As director of a market research agency, there’s one question entrepreneurs often ask me: “Is market research a guarantee of success?”. This is the question I wanted to address in this article, particularly on small and medium-sized companies (SMEs).
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Market research versus risk of failure: what do we know?
Let’s start with a few facts. 80% of companies are set up without prior market research. This compares with a company mortality rate of around 50% within 5 years. The question that emerges from these two figures is whether market research can prevent the death of a company or at least its failure. This question is exceedingly complex, and clear answers are rare.
Hills and LaForge (1992) indicate that 60% of failures could have been avoided if a market analysis had been conducted before the company was launched. The work of Nathalie Crutzen (Université de Liège, Belgium) has also clearly shown that a deficit in marketing (“market-product fit”) was responsible for 1/3 of the bankruptcies she researched.
Failure does not necessarily mean bankruptcy. A new product may fail to sell and must be withdrawn. In the food industry, it has often been observed that 80% of innovations only survive up to 12 months. The number of new products was down sharply at SIAL 2022. We also explained in this analysis that the supermarket sector was undergoing a major streamlining process, which involved slowing down the pace of innovation.
The causal link between the absence of market research and failure remains complicated. After the fact, it is difficult to link success or failure to prior market analysis formally. What is 100% certain, however, is that doing market research will only simplify your task.
What’s 100% certain is that not doing market research won’t simplify your task.
Why is market research so rare in small companies?
The many research studies we’ve conducted on the subject confirm the findings of other marketing experts. Market research remains an exception among small and medium-sized companies in the formal sense of the term (see our 7-step methodology here). In the IT sector, for example, market research needs to be used more. This research, for example, scrutinized 2 IT start-ups: one had dispensed with market research altogether, and the other had made do with a little feedback.
Around 90% of the research we conduct at IntoTheMinds is commissioned by companies with over 20 employees. Of the remaining 10%, around half are sponsored research for start-ups. This sponsorship can be a partial subsidy or even full funding when the sponsor is an incubator.
Why do small and medium-sized companies fail to take what would appear to be an essential first step? Entrepreneurs interact daily with their customers and constantly contact the market. As the authors of this research point out, this is a fundamental difference compared to large companies. Entrepreneurs keep their finger on the pulse of the market daily, gathering signals that can be used to fuel their business decisions. These signals can be used as something to consider, making more formal market analysis unnecessary.
When do SMEs decide to analyze their market?
One question that remains to be clarified is at what point in the life of a company does the manager start to replace his daily immersion with more formal market research? There are several avenues to explore here. All stem from observations we’ve made over the past 15 years during our work.
Company development stage
A new structure emerges as the company grows and decision-makers mechanically distance themselves from customers and the market. This structure is characterized by the appearance of “Marketing Manager” positions. The need for growth and distance from customers and the market are favorable conditions for the emergence of the need for market research.
Financial resources
Financial resources are a prerequisite for carrying out market research. Healthy companies in high-margin sectors are more likely to call on the services of a market research institute.
The urgency of the situation
In extremely specific cases, the need for market research is urgent:
- market assessment in the event of a takeover
- competitive problems
- intellectual property disputes
New development
Sometimes, a company decides to embark on a highly innovative, high-risk development or in a sector needing more mastery. In such cases, market research is essential.
External obligation
In many franchises, market research is an absolute must. The emphasis is on location research, aimed at proving the attractiveness of the place where the sales outlet is to open.
New management
When a new manager is appointed, they want to make their mark. This involves questioning old practices and examining the state of the market. The appointment of a new marketing manager can trigger market research.
Conclusion
Conducting formal market research is still a rare occurrence in SMEs. This formalism is replaced by daily immersion with customers, which enables us to pick up weak signals on the state of the market.
However, this empirical knowledge still needs to be improved. Some authors claim that up to 60% of failures could be avoided through market research. Unfortunately, it’s only when it’s too late to conduct market research that we realize its full value.
Posted in Marketing.
