Researching Markets for Service Businesses

Part I Identifying Your Market

Categorically Speaking

There are several ways to look at service businesses. We try to address these different categories throughout this guide.

For example, some businesses sell what are generally known as professional services. These would include groups like doctors, lawyers, architects, engineering firms, accountants, advertising agencies, and business consultants. There are also trade professional services. These can include everything from plumbing and electrical contractors to cleaning services and caterers.

Another way to categorize businesses is by their customer base. Some service businesses sell their services to private individuals-much like a homeowner may hire a cleaning service to come in and clean the house. Other service businesses, such as an ad agency for example, only sell their services to other businesses or organizations. And some service companies market to both individuals and groups.

The point of all of this is that these characteristics about your business have an impact on your market research, so it's important to know where you fall.

Market Research: The Adolescence Of Marketing

Every entrepreneur knows that marketing is one of the keys to success in business. Marketing is a big business. Bookstores are full of books and other publications that tell readers how to do it. Universities set up entire Marketing Departments to teach students how to do it. And just about every company-and even a lot of nonprofit organizations and government agencies-has some sort of marketing program in place.

The textbooks define marketing as the four functions used to create a sale-the four P's of marketing: The right product to the right place at the right price through promotion. The goal is to put together a marketing mix that will produce the most profit.

But when you strip it down to the basics, a good marketing program is really a good communications program at its heart-a message, an audience, and a medium. The message includes the services you're selling and the sort of response you're seeking from your target audience (such as "Pick up the phone and call us today," for instance). The audience is made up of all the different customers you want to sell those services to. The medium is the link you use to bring the two together. If you do it right, your medium (or more likely, your media) can also let your audience send their own messages back to you-messages about their likes and dislikes, about their needs, about their perceptions of your services.

Helping you with the second piece of this puzzle-identifying your audience, targeting your customers and clients-is our main goal in this article.

Just What is A Market Anyway?

Before you can start researching markets for your service, you need to know what you're looking for. You need to understand what a market is. Simply put, markets are made up of those people, businesses, agencies, organizations, and other groups who have a need or a desire for your service. Need and desire aren't really enough, however. What you really want are those customers who not only want or need your services, but who are also willing and able to pay for them.

Begin thinking of your market not as one group of customers, but as a whole group of groups of customers. To put it another way, you really aren't dealing with just one big market, but rather with several smaller ones. The real trick is to get specific-as suggested below.

For instance, if you think your market is the "general public," you may want to reconsider that. As you'll see in the example on the following page, your potential markets are probably smaller and more specific-and more numerous-than you may think at first.

The Example Of The Broken Window

Suppose you want to offer your services as a glazier, for example. (A glazier is one who cuts and installs glass, by the way.) Suppose, too, that you want to specialize in repairing broken windows. On first thought, your market is the general public, because no one knows when he or she might have to have a cracked or broken window replaced, right?

Well, perhaps. If you think more about it, though, you'll realize that your market really isn't the general public. Your market is that part of the general public who has a broken window right now. Everyone else couldn't care less that you repair broken windows. They don't need you.

All of a sudden, your market has gotten substantially smaller. What's more, just because a person has a broken window doesn't automatically make that person a part of your target market. These potential customers have to want to get the window fixed, and they have to be willing and able to pay to have the work done by someone else-like you. So once again, your potential market shrinks even more. This is good, though, because when you find these people, you've found motivated buyers. And motivated buyers add up to sales.

These aren't your only market, however. What about the people who can refer business to you? These referral sources are also markets for you to identify and target. These markets might include glass suppliers or hardware stores-or even insurance companies, since they're usually the ones footing the bill.

Another referral market might be those people who are friends or family members of the people with the broken windows-because they can become an unwitting sales force for you: "Say, Bob, I couldn't help noticing that huge, jagged hole in the picture window in your living room. Have you thought about calling Jagged-Holes-In-Glass-R-Us?"

Again, one of the key market research skills you can develop is to get as specific as you can in defining your markets while at the same time identifying and listing as many of these specific groups as you can.

Know Thyself

Before you can generate lists of specific markets, you'll want to make sure you have a clear-and specific-idea of what services you want to sell. After all, you can't do good market research until you know what you want the market to buy from you.

If you're lucky, you'll know what services you want to sell, and you'll have already developed the skills required to provide them. Focus on what you like and what you're good at. More than likely, they're the same things. They're almost always a good indicator of what niche you should aim for in the marketplace.

After all, if you've never spent much time tinkering with car engines, then it doesn't make a lot of sense for you to start a business as a mechanic. Besides, if you're going to start your own business, why go out and do something you don't really enjoy?

Notes On Niches

If you can find a niche, you'll have something you can build on in your search for markets. That's why it's usually better not to try to be all things to all people. That approach will most likely create problems for you. When you try to do it all, you often end up doing things that you don't really enjoy doing. Or you end up trying to do so many different things that you never develop expertise in any of them. And remember that your expertise is what people are buying-even if you charge by the hour. Your expertise and experience are what make your time, and services, worth paying for.

For example, if you're a dentist, don't just think of yourself as a dentist. Ask yourself what specific kinds of dentistry you like to do and want to do. Ask yourself what will make your particular practice of dentistry unique from all of the other dentists in your area.

Suppose, for instance, that you're a plumber and you have an interest in old historic homes. By combining these two things, you might be able to carve a niche as a plumber who specializes in updating the plumbing systems in older structures. Or maybe you're an insurance agent with a background in small business. Why not target small business owners since you understand their unique needs in a way that most other agents don't?

It's not enough to know that you're a good dentist or a good plumber or a good insurance agent, however. You need to know how good you are. You need to have a reasonable idea of your strengths and weaknesses. Just because you have a law degree doesn't necessarily mean you're well-suited to take on any case that walks through the door.

Knowing your strengths and weaknesses will help you when you begin trying to identify your best potential markets/customers, as well as those markets that you probably will want to leave to someone else.

Building A Niche

Here are a few questions to help you focus on the services you plan to offer. Try to take your time in answering these, and go ahead and jot down your answers here or on a separate sheet. (Writing down your answers forces you to clarify things in your own mind. Just that act of translating your thoughts into words can really help you see where you know the answer and where you only think you know the answer. There's a difference.) And remember: Have fun with this. It's not a test, and no one is going to give you a grade on what you write here.

Describe the services you plan to offer:

Why did you pick those? What aspects of each one do you like doing the most? What aspects do you enjoy the least? What is unique about your services compared to those of your competition? What are your strengths? What are your weaknesses? Are your customers more likely to be individuals (people from the general public, for example) or groups (organizations, associations, government agencies, industries, or other businesses)? In which specific geographic areas do you intend to market your services? Locally? Within surrounding counties? Statewide? Regionally? Nationally? Internationally? What related services do you not want to provide? Describe the business you're in, as opposed to the services you offer.

Part 2: Market Designs: Competition

That Competitive Edge

In any size business, knowing who your competition is and what they're up to is an important key to success. It's particularly helpful in market research.

In a sense, there are two kinds of competition: competition that exists and competition that doesn't exist-at least not yet. If you're entering an established field, you'll be facing the first kind. Take accounting as an example. If you're planning to go into business as a certified public accountant, then your competition, most likely, is going to be made up of all of those other CPAs and accounting firms listed in the yellow pages of your local telephone directory.

On the other hand, if you're introducing a new service, then you won't have to worry about direct competitors. Of course, you'll have more work to do than if you were going into an established field, but once you create it and develop your markets, you'll have them all to yourself-at least for awhile.

That doesn't necessarily mean you won't have other kinds of competition, however. Competition can sometimes take the form of a market's reluctance to accept new ideas. For example, suppose you see a need for a widget delivery service in your area. Everyone has widgets and they need to have them moved from one place to another, but until now, no one has thought of creating such a delivery service. It's a great opportunity for you because there are no widget delivery services to compete with you. You'll have a corner on the whole widget delivery market.

But when you look closer, you realize that over the history of widgets, people have worked out ways to get their widgets from one place to another-through the mail, for instance. Or through their friends and family: "Say, Bob, would you mind dropping this widget off at the cleaners for me on your way downtown?" Needless to say, competition is a slippery thing. It isn't always someone sitting in an office or a shop down the street doing the same thing you're doing.

Sizing Up The Competition

So what do you need to know about your competition? That's easy: As much as you can. Information is power. Here are just a few of the things you might want to try to find out. (You may want to make copies of this worksheet so you can fill out a separate one on each of your main competitors.)

Who are your competitors? How many of them are there? Where are they? How successful are they? Which ones are the main players and which ones are just barely hanging on? How long have they been around? What is the perception of them in the marketplace? How do they charge for their services? How much do they charge for their services? Which ones are seen as providing the best quality? Which ones are seen as providing the lowest cost? Which ones are seen as the fastest? Which ones are seen as offering the best value for the money? Which ones are the most successful? What niches do they each fill? What are their specialties, in other words? How much territory do they cover (meaning how large a geographic area do they sell their services in)?

Who do they use as suppliers? What are their strengths? What are their weaknesses? What credentials do they have for doing what they're doing? What professional groups and organizations do they belong to or participate in? How do they market their services? Are they growing or shrinking or remaining about the same in size? Where can you beat them? Quality? Price? Speed? Good looks? Sense of humor?

Going Undercover

We could go on, but this is enough to get you started thinking about your competition. Of course, the next question is where do you go to get the answers to all of these questions?

The easiest place to start your research is the telephone book. Take an hour or so some morning when you really don't want to get down to work yet and browse through the Yellow Pages. You'd be amazed at what you can find out there, who and where they are, how they position themselves in the market, which services they like to play up. Of course, there's a lot you won't find out there, too. Rates, for example.

So how can you find out this information? One way is to ask them. Just pick up the telephone and call your competition and ask them how they charge for their services-by the hour or by the job or by the position of the sun, the moon, and the planets. Or you can get someone else to make that call for you. Or you can call a friend or acquaintance who has used their services before and ask them how much your competition charges.

Or you can call appropriate trade associations to see if they have any industry statistics available. As you go about doing this sort of research work, however, there are several things to keep in mind. First of all, remember that most businesses do not pass along proprietary information without good reason. And while government agencies sometimes have access to some proprietary information, that doesn't automatically make it available to you--or anyone else in the marketplace.

In most cases, if you want certain proprietary information about a company-its gross and net sales figures, for example-you're going to have to do some "primary" market research. In other words, you have to figure out a way to dig it out yourself. And chances are that you won't find it in a book on some library shelf or in an easy-to-access computer database.

Libraries are excellent places to begin your search for "secondary" market research information. Secondary research includes information that has already been collected and reported by an association or other group-such as a salary survey conducted by a trade magazine, for example.

If you need help finding out about the kinds of information available to you at your local library, talk to the reference librarian. Be prepared to be specific about what you're looking for. The more help you can give the librarian about what information you want and how you want to make use of it, the more help the librarian can give you. Be aware, however, that you probably won't find proprietary information at the library-any library.

Part 3: Customers: The Hunt For Customers

Okay, you've decided what services you want to offer. You've identified the niches you want to target. You've analyzed your competition. Now it's time to get down to the brass tacks of market research. It's time to find out exactly which markets you should be targeting and whether they're big enough to support your business.

The truth of the matter is that you probably already have a good idea of which markets you should be targeting. If you don't, it could be a sign that you're going into a business you don't have enough background and experience in. As we mentioned earlier in this workbook, focus on what you know and what you like.

Even so, there are almost always more customers within those markets than you may be aware of at first. And digging for them isn't necessarily as hard as you might think. The following pages include notes, tips, exercises, and resources to help you build a clear picture of your various markets and make the best use of that information.

Learning To Think Like A Customer

If you want to succeed as a deer hunter, you have to think like a deer. If you want to succeed as a trout fisherman, you have to think like a trout. And if you want to succeed in business, you have to think like a customer.

Here are a few questions to help you do just that (think like a customer-that is). The best way to do this exercise is to read through the questions, then turn around, stare out a window, and try to put yourself in the place of someone who could use your services. After you've spent a few minutes doing this, go back to the questions and write down your answers-taking time to stare out the window again if you need to.

Describe your idea of your typical customers or clients. What do you think your customers are looking for in a service like yours? How do you know? Where are your customers located physically? And what impact, if any, does that have on whether or not they do business with you? How important to your customers are the services you offer? What factors do you think will cause customers to pick you over your competition? If you were in need of your services, how would you go about trying to find them? What would be most important to you as a customer of your services? What would be least important?

Storm Up Your Brain

Is another chance to stare out the window. Take at least 15 or 20 minutes and brainstorm a list of as many markets and potential customers as you can, and write them down. Include everything from general market categories (such as "small manufacturing firms in central Illinois") to specific individuals (such as "Tom Smith, my dentist").

The trick is to write down everything that pops into your head, no matter how ridiculous or implausible. You can always edit the list later, and besides, the weirdest item on your list may cause you to think of a great market you wouldn't have thought of otherwise.

And remember. This is brainstorming. There are no right or wrong answers here. You're going for quantity, not quality.

Government publications and information services are also great sources to tap into. Government census data (www.factfinder.census.gov) present a perfect example. The Census Data can provide you with a whole range of information about your market. You can get population data broken down into all kinds of categories-race, age, sex, family income, employment, education, and housing, just to name a few. These data can also be mapped for you according to very specific location criteria.

Other sources of information include trade associations and their related trade shows and publications. These can be an invaluable source of data on everything from salary surveys and market trends to company profiles and the key players in the industry. Your reference librarian can help you identify the trade organizations, shows, and publications that are best suited for your needs.

Part 4 - Your Market Share

One of the most important questions you'll face is whether your market is large enough to support your business. Unfortunately, this is not an easy thing to determine. Even so, there are four basic places you can go to look for customers to make your business a success:

You can create a market or a demand where none existed before. This can include customers for a new service you introduce in your market area. It can also include bringing new customers to an established service. For instance, by packaging your services to a particular target market, you may be able to show these potential customers that they need what you have to offer even though they've never used such a service before. You can serve those customers who are not already being served. This is the situation when the demand for your service is greater than the existing supply. This, of course, means that your market has customers who want your service, but they can't get it because there aren't enough providers of that service to meet the demand. You can take customers away from your competitors. This may seem a bit cold-hearted, but frankly, if you can provide those customers with better value, your competition deserves to lose them. That's what the free enterprise system is designed to foster-better value in the marketplace. You can expand the geographic area you serve to cover a larger number of customers. If you're only serving your neighborhood, you can expand to cover the entire city. If you're covering your local county, you can extend your services to surrounding counties, or even go statewide. It helps to know how many customers you'll need to be successful. One of the first things you'll want to do is determine your "break-even" point-how much money your business has to generate to cover your expenses and pay you enough to make it worth your while to stay in business.

You also need to analyze your market to determine things like market potential, market size, and market share. Market potential is how much potential demand is out there for your service. Market size has to do with the current demand for our services. And of course, market share is how much of that potential and current demand you can expect to capture. When you compare your estimated market share to your break-even figure, you should be able to tell if the risk of going into business is worth the potential rewards.

Part 5 - Research

Believe it or not, there is a wealth of information available to you as you go about your research of markets, potential customers, and the competition. The problem is that most of us don't realize just how much information is out there-and if we do, we usually don't know how to get our hands on it.

One of the best places to start is in the reference section at your public library. These reference libraries usually have an enormous collection of indexes and directories that contain detailed information you can use in your research. These can include everything from telephone directories to chamber of commerce directories for cities around you and across the nation. There are also a number of general business information sources, such as the Thomas Register of Manufacturers, Dun & Bradstreet Million Dollar Directory, Encyclopedia of Business Information Sources, Moody's Industrial Manual, and Who's Who in Commerce and Industry. There's even a directory of directories.

For instance, if you plan to market your services to industrial prospects, you might want to consult the Thomas Register of Manufacturers, which is updated annually. If you're searching for the movers and shakers in a particular industry, you can look them up in the appropriate Who's Who directory.

Government publications and information services are also great sources to tap into. Government census data, as mentioned above, can be an excellent source of research data. Other sources of information include trade associations and their related trade shows and publications. These can be an invaluable source of data on everything from salary surveys and market trends to company profiles and the key players in the industry. Your reference librarian can help you identify the trade organizations, shows, and publications that are best suited for your needs.

Last updated June 6, 2006