business-start

Market
Research

How to find out what your potential customers want and how
much they are prepared to pay. Plus other information you
need to acquire before you start your business.

Produced by Robert MacBrayne MIBA

1
 The Business-start Programme

Published by: Business-start

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Disclaimer

This workbook cannot cater for every possibility and any decisions based
on it’s contents should be supported by professional advice. Although all
the information given in this workbook is accurate and useful the publish-
ers accept no responsibility for decisions made by business owners that are
based on it’s contents.

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 Market Research

Contents

What is market research? 4

Competitor research 6
Supplier research 9
Customer research 13
The pros and cons of survey methods 15
Questionnaires 17
Content and Layout 19
Types of Question 21
Categories of Question 24
Principles of Good Design 30
Market Research Questionnaire Example 32
Cover Letters for Postal Surveys 34
Secondary Market Research 37
Extrapolation 39
Market Research Analysis 41
Self-assessment questionnaire 48

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 What is Market Research?
Market Research is the process of gathering business information.

There are three main areas of research:-

1. Competitor Research
2. Supplier Research
3. Customer research

Competitor Research

Having decided that there are potential customers for your product or
service, you need to find out if there are enough to go round.

You will need to try and find out how your competitors will react to
you.

You will want to know their strengths and weaknesses and whether
you can capitalise on their weaknesses.

Only by studying your competitors will you be able to find out how
to take their customers away from them.

Supplier Research

Choosing the right suppliers can have a significant impact on your

business.

For stock, equipment and other supplies you will want to find out
who is going to give you:-

• the best prices

• the most helpful service
• the most convenient delivery times
• the longest credit.

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Customer Research

The purpose of this is to find out as much as you can about your po-
tential customers.

These are the vital questions you need to ask:-

• Who are they?

• Where do they work?

• Where do they play?

• Why do they buy?

To find out the value of the market you are entering into you will
need to ask:-

• How many customers are there?

• How often do they Buy?

• How much do they Spend?

• Will they buy from you?

Customer research can be divided into two parts

1. Primary research which you conduct yourself using a ques-

tionnaire.

2. Secondary, or desk, research which is the application of sta-

tistics and published information.

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 Competitor Research

Many people who are considering starting their own business are of-
ten unaware of many of the competitors that already exist. This may
be due to lack of research, being new to the area, poor marketing by
the competitors, or possibly a fear of looking to closely at something
that may be discouraging.

However, it is essential to find out who the competition is and

whether there is enough business for a newcomer.

Exercise 1. Who are your main competitors?

The most important point about this area of research is to work out
how you are going to take customers away from them. To do this you
have to find out what advantage you have over them.

Remember, your potential customers are managing alright without

you and, unless you have a completely unique product, you are going
to have to persuade them to use you. Knowing what advantages you
have over your competitors will assist you in achieving this.

How do you find out?

• Send for information from them

• Visit their premises
• Talk to customers who use them
• Send a friend in as a customer
• Ask a similar business in another area

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What you need to know about your competitors:

• Who they are

• Where they are located
• What they are selling
• How many they are selling
• How much they are charging
• Are they large or small?
• What are their delivery dates?
• What is the quality of their staff?
• What are their credit terms?
• How quick is their follow-up?
• How long have they been in business?
• What are their strengths?
• What are their weaknesses?

Use the above information to work out:

• How their product compares with yours

• What advantage you have over them
• If there are gaps in what they sell
• If the market is big enough for you

Exercise 2. What advantages do you have over your competitors?

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 Exercise 3. How will these advantages enable you to acquire
their customers?

It is also important to try and ascertain how your competitors will re-
act to you starting your business.
Will they ignore you?
Will they enter into a price war?
Will they try some dirty tricks?

Exercise 4. How do you think they might react to you starting in

competition with them?

Your business plan will include:

• A list of your main competitors

• A brief description of the advantages you have over them
and how these will enable you to acquire their customers
• Your thoughts on what effect you think they will have on
your business

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 Supplier Research

Tracking down the best suppliers can be a very rewarding and infor-
mative exercise. The savings you make will repay the effort and you
are likely to gain valuable information and insights.

The conversations you have with potential suppliers may well influ-
ence who you use. Some may be indifferent, whereas others may be
very helpful and be prepared to spend time with you. It is from these
that you can get valuable information. They are also the ones that are
most likely to give you excellent service.

The success, or failure, of a major supplier can dramatically affect

your business and so it is important to ensure they are reliable and fi-
nancially stable.

There are three categories of supplies that you will need to consider:-
1. Capital items
2. Resources
3. Materials or stock

Capital items:
These are major one off items that may cost a lot and include:- Plant,
machinery, computers, vehicles. They are usually depreciated over a
long period of time.

Resources:
These are all the things that you need to enable you to run your busi-
ness. All the following are included in this category; tools,
equipment, office supplies, stationary, services, specialist and
professional services.

Materials or stock:
Materials are the basic ingredients, or components, used in making or
producing a product. Stock refers to items that are bought for resale.

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Before locating your suppliers have a big brainstorming session and
make lots of lists. Imagine that it is your first day of trading. Try and
think of everything you could possibly need.
• Everything you will use
• Everything you will sell
• Everything you will need to run your business
• Everything you will use to make your product
• Everything that will make your company look good

Exercise 5. List all the capital items you will need.

Exercise 6. List all the resources you will need.

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 Exercise 7. List all the materials, or stock, you will need.

Now that you have listed the items you need, you will have to decide
where you will get them from.

When making these decisions which of the following will be

important to you and your business?

What you need to know about suppliers:

• Where are they located?

• What product/services do they offer?
• How much are they charging?
• What are their trading/credit terms?
• Is a trade discount available?
• Is there an early payment discount?
• How do you set up an account?
• How do you order?
• Do they have a catalogue?
• Do they deliver?
• What is their delivery time?
• What is the quality of their staff?
• What is the quality of their service?
• Are they large or small?
• How long have they been in business?

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How do you find out?

• Go and talk to them.

• Send for information from them
• Talk to customers who use them

Exercise 8. Make a list of your main suppliers

Exercise 9. Why have you chosen these particular suppliers?

Your business plan will include:

• A list of your main suppliers

• their addresses
• telephone and fax numbers
• What you will purchase from them
• Why you have chose these particular suppliers

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 Customer Research

The most important part of your market research is to ascertain if the

market you are entering into is big enough to justify you starting your
business.

Before you start spending lots of money starting up your business,

spend some time finding out if there are customers for your product
or service.

In many cases you will be sure there are customers but you will need
to find out if there are enough. There may be many competitors and
not enough customers to go round.

It is also worth while finding out how much these potential customers
are prepared to pay. Don’t compete on price alone. It could be there
is a niche market that will pay more than the average.

Finally, you should make an attempt to find out the total value of the
market that you are entering into. This is done by answering the fol-
lowing questions:-

• How many customers are there?

• How often do they buy?
• How much will they pay?

By multiplying the answers to these three questions you will come up

with an approximation of the total value of the market. (See Market
Research Analysis on page 41)

In addition to answering the above three questions you will need to

ask if your potential customers are prepared to change from their ex-
isting supplier and use you! This will enable you to make a guess at
the value of your future sales.

All these questions will need to be rationalised in a questionnaire.

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Customer research is done in two ways:-

Primary Market Research

Research that you carry out yourself

Secondary Market Research

Where you use data from published sources

The most valuable of these two types of research is that which you
carry out yourself. It can be very informative and often generates
ideas for products that you might never have thought of.

By conducting primary research you will gain first hand knowledge

of the state of your market in your catchment area. Every area, or re-
gion, has it’s own idiosyncrasies and it is important to ascertain what
they are.

Types of Survey Methods

Primary market research involves obtaining information from

potential customers in one of three ways:-

1. A Personal Survey
2. A Telephone Survey
3. A Postal Survey

Which type of survey you choose will depend on:-

• The type of business

• Where your potential customers are located
• How many questionnaires you want to get completed

It may be necessary to use two survey methods. You could start with
a brief telephone canvas and then follow up with a more extensive
postal survey.

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 The Pros and Cons of Survey Methods

Personal Surveys

PROS CONS

High response rates Labour intensive and time consuming

Can choose target customers
Can ask supplementary questions
Can clarify misunderstandings
Can use visuals and samples
Can observe body language
Can develop rapport
Requires self-confidence
Respondents have little time to think
Will get the replies they think you want
Door can be closed in your face
Potential for abusive responses

Telephone Surveys

PROS CONS

Good response rate Interviews must be short

Fast and convenient
Can reach target customers
Can cover a large geographical area
Can ask supplementary questions
Can clarify misunderstandings
Make appointments for in depth survey
Respondents have little time to think
May receive inaccurate responses
Costly in phone bills
Only reach people with telephones
Cannot observe body language
Cannot use visuals

Postal Survey
PROS CONS

Can target specific areas Very low response

Convenient and easy to control
Can be made visually interesting
Can ask more personal questions
Respondents have time to think
They may express true feelings
Respondent completes questionnaire
No personal contact
Unable to clarify answers
Response may not be representative
Postal charges
Risk of someone stealing your idea

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You will need to consider several factors when deciding on which
type of survey method to use.

• How many questionnaires you want to get completed

• Your type of business
• Where your customers are located
• What information you want to gain
• What resources will you need
• How much time you can invest
• How much money you are prepared to spend
• How important you consider it to be
• Whether it is appropriate to your circumstances

Exercise 10. Which type of survey method will you use?

A Personal Survey

A Telephone Survey

A Postal Survey

Exercise 11. Why have you chosen that method?

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 Questionnaires

The most valuable type of customer research is that which you do

yourself - your Primary Research.

Your primary research will give you valuable information about the
state of the market in your particular area. By using open questions
you may well generate ideas that you hadn’t thought of or come up
with ways of operating that could generate sources of income that
you were unaware of.

You will also start the important process of establishing contacts and
generating an awareness of your presence in your particular market.

The first step is to decide which type of survey method you are going
to use and the type of information you require.

Whatever type of survey method you choose you will have to ask
every respondent exactly the same questions to give the survey any
validity. The only effective way to do this is using a questionnaire.

A questionnaire will also give your interview a structure and will

enable you to analyse the results.
The Purpose of Questionnaires

1. To obtain accurate information

2. To provide a structure to interviews

3. To facilitate data processing

If you are conducting a personal, or telephone, survey you will need

an introductory paragraph at the beginning of the questionnaire. If
you are conducting a postal survey you will have to use a covering
letter.

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 Exercise 12. Write an introductory paragraph for a personal, or
telephone, survey.

The Three Types of Questionnaire

1. Structured:

Contains few, if any, open questions. Relies on multi-choice and

scale questions. Used in large surveys and where it is possible to
anticipate the answers. Suitable for personal, telephone or postal
surveys.

2. Semi- structured:

Contains some open questions and allows for a small amount of dis-
cussion and variation in answers. Used when a range of responses are
expected. Often used in business to business research. Suitable for
personal and telephone surveys.

3. Unstructured:

Allows for probing and in depth questions. Used for technical or

specialist markets. Suitable for personal, telephone and group surveys
but only in limited numbers.

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 Content and Layout
The content of your questionnaire will depend on the nature of your
business and what specific information you are trying to acquire.
However, certain items must be covered.

It is important to emphasise in the heading that it is Market Research.

Every questionnaire should include questions that are structured in

such a way that the answers to the following questions can be calcu-
lated:-

• How many customers are there?

• How often do they buy?
• How much will they pay?
• Will they buy from You?

By analysing the answers to these questions you can get an estimate

of your Potential Future Sales.

Additional questions will be needed to obtain further information

specific to your product or service. There may be information you
wish to acquire to enable you to make choices and decisions about
the product or service you intend to offer.

Ask for personal details at the end of the questionnaire so that you
have time to develop a rapport with the respondent.

If the respondent won’t give an address, get a postcode - this will

give you an indication if there is a specific area that you should
target.

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 A Five Step Structure

The following five step structure is useful and will give your ques-
tionnaire variety and a logical sequence.

1 Use a filter question to find out if they are interested in the

product or service

2 Use an open question to encourage response and develop

rapport

3 Use multi-choice questions to deal with specific issues

4 Use open questions to probe for reasons to answers given

5 Ask for personal details last

Test out your questionnaire

Always try the questionnaire on a few people to check that they

understand the questions and that the answers make sense.

If your test respondents keep asking you to explain a question, or

repeat it, you know that it needs rewriting.

Ask your test respondents for their suggestions on how to improve

the questionnaire.

Be prepared to write several draughts of the questionnaire.

Always check:
Why are you asking that question?

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 Types of question
There are different types of question you can use to obtain different
types of information. A mixture of types will give your questionnaire
variety and maintain the reader’s interest.

Closed questions
These are questions that will receive either a Yes or No answer.
They will not give you extra information. When used in a
questionnaire they may require a ‘ Don’t know’ or ‘Not stated’ box.

Closed questions can be used as a filter at the beginning of the ques-

tionnaire.
Eg. “Do you play golf?”

Respondents who say no are not your target customer and can be fil-
tered out.

Exercise 13. Write a ‘closed question’ that you could use as a

filter question at the beginning of your questionnaire.

Open Questions
These questions ensure people give you information. You will get a
different answer every time.

They will begin with:-

What, Why, When, Who, Which, How

They may give you useful information that you had not previously
sought.

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 Exercise 14. Write an ‘open question’ that you could use after
the filter question to encourage response and develop rapport.

Multi-choice Questions
Respondents choose from a list.

E.g. Which of the following do you use?

Which of these services are you interested in?

You will need to finish with an Other or Own Brand category.

Scales
How do you rate this product/ service?

Excellent Good Average

Poor Terrible

Numerical Scales
How many times a week do you use this product?

0 1-2 2-5 5 - 10 over 10

How much would you expect to pay for this product?

£120 £140 £180 £210 £250

These have the advantage of being easy to analyse.

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Exercise 15. Write an ‘multi-choice question’ that you could use
in your questionnaire.

Exercise 16. Write an ‘scale, or numerical scale, question’ that is

relevant to your product or service.

Exercise 17. Write an ‘open question’ to use after the scale

question to probe for reasons to the answers given.

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 Categories of Questions
There are three categories of question each designed to elicit different
types of information.

1. Behavioural:

To find out facts about what people do, or buy, and how often; where
they live, work, play and socialise.

2. Attitudinal:

To find out people’s opinions, attitudes and beliefs; why they do

things and how they rate things.

3. Classification:

To enable you to group people or companies together so that you can

define your target market.

Behavioural Questions

Behavioural questions record facts and not peoples opinions. They

are designed to find out what people, or companies, do. What they
buy, how often and how much they are prepared to pay.

For example:
Do you go on holiday?
How often do you go?
Where do you go?
Who do you go with?
How long do you stay?

Behavioural questions determine people’s actions. The answer to a

behavioural question can be assumed to be correct unless it a poor
question which stretches the respondents ability to answer.

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Behavioural questions will normally start:-
Have you ever…?
Do you ever…?
When did you last…?
Which of the following…?
How much would you…?
How often do you…?
Do you intend…?

Behavioural Questions are used to:-

1. Obtain Information
For Market Size:
Do you use a........?
For Market Share:
Do you use this brand?
Which brand do you use?
For Purchasing Patterns:
How often do you buy........?
For Ownership Patterns:
Do you own a........?
For Future Trends:
Are you thinking of buying........?
When do you expect to buy........?
2. To determine Buying Motives
Why did you buy that make of ........?
Why do you use that brand?
What made you decide to buy........?

Exercise 18. Write a ‘behavioural’ question that relates to your

product or service.

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 Attitudinal Questions

Attitudinal questions find out about people’s opinions and attitudes.

Therefore, the answers are not factual, but reflect people’s beliefs,
values and opinions which are what motivate them and cause them to
act the way they do.

Attitudinal questions are used to find out peoples buying motives.

As people’s beliefs, values and opinions are not always clear cut
researchers try to gauge attitudes to products, services or suppliers
using scales. Normally a scale would have five points ranging from
excellent to very poor.

E.g.
Excellent Good Average

Poor Very Poor

Attitudinal questions will normally start with:-

Why do you…?
What do you think of…?
How do you feel about…?
Do you agree with…?
What is your opinion…?
How do you rate…?
Which is best …?

Exercise 19. Write an ‘attitudinal’ question that relates to your

product or service.

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 Classification Questions

Classification questions are factual questions used to group people, or

companies, together to enable you to define your target market. They
can be used to check that the correct number of people, or companies,
have been interviewed.

Typical classification questions include age, gender, marital status,

social class, working status, where they live, the type of house they
live in, number of children, etc.

Marital status

Single Married Widowed

Divorced Separated

Socio-economic grade

This is a classification created by the Registrar General, in which

people are grouped according to the occupation of the head of the
household. It is a combination of income, education and work status.
In addition to social grades, researchers sometimes classify
respondents by income group or lifestyle.
The socio-economic grades are:-

A higher managerial, administrative or professional

B intermediate managerial, administrative or professional
C1 supervisory, clerical, junior administrative or professional
C2 skilled manual workers
D semi-skilled / unskilled manual workers
E state pensioners, widows, casual and lowest grade workers.

For practical purposes these can be reduced to four groups:-

AB C1 C2 DE

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Working status

Working full time (over 30 hours a week)

Working part-time (8-30 hours a week)
Housewife (full time at home)
Student (full time)
Retired
Temporarily unemployed (e.g. chronically sick, independent means)

Location

This can be:

• One of the Standard Regions of the UK
• ITV reception areas
• A simple split into North, Midlands and South.

Neighbourhood

People can be classified according to the type of neighbourhood in

which they live. These are often referred to as ACORN or
PINPOINT classifications after the market research companies which
devised them. They group neighbourhoods into types such as:

• Agricultural areas
• Modern family houses, higher incomes
• Older houses of intermediate status
• Poor quality older terraced housing
• Better off council estates
• Less well off council estates
• Poorest council estates
• Multi-racial areas
• High status, non-family areas
• Affluent suburban housing
• Better off retirement areas
• Unclassified

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Classification questions for industrial or business-to-business
research include industry type and size of firm.

Industry
The Standard Industrial Classifications (SIC) are usually condensed
into more convenient and broader groupings such as:-

• Primary (farming, forestry, fishing, etc)

• Manufacturing
• Retailing and distribution
• Service industries
• Public service
• Armed forces
• Education
• Professions (doctors, architects, etc)

Size
The size of a firm is classified by number of employees:

0–9 10 – 2 25 – 99
100 – 249 250+

Exercise 20. Write 4 questions that would help you classify

whether a respondent meets the profile of your target customer.
1.

2.

3.

4.

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 The Principles of Good Questionnaire Design

1 Consider the objectives of the survey

Consider the reasons for the survey and the information that is required.
2 Remember who your target customers are
Ask the right people to complete the questionnaire.
3 Think about what method you will use to carry out the interview
This will affect the types of question used and the way they are worded.
4 Write a credible introduction
Explain why the survey is being carried out and assure confidentiality.
5 Make the questions as simple as possible
Questions should be short and simple to avoid misunderstandings.
6 Use a “filter” question first
This will filter out respondents that are not target customers.
7 Put interesting and easy questions first
Interesting questions engage people, difficult ones put them off.
8 Keep confidential questions until last.
You are more likely to get an answer after you have built up a rapport.
9 Arrange the questions in a logical order
The questions should flow easily and logically.
10 Use different types of questions
This will give the interview variety and maintain interest.
11 Consider the answers when writing the questions
Phrase questions to ensure you get the information you require.
12 Think about how the data will be processed
It may be necessary to use a coding system or a spreadsheet.
13 Think about interviewer instructions.
For self completion questionnaires include instructions in italics.
14 Consider the visual appearance
Make effective use of white space. Leave ample space for answers.

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 Points to Avoid in Questionnaire Design

1 Don’t ask leading questions

Questions should not be written so that they imply a specific answer.
2 Don’t ask questions about other people
Keep the questions to the respondent’s personal experience.
3 Avoid jargon or shorthand
Do use jargon, acronyms or initials.
4 Do not use sophisticated or uncommon words
They may make the respondent feel stupid and you could lose their trust.
5 Avoid vague words
“Usually”, “regularly” and “frequently” have no specific meaning.
6 Don’t use emotive words
Low cost is better than cheap.
7 Avoid double barrelled questions
Do you like the colour and design of this product is two questions.
8 Do not write questions with a negative in them
Negative questions are more difficult to understand.
9 Avoid hypothetical questions
It is difficult to give accurate answers to imaginary questions.
10 Don’t ask questions that may be insulting
Can you afford a car? Are you over 65?
11 Do not use words that could be misheard
“What do you think of Sects?” may cause problems.
12 Ensure that scales do not overlap
For example: 18 – 25 and 25 – 30, where does 25 fall?
13 Put an “other” option in scale questions
This allows for a response other than those listed.
14 Don’t forget the “standard” questions
Items such as the respondents name and address, the date etc.

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 Market Research Questionnaire

Please circle your answers

1. Do you have one of the following heating appliances that vents into a chimney?
Open fire Yes No
Multi-fuel stove Yes No
Gas fire Yes No

If you answer no to all three, please put your postcode at the bottom of the page and return
the questionnaire in the enclosed reply paid envelope.

2. What type of fuel do you burn?

a) Coal b) Smokeless fuel c) Logs d) Peat e) Gas

3. How often do you use your fire/stove?

Winter 0 days 1-3 days 4 - 6 days Every day Weekends only

Summer 0 days 1-3 days 4 - 6 days Every day Weekends only

4. How often do you have your chimney swept?

a) Twice a year b) once a year c) once every 2 years d) less often

5. How much would you expect to pay to have your chimney swept?

£12 £15 £18 £21 £24

6. Would you consider using a new chimney sweeping service? Yes No

7. Would you hire a Sweep to attend a Wedding? Yes No

8. How much would you expect to pay for a Sweep to attend a wedding?

£30 £50 £70 £90

9. What is your postcode?

Thank you for your time and help.

32
 Example of a Market Research Questionnaire
The sample questionnaire is for a person who is considering starting
a chimney sweeping business. The city he lives in has a large num-
ber of terraced houses and 1930’s semi-detached houses, both of
which were originally built with open fires and chimneys. The pur-
pose of the questionnaire is to see if there are sufficient potential cus-
tomers to justify starting the business.

He intends to distribute a total of 1500 questionnaires door to door in

five different areas of the city - 300 in each area. 1500 may seem a
large number but the anticipated response will be quite low, maybe
between 5 and 15 percent.

An alternative strategy would be to go from door to door in person

which would achieve a mush higher response rate. This would take a
lot longer but less questionnaires would be needed.

Question 1 is a closed question, designed to ‘filter out’ respondents

who are not potential customers. These questionnaires form part of
the information that is used at the analysis stage to answer the ‘how
many customers are there’ part of the analysis.

Questions 2 & 3 gives additional information that dictates how often

the chimney should be swept. The results can be used later when
marketing the business.

Questions 4 & 5 answer the ‘how often’ and ‘how much’ questions
that are used to calculate the potential market value.

Question 6 is necessary to find out if they are prepared to change

from their current sweep or to find out if they have one.

Questions 7 & 8 are to find out if weddings are an additional source

of potential income.

Question 9 is to help identify which of the five areas are likely to be

most productive.

33
 Cover Letters for Postal Surveys

The covering letter accompanying the questionnaire is as important

as the questionnaire itself. The purpose of the letter is to gain the co-
operation of the recipient and to help to develop an element of trust.

By explaining clearly who you are, what you are planning to do and
the purpose of the questionnaire you will encourage people to re-
spond. It is also necessary to give an assurance of confidentially.

Wherever possible the name of the respondent should be used on the

letter to create a sense of involvement and build a relationship. This
is very important if you want to achieve a good response. However,
unless you are absolutely certain about the name and position of the
respondent, it is better to use a generalisation. E.g. ‘The householder’
or, in the case of business-to-business surveys, a functional title such
as ‘The Production Manager’ or ‘The Personnel Officer’.

Misspelling a name or using the name of someone who has long

since left the company is worse than using no name at all.

Using a database and mail merging it with your cover letter is an ef-
fective and professional way to apply names to covering letters.

Rules for writing good cover letters:-

• Explain the purpose of the survey and why the respondent has
been selected.
• Give the respondent a reason for wanting to complete the
questionnaire, offer a benefit or an incentive.
• Give clear instructions on how to fill it in and how to send it
back.
• Give an assurance that completing the questionnaire is easy.
• Give an assurance that replies will be confidential.
• Thank the respondent in advance.

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 Sample covering letter for a postal survey

Fuel Delivery Services

14 Cumberland Road
Gosforth
NE1 6ZX
11 August 2001

Dear Householder

I am currently attending a business start-up programme at the local enterprise

agency and I am conducting market research into the viability of my business
idea.

I am planning to start a business delivering coal, smokeless fuel and bottled gas
to people in Newcastle. Therefore I am asking people in your area to compete a
market research questionnaire as yours is the type of neighbourhood I would ex-
pect to deliver to.

Every one that completes and returns the enclosed questionnaire will receive a
free report on the advantages of smokeless fuel.

Please follow the instructions written in italics and return the questionnaire in the
enclosed reply paid envelope. It is an easy questionnaire to complete as most of
the questions only require a tick in a box.

The information you give will be treated in the strictest confidence and your de-
tails will not be given to any third party.

Thank you in advance for you time and effort.

Yours sincerely

C. Mann. Proprietor.

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 Exercise 21. Write a covering letter for a postal survey.

Using the phone to boost response

If you phone respondents in advance of sending out questionnaires

this can dramatically increase response rates. Someone who has
already had personal contact during a preliminary phone call will be
more likely to complete and return a postal questionnaire or one sent
by fax.

An advance phone can also be used to find out the name and position
of the required respondent.

There are cost implications attached to using the phone to build the
response to a postal surveys and it will be impractical if the number
of questionnaires being sent out is large.

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 Secondary Market Research

This is sometimes known as book research and consists of extracting

data from published sources. These sources may be books, journals,
leaflets, goverment or industry statistics.

The purpose of secondary research is to support your primary

research and to answer the same three critical questions:-

• How many customers are there?

• How often do they buy?
• How much will they Pay?

It also enables you to spot market trends, both growing and declining.

Where to get Information

• Libraries
• Business Directories
• Leaflets
• D.S.S.
• Environmental Health
• Planning Department
• Economic Development
• Business Link
• Department of Trade and Industry

Local libraries usually hold:-

Trade Press - for information on publications:

Willing’s Press Guide
Advertisers Manual
Benn’s Press Directory

(Continued on page 38)

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(Continued from page 37)

Trade Fairs - For information on exhibitions, shows & markets:

Exhibition Bulletin
The Showman’s Directory
Markets Year Book

Trade Directories - For information on companies, services &

products:
Directory of British Associations
Products & Services Directory
Kompass (for specific products )
Key British Enterprises
Municipal Year Book
Kelly’s Directory

Marketing Information
Market Research Source Book
Mintel
Key Note

Statistical Information
Guide to Official Statistics (Tells you the sources of information)
Social Trends - Central Statistical Office
Regional Trends - “ “ “
Family Spending - “ “ “
National Food Survey - MAFF
1991 Census

General Information
Register of Electors
Directory of Business Clubs, groups & associations
All the Yellow Pages
The Green Pages - for natural products, services, resources
All the phone books
The Postal Address Book

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 Extrapolation

Extrapolation is the process of applying your primary research re-

sults to the whole of your potential market. Your primary market
research represents a small portion of the population, or of your
potential target customers. By applying the results of your primary
market research to the whole population you find the size of the
whole potential market.

This is best illustrated with an example.

Example

You are going to do market research to find out if it is viable to start a

Karaoke business aimed at the pub market.

Primary research

You conduct your primary research by telephoning 50 pubs and ask-

ing them the following questions:-

1. Do you have Karaoke nights?

If yes
2. How many times a week?
3. How much do you usually pay for Karaoke?

From this primary research you discover:-

1. 5 pubs have regular entertainment

2. On average they hold 2 Karaoke nights a week
3. On average they are prepared to pay £60 a night

All of the landlords you spoke to said they would consider using a
new Karaoke act

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Secondary research

Using the Yellow Pages you find that there are 650 pubs in your tar-
get area

Extrapolation

Question 1 showed that 5 out of 50 pubs use Karaoke acts

This is 10% of the whole sample
10% of the 650 pubs in your area = 65 pubs

Question

What is the potential value of the market, per year, for the karaoke
service?

65 pubs will hold karaoke 2 nights per week

They will pay an average price of £60 per night

The potential market value = 65 x 2 x £60 x 52 weeks

= £405,600 pa

It must be emphasised that this is only the potential value of the mar-
ket. In practice most of the pubs will be using established acts and a
new act will have to work hard to break into the circuit. It does show,
however, that there is a lot of potential as long as there is not exces-
sive competition. You would need to research the competition.

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 Market Research Analysis

What is Market Research Analysis?

This is where you take your primary and secondary research and
work out the value of the potential market for your product or
service.

Your aim is to try and answer the important questions:-

• How many customers are there?

• How often do they buy?
• How much will they pay?

If you can answer these questions than you will be able to work out
the potential value of the market you are planning to enter.

It is also when you take the information from supplementary ques-

tions and apply it to your product or service

What you do

Firstly you have to collate the information from all of the completed
questionnaires.

Using your primary research questionnaire you produce a master

copy, or tally sheet, onto which you transfer the results of all your
completed questionnaires. (See the example on the next page).

You record on the tally sheet all the responses to any Yes/No type of
questions and then add them up to get the totals.

Next you record the answers to any numerical or scale questions.

These you total and then divide by the number of responses to calcu-
late the average value.
(Continued on page 43)

41
 Qu 1 Qu 2 Qu 3 Qu 3 Qu 4 Qu 5 Qu 6 Qu 7 Qu 8
Winter Summer
Y N a b c d e 0 1-3 4-6 Ed Wo 0 1-3 4-6 Ed Wo a b c d £ Y N Y N £

42
Example of a Tally Sheet for the questionnaire on page 32
(Continued from page 41)
It is these totals and average values that you use to analyse the results.

If you have asked the right questions you will be able to calculate the
potential market for your product or service.

Additional questions are analysed for information that may be of value

when making decisions about what other products or services you can
offer, or to see if you need to make any changes to what you intend to
offer.

Finally, you write a report for your business plan summarising all the
results and the conclusions that you have drawn from your research.

The Calculations

The summary on the next page gives an idea of the way you can arrive
at the answers to the critical questions mentioned earlier.

On pages 45 to 47 there is a simple example of the process. The exam-

ple is based on the idea of opening a sauna targeted at men between the
ages of 30 and 64.

The first part describes the survey and results. The second part outlines
how to calculate the answers to the questions and finally the calcula-
tions are worked out on the following page.

On the tally sheet you simply put a tick in the required box for ques-
tions 1, 2, 3, 4, 6 and 7 and then add up the totals.

For questions 5 and 8 you enter the actual value and add up the to-
tals. You then divide the totals by the number of entries to calculate
the average value.

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 Analysis Calculations

1 How many customers are there?

Your primary market research represents a sample of the whole potential

market. From this you work out the proportion (percentage) of people who
respond positively.
Using secondary market research you calculate the whole potential market.
You apply the percentage from your sample to the whole market.

2 How often do they buy?

The frequency of purchase will depend on the product or service. You

calculate the average frequency of purchase from your questionnaire
results. In some cases it may be possible to find this out from published
sources.

3 Calculate the potential number of sales

= Whole potential market (Item 1) x Frequency of purchase (Item 2)

4 How much will they pay?

Calculate the average from your questionnaire. Compare with your

competitors.

5 Calculate the value of potential sales

= Number of potential sales (Item 3) x How much they will pay (Item 4)

6 Compare this figure with your required number of sales

Take into account your required income, profit and break-even point.

7 Estimate the effect your competitors will have on this potential market

Is there enough left for you?

44
 Market Research Analysis Example

You are planning to open a sauna in the centre of your city.

Your target customers are men aged between 30 and 64.

You obtain a list of 500 names and addresses of men in this age group who live in
your city and send them a market research questionnaire.

You receive 38 replies of which 30 say they would use a sauna.

Of the 30 replies:-
4 say they would use it twice a week
14 say they would use it once a week
12 say they would use it once a month

On the questionnaire you gave 4 price options:- £2, £3, £4, & £5

3 ticked £2, 8 ticked £3, 10 ticked £4, 9 ticked £5

From the above information you can answer the following questions:-

1. How many potential customers are there in the city?

You divide the number of positive replies, by the total number of questionnaires
sent out, to find the positive response as a percentage of the whole survey.
Using secondary research sources you find out the total number of target custom-
ers in your area.
You apply the positive response percentage to the total target market to find the
total number of potential customers.

2. On average, how often will they use the sauna?

(For the purposes of this calculation we will assume that a month is 4 weeks)
As the lowest usage is once a month, you will have to calculate the total usage by
the 30 positive respondents over a one month period and divide by 4.
This is then divided by 30 to find the average usage per person per week.
(Continued on page 46)

45
(Continued from page 45)

3. What are the potential number of sales?

Multiply the total number of potential customers by the average usage per week.
ie. The answer to question 1 x the answer to question 2.

4. On average, how much are they prepared to pay?

You multiply the number of people who ticked each price option by the price op-
tions and add up all the answers to get a total amount.

You divide this total amount by the number of positive respondents.

5. What is the value of the potential market?

You multiply the number of potential sales by the average price the respondents
are prepared to pay.
ie. The answer to question 3 x the answer to question 4.

Calculations

1. 30 positive replies from 500: 30/500 x 100 = 6%

From the census: There are 9,491 people aged 30 - 44 }

There are 7,648 people aged 44 - 64 } in your city
Total 17,139 people aged 30 - 64 }

48.2% of these people are male

17,139 x 48.2% = 8260 men in your target group

From your primary research 6% are potential customers

8260 x 6% = 495 potential customers

(Continued on page 47)

46
(Continued from page 46)

2. Over a four week period:

4 men will use the sauna twice a week: 4 x 2 x 4 = 32 times

14 men will use the sauna once a week: 14 x 1 x 4 = 56 times
12 men will use the sauna once a month: 12 x 1 x 1 = 12 times

Total usage in 4 weeks 100 times

or 25 times a week

On average, 30 men will use it 25 times in a week.

that is 25/30 = 0.8 times each per week

3. Potential number of sales = 495 x 0.8 = 396 per week

4. To find the average calculate the total and divide by the number of
people:

3 ticked £2 = £ 6
8 ticked £3 = £ 24
10 ticked £4 = £ 40
9 ticked £5 = £ 45
Total = £115

Average spend = £115/30 = £3.80

5. Number of potential sales x what they will pay

396 x £3.80 = £1500

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 Now move on
and complete your questions

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