1. Monitor the business environment
You should be keenly aware of factors which influence your industry, and monitor the effects of these trends on your business. For example, monitor the economy. Will interest rates rise? Will the rate of inflation increase? How will these affect your business?
Governments impose many regulations (taxes, health regulations, and hiring practices) which can affect your operation. For example, imposing import quotas for certain products, such as textiles, could help manufacturers of such products within Canada, but may adversely affect any business involved in importing and distributing the product.
Similarly, there are social and cultural forces which affect the viability of a business’ operations. Trends in the 1980s and 1990s have been toward an increased awareness of health and body care. This has resulted in the marketing of physical activity products (racquets, jogging wear, cross-country skis) and health food (wheat germ, granola bars, wild rice). Certain products or services, which are considered “fad” products, may remain on the market for only a short time (pet rocks, hula hoops). Entrepreneurs need to determine if their products or services will enjoy a long lifecycle, or if there are factors which may limit ongoing customer demand.
Political, economic and social forces must be considered for their potential effects on your business. Focus on energy consumption has led to the reduced demand for certain products (e.g. cars with V-8 engines, oil-fired furnaces), while it has contributed to increased use of others (insulation, weather stripping, diesel engines).
Entrepreneurs must be aware of such forces, the opportunities they create, and the ones they extinguish. Developments in such fields as economics, politics and technology should be monitored for their potentially negative or positive effects on your business.
2. Observe the competition
It is critical to learn about your competition. This and other research must be an ongoing activity.
Study your competitors. Visit their stores or the locations where their products or services are sold. Analyze the location, customer volumes, traffic patterns, hours of operation, busy periods, prices, quality of their goods and services, product and service lines, promotional techniques, positioning, product and service catalogues and other handouts. If feasible, talk to their customers and sales staff.
Consider how well your competition satisfies the needs of potential customers in your trading area. Determine how you fit into this picture and what niche you plan to fill. Will you offer a better location, convenience, lower price, extended hours, higher quality, and improved service?
Estimates of competitors’ sales volumes and their market share should be made. Also, the reaction of competitors to new entrants such as yourself should be judged. Your analysis of the competition should include a synopsis of the reasons for their success. You want to know why customers are buying their products and services.
In some product and service areas, the existing businesses are so strong and well established it would be difficult to enter that market. For example, an entrepreneur would have great difficulty competing head-on with a large food store, such as Safeway. The entrepreneur would be better advised to offer a unique service such as a neighbourhood location and longer hours, which would provide more convenient service to potential customers.
3. Talk to your suppliers
Speaking with your suppliers will tell you a great deal about how your industry works and what trends are taking place in your market. Suppliers may be able to provide you with valuable information about pricing techniques and mark ups, the most popular lines and why they are selling, and why some competitors are successful. They may also provide you with information about generally accepted credit terms in the industry.
4. Talk to your current and potential customers
Speaking with your customers or potential customers gives you insight into what their needs are. They may indicate what they look for when purchasing your products or services, what they think of your competition, what price they might pay and what level of service they require. They are usually flattered and pleased to assist you in your research, hopeful you will be able to provide them with products or services that meet or beat their desires!
5. Surveys and focus groups
Surveys represent a formal means of gathering insight from your customers. Focus groups are an informal way of gathering information. They each have distinct advantages and disadvantages.