 INVESTING

 SIMULATOR

 BANKING

 PERSONAL FINANCE

 ECONOMY

 NEWS

 REVIEWS

TRADE

Table of Contents

 What Is Market Research?

 How It Works
 Primary vs. Secondary
 History
 Types
 How to Conduct Research
 Benefits
 Example
 FAQs
 The Bottom Line

 BUSINESS

 MARKETING ESSENTIALS

How to Do Market Research, Types, and Example

By
ALEXANDRA TWIN
Updated July 26, 2024

Reviewed by
DAVID KINDNESS
Fact checked by
RYAN EICHLER
Part of the Series
How to Start a Business: A Comprehensive Guide and Essential Steps
Joules Garcia / Investopedia

What Is Market Research?

Market research examines consumer behavior and trends in the economy to help a business
develop and fine-tune its business idea and strategy. It helps a business understand its target
market by gathering and analyzing data.

Market research is the process of evaluating the viability of a new service or product through
research conducted directly with potential customers. It allows a company to define its target
market and get opinions and other feedback from consumers about their interest in a product or
service.

Research may be conducted in-house or by a third party that specializes in market research. It
can be done through surveys and focus groups, among other ways. Test subjects are usually
compensated with product samples or a small stipend for their time.

KEY TAKEAWAYS

 Companies conduct market research before introducing new products to determine their
appeal to potential customers.
 Tools include focus groups, telephone interviews, and questionnaires.
 The results of market research inform the final design of the product and determine how
it will be positioned in the marketplace.
 Market research usually combines primary information, gathered directly from
consumers, and secondary information, which is data available from external sources.
Market Research

How Market Research Works

Market research is used to determine the viability of a new product or service. The results may
be used to revise the product design and fine-tune the strategy for introducing it to the public.
This can include information gathered for the purpose of determining market segmentation. It
also informs product differentiation, which is used to tailor advertising.

A business engages in various tasks to complete the market research process. It gathers
information based on the market sector being targeted by the product. This information is then
analyzed and relevant data points are interpreted to draw conclusions about how the product may
be optimally designed and marketed to the market segment for which it is intended.

It is a critical component in the research and development (R&D) phase of a new product or
service introduction. Market research can be conducted in many different ways, including
surveys, product testing, interviews, and focus groups.
Market research is a critical tool that companies use to understand what consumers want,
develop products that those consumers will use, and maintain a competitive advantage over other
companies in their industry.

Primary Market Research vs. Secondary Market Research

Market research usually consists of a combination of:

 Primary research, gathered by the company or by an outside company that it hires

 Secondary research, which draws on external sources of data

Primary Market Research

Primary research generally falls into two categories: exploratory and specific research.

 Exploratory research is less structured and functions via open-ended questions. The
questions may be posed in a focus group setting, telephone interviews, or questionnaires.
It results in questions or issues that the company needs to address about a product that it
has under development.
 Specific research delves more deeply into the problems or issues identified in exploratory
research.

Secondary Market Research

All market research is informed by the findings of other researchers about the needs and wants of
consumers. Today, much of this research can be found online.

Secondary research can include population information from government census data, trade
association research reports, polling results, and research from other businesses operating in the
same market sector.

History of Market Research

Formal market research began in Germany during the 1920s. In the United States, it soon took
off with the advent of the Golden Age of Radio.1

Companies that created advertisements for this new entertainment medium began to look at
the demographics of the audiences who listened to each of the radio plays, music programs, and
comedy skits that were presented.

They had once tried to reach the widest possible audience by placing their messages on
billboards or in the most popular magazines. With radio programming, they had the chance to
target rural or urban consumers, teenagers or families, and judge the results by the sales numbers
that followed.
Types of Market Research
Face-to-Face Interviews
From their earliest days, market research companies would interview people on the street about
the newspapers and magazines that they read regularly and ask whether they recalled any of the
ads or brands that were published in them. Data collected from these interviews were compared
to the circulation of the publication to determine the effectiveness of those ads.

Market research and surveys were adapted from these early techniques.

To get a strong understanding of your market, it’s essential to understand demand, market size,
economic indicators, location, market saturation, and pricing.2
Focus Groups
A focus group is a small number of representative consumers chosen to try a product or watch an
advertisement.

Afterward, the group is asked for feedback on their perceptions of the product, the company’s
brand, or competing products. The company then takes that information and makes decisions
about what to do with the product or service, whether that's releasing it, making changes, or
abandoning it altogether.

Phone Research
The man-on-the-street interview technique soon gave way to the telephone interview. A
telephone interviewer could collect information in a more efficient and cost-effective fashion.

Telephone research was a preferred tactic of market researchers for many years. It has become
much more difficult in recent years as landline phone service dwindles and is replaced by less
accessible mobile phones.

Survey Research
As an alternative to focus groups, surveys represent a cost-effective way to determine consumer
attitudes without having to interview anyone in person. Consumers are sent surveys in the mail,
usually with a coupon or voucher to incentivize participation. These surveys help determine how
consumers feel about the product, brand, and price point.

Online Market Research

With people spending more time online, market research activities have shifted online as well.
Data collection still uses a survey-style form. But instead of companies actively seeking
participants by finding them on the street or cold calling them on the phone, people can choose to
sign up, take surveys, and offer opinions when they have time.
This makes the process far less intrusive and less rushed, since people can participate on their
own time and of their own volition.

How to Conduct Market Research

The first step to effective market research is to determine the goals of the study. Each study
should seek to answer a clear, well-defined problem. For example, a company might seek to
identify consumer preferences, brand recognition, or the comparative effectiveness of different
types of ad campaigns.

After that, the next step is to determine who will be included in the research. Market research is
an expensive process, and a company cannot waste resources collecting unnecessary data. The
firm should decide in advance which types of consumers will be included in the research, and
how the data will be collected. They should also account for the probability of statistical errors
or sampling bias.

The next step is to collect the data and analyze the results. If the two previous steps have been
completed accurately, this should be straightforward. The researchers will collect the results of
their study, keeping track of the ages, gender, and other relevant data of each respondent. This is
then analyzed in a marketing report that explains the results of their research.

The last step is for company executives to use their market research to make business decisions.
Depending on the results of their research, they may choose to target a different group of
consumers, or they may change their price point or some product features.

The results of these changes may eventually be measured in further market research, and the
process will begin all over again.

Benefits of Market Research

Market research is essential for developing brand loyalty and customer satisfaction. Since it is
unlikely for a product to appeal equally to every consumer, a strong market research program can
help identify the key demographics and market segments that are most likely to use a given
product.

Market research is also important for developing a company’s advertising efforts. For example,
if a company’s market research determines that its consumers are more likely to use Facebook
than X (formerly Twitter), it can then target its advertisements to one platform instead of
another. Or, if they determine that their target market is value-sensitive rather than price-
sensitive, they can work on improving the product rather than reducing their prices.

Note
Market research only works when subjects are honest and open to participating.
Example of Market Research
Many companies use market research to test new products or get information from consumers
about what kinds of products or services they need and don’t currently have.

For example, a company that’s considering starting a business might conduct market research to
test the viability of its product or service. If the market research confirms consumer interest, the
business can proceed confidently with its business plan. If not, the company can use the results
of the market research to make adjustments to the product to bring it in line with customer
desires.

What Are the Main Types of Market Research?

The main types of market research are primary research and secondary research. Primary
research includes focus groups, polls, and surveys. Secondary research includes academic
articles, infographics, and white papers.

Qualitative research gives insights into how customers feel and think. Quantitative research uses
data and statistics such as website views, social media engagement, and subscriber numbers.

What Is Online Market Research?

Online market research uses the same strategies and techniques as traditional primary and
secondary market research, but it is conducted on the Internet. Potential customers may be asked
to participate in a survey or give feedback on a product. The responses may help the researchers
create a profile of the likely customer for a new product.

What Are Paid Market Research Surveys?

Paid market research involves rewarding individuals who agree to participate in a study. They
may be offered a small payment for their time or a discount coupon in return for filling out a
questionnaire or participating in a focus group.

What Is a Market Study?

A market study is an analysis of consumer demand for a product or service. It looks at all of the
factors that influence demand for a product or service. These include the product’s price,
location, competition, and substitutes as well as general economic factors that could influence
the new product’s adoption, for better or worse.

The Bottom Line

Market research is a key component of a company’s research and development (R&D) stage. It
helps companies understand in advance the viability of a new product that they have in
development and to see how it might perform in the real world.

SPONSORED
Trade on the Go. Anywhere, Anytime
One of the world's largest crypto-asset exchanges is ready for you. Enjoy competitive fees and
dedicated customer support while trading securely. You'll also have access to Binance tools that
make it easier than ever to view your trade history, manage auto-investments, view price charts,
and make conversions with zero fees. Make an account for free and join millions of traders and
investors on the global crypto market.
ARTICLE SOURCES
Part of the Series
How to Start a Business: A Comprehensive Guide and Essential Steps
Researching a Market

1. How to Start a Business: A Comprehensive Guide and Essential Steps

2. How to Do Market Research, Types, and Example

CURRENT ARTICLE

3. Marketing Strategy: What It Is, How It Works, How To Create One

4. Marketing in Business: Strategies and Types Explained
5. What Is a Marketing Plan? Types and How to Write One

Planning and Developing Your Business

Funding Options
Business Structures
Starting Specific Businesses
Related Terms
What Is the Delphi Method, and How Is It Useful in Forecasting?
The Delphi method is a forecasting process framework based on the results of several rounds of
questionnaires sent to a panel of experts.
more
Target Market: Definition, Purpose, Examples, Market Segments
A target market is a set of consumers who have been identified by their shared characteristics as
the most likely potential customers for a product.
more
Market Segmentation: Definition, Example, Types, Benefits
Market segmentation is a way of aggregating prospective buyers into groups with common needs
and who respond similarly to a marketing action.
more
What Is a Marketing Plan? Types and How to Write One
A marketing plan is an operational document that shows how an organization is planning to use
advertising and outreach to target a specific market.
more
Market Penetration: What It Is and Strategies to Increase It
Market penetration is a measure of how much a product is being used by customers compared to
the total estimated market for that product.
more
Demographics: How to Collect, Analyze, and Use Demographic Data
Demographic analysis is the study of a population based on factors such as age, race, sex,
education, income, and employment.
more
Related Articles

Error! Filename not specified.

How to Start an Online Business: A Step-by-Step Guide

Error! Filename not specified.

What Is the Delphi Method, and How Is It Useful in Forecasting?

Error! Filename not specified.

Target Market: Definition, Purpose, Examples, Market Segments

Error! Filename not specified.

How to Start a Business: A Comprehensive Guide and Essential Steps
Error! Filename not specified.
Market Segmentation: Definition, Example, Types, Benefits

Error! Filename not specified.

What Is a Marketing Plan? Types and How to Write One

Error! Filename not specified.

 About Us

 Terms of Service

 Dictionary

 Editorial Policy

 Advertise

 News

 Privacy Policy

 Contact Us

 Careers

 #
 A

 B

 C

 D

 E

 F

 G

 H

 I

 J

 K

 L

 M

 N

 O

 P

 Q

 R

 S

 T

 U

 V
 W

 X

 Y

 Z

Investopedia is part of the Dotdash

Meredith publishing family.