to the promised land!

You have wanted to crack into a certain market for a long time, or you are tired of a competitor enjoying all of the perks that come with servicing a hot market!

There certainly are times when hitting a new market makes a lot of sense, but it is more common that the best strategy is to stay close to home with the customers you already have!

Why is this an issue?

First, as you probably already are aware, it is never easy to identify the best customers in a new market. At least not without a fair amount of work. If this is your only choice, than you are smart to target this new group. Most often, however, you do have a choice.

Also, it is much more difficult to sell anything new into a new market than it is to sell to your existing customer base. This just makes sense. You already have established credibility with your current customers, and if they trust you then they will listen and often buy anything you offer so long as they have a need for it (And even sometimes if they don't!)

Similarly, it is more difficult and expensive to sell anything new at all if you have the option to sell existing products. For this reason, it may make more sense for you to sell upgrades, add-ons or special offers for you current product line rather than branch out into anything new.

As you think about how you are going to grow, keep this thought in mind...

The best way for you to grow most often is by building on your strengths before moving to the next level.

Step 1- Sell your core product to your current customer base
Step 2- Sell new products first to your existing customers
Step 3- Reach out to new customers with your new products
Step 4- Sell more new products to new customers

Do you see the progression?

The idea is to first focus on your existing customers, then move on to new customers and eventually more new products!

Keep these thoughts in mind as you grow your business!

#2 Too much stock is placed in third party market research reports.

There are bunches of research companies today, and they are all competing for business just like you and me!

It is not uncommon for a research report to be driven by some agenda that you are not aware of! Too often, there is an underlying motive behind these reports, meaning that it may spell out a situation that just may not exist.

There is no doubt that some reports are credible and accurate, but how can you ever be sure? Do you know who funded a report, or who really owns the market research firm who is conducting the report?

Don't bother getting caught up in this game. The safest bet is just to be mindful of any third party report. Use the information to help round out and support other findings you may have, but never rely on it as the sole source of your information and decision making.

Try to perform as much research as you can on your own, or with trusted partners who are addressing your specific needs.

#3 A growing market may be bad, and a slowing market may be good.

This may sound a little odd, but just think about it for a minute.

Is it possible that there are opportunities for you in a market that is not growing very much?

And is it possible that a high growth market may be the last place you should be focusing your energies?

The answers are Yes and Yes! Of course these two situations may exist.

The problem is that most companies don't think this way! They only want to focus on the growth markets and ignore everything else.

It makes sense that most companies would act this way since that is what everybody thinks,right! You must focus on the high growth markets or you won't survive!

The truth, however, is that you need to focus on the market that will be perfect for you. And that doesn't always mean you have to be in a high growth area.

You are no better off focusing on a high growth area that is not right for you, than you would be focusing on a slow growth area that is not right for you. In fact, it may be worse for you to choose the wrong market in a high growth area because you are more likely to pour more resources and money into your efforts so you can keep up!

Can you say "dot com"! How many millions, if not billions were spent on and by companies who just had to ride the wave! And where are they now?

I have a friend who owns a small beer distributor. He has found a way over the last 10 years to do very well for himself, and yet he does nothing but focus on a small niche market that has not shown any substantial growth year over year for some time. But you know what, it is stable, it is reliable and it is a perfect way for my friend to make a comfortable living. He passed up numerous opportunities to spend money and join the larger companies as they tested new beer flavors, new marketing schemes and sponsorships. He decided long ago that he was quite content to fly below the radar and service his 'ho-hum' market. Don't get me wrong, he continues to grab new customers, expand his product line and grow, but it is at his pace and on his terms.

The point is that a slow growth market has provided him with great opportunities!

As you evaluate your own opportunities, just remember to spend some time 'looking under the hood' to find out what is really going on in each market segment. Be sure it is right for you based on your criteria, and not just because it is hot and enjoying a period of growth!

#4 Ignoring crucial internal sources of information

This is a big one! I am not sure of your particular background, but if you have spent anytime in a company with lots of employees, you mostly likely have experienced what I am going to talk about.

It was like a mantra!! Day in and day out I remember hearing the same things from fellow employees.

"No body listens to me".

And unfortunately this is very often the case. For reasons that are hard to understand, most companies seem to value an employee's opinion only when it serves their agenda.

Other companies do take the time to listen, but only as an exercise to engender good feelings amoung the masses. It is rare that you see companies really value the wealth of information locked inside the employees and other team members like vendors, consultants, etc.

To be fair, there are companies who do embrace the creative potential of their staff, but I don't think it happens often enough.

But here's the point.

If a company misses out on an opportunity, enters into a new market or introduces a new product or service without first getting internal feedback, it is not just the employees who lose!

The company has the most to lose, and yet ignores one of the more simple and effective research techniques available!

It sounds so logical that you would think all companies would take the time to talk with it's sales team, customer service agents, marketing staff or human resource department to see what these people have to say. Who knows more about the market than the people who are living in the marketplace everyday?

As obvious as it seems, it happens time after time. Companies end up wasting time and money when they don't need to, or head in a direction that had *warning signs* all over the place...if they had only asked!

For you, unless you have a large organization, you may not be faced with this issue. But beware, even the smallest firms can miss key information from employees.

Don't expect your employees to volunteer information, and don't expect them necessarily to be looking out for the same things you need them to be looking out for.

Take the time to communicate and brainstorm with your employees. They may very well unlock the next big opportunity for you! And don't ever start something new on a large scale without first getting feedback from your team!

#5 Failing to test

Have you ever sat on the side of a pool and watched someone do this?

They stick their toe in the water first, just to be sure that the water feels good before jumping in.

Of course, we all do that right!

Yet when it comes to their business...the very thing they pour their heart and soul into...owners often decide not to test the water!

Imagine looking across the room to a nice pool, one that you have never seen before and have never been to. It sure looks inviting and your sense is that the water must be a good temperature...but you are not 100% sure.

Do you just run over and jump in, or are you inclined to at least do that 'big toe test'? Some may just run and jump in, but if the water is freezing they may wish they hadn't. The smarter thing to do is to test, just to confirm your expectation that the water is comfortable.

In business, testing a potential target market is important in much the same way. Even though you like what you see, it makes no sense for you to dive right in without first testing to confirm your assumptions.

There are three main ways in which not testing can hurt a business.

First, a business may analyze, and analyze and analyze some more...but never get around to testing. This is the all too common Analysis-Paralysis syndrome.

Doing the preliminary analysis is critical, but don't get hung up on it. You can never answer each and every possible question you will have about a potential target market, not until you test it anyway.

I have seen businesses spin their wheels, thinking that they are being productive when they spend most of their time
identifying and analyzing, but never testing. To be effective, you need to be able to move from your analysis phase into your testing phase or you will never find new customers- you will only dream about them!

Once you have enough information to be reasonably confident that you have found a good market, move into the testing phase to answer your questions and test your hypothesis. The market will respond and give you all of the information you need to decide whether or not you should move ahead on a larger scale.

The second way not testing may hurt a company is the most common. It's just like the person who see's the pool and jumps in headfirst before doing the 'big toe test', only to find out the water was 40 degrees and they are going to freeze!

It doesn't matter why you want to enter a new market, offer a new product or add a new feature, you must take the time to test the market first. Once again, I know this sounds simple and obvious, but it happens all the time.

There is absolutely no reason to believe you will be successful just because someone else is, or just because you *think* you know why a customer buys from you already. There are literally millions of reasons why it might not work out the way you want it to, so don't take the risk.

Businesses change, the market changes, laws change, budgets change, seasons change and competitors change. You can't predict any of this, so you need to take the time to do some testing to be sure you are headed in the right direction.

Testing doesn't take long, but it can make or break your business decisions. If you want, you can hire someone to do your testing for you, or you can simply set up a system where you and/or your staff makes a committment to talk with 2 or 3 contacts each day until you have a pretty large pool of useful information.

The third and final error in testing is a little bit different. Rather than not testing at all, or not moving from analysis to testing, companies sometimes will analyze, like what they see, but then move on to a better market without bothering to test what could be classified as a *lukewarm* target market.

Why is this important?

In some cases, it is important to make priorities, so of course a company can't always test every market that looks viable. But more often than not it is possible to explore even the target markets that only appear to have some potential.

Testing is not only simple and fast, it is also inexpensive if you do it yourself.

Focus on your best markets first, but try not to completely ignore the other markets that you have categorized as possible targets.

Maybe you can't do any testing for these other markets right now, but make a plan to get to them at some point soon.

There is a fine line between smart research and wasting your time, and I can't tell you where to draw this line. To be sure, don't waste your time on markets that you are certain are not right for you, but be cautious about throwing away other *lower rung* markets before a little testing.

You may find some pleasant surprises! And if not, you haven't wasted much time or money. Besides, you are guaranteed to learn from your testing, and who knows what other ideas or strategies may come out of your research!

Happy hunting!

And remember what Edison said...

"Genius is 1% inspiration and 99% perspiration"

Don't expect to have all of the answers.

But do expect that you will find them along the way if you take the time to ask.

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