Conducting Effective Market Research

Introduction

Understanding your market is more than just knowing who might buy your product—it's about truly understanding the people you serve, their needs, and how your business can meet those needs effectively. This knowledge will shape everything from your product development to your marketing strategies and ultimately determine your success.

Step 1: Calculate Your Total Addressable Market (TAM)

As a business owner, knowing your Total Addressable Market (TAM) helps you understand whether your business idea has enough potential customers to be viable. Think of TAM as your maximum possible market – if every possible customer bought from you, how big could your business be? There are two ways to calculate TAM, and doing both will help obtain a more accurate picture.

The Top-Down Method: Starting with the Big Picture

This approach starts with industry-wide numbers and narrows them down to your specific market. Here's how to do it:

First, find industry data for your broader market. For example, if you're selling camping gear, you'd start with the outdoor recreation industry. You can find this data through:

• Industry association websites (like the Outdoor Industry Association)
• Government statistics websites
• Market research reports (many libraries offer free access)
• Business news articles

Let's say you find that the outdoor recreation industry in your country is $50 billion. Now, narrow this down by asking:

• What percentage is specifically camping gear? (Industry reports might say 20%)
• What percentage of that market is in your geographic area? (If you're in a state that represents 5% of the population)
• What percentage of camping gear matches your specific products? (Perhaps 30% for your product categories)

Your calculation would look like this:

$50 billion × 20% × 5% × 30% = $150 million TAM

The Bottom-Up Method: Starting with Your Customer

This method is often more accurate for startups because it starts with what you know about your customers. Here's how to do it:

1. First, determine your average selling price:
   • List all your products and their prices
   • Calculate what an average customer typically spends For example, if you sell:
   • Tents ($200)
   • Sleeping bags ($100)
   • Camping stoves ($50) And customers typically buy all three over time, your average customer value is $350
2. Next, identify your total potential customers:
   • Look at population data for your target area
   • Consider age ranges and income levels that match your target customer
   • Factor in interest in outdoor activities
   For instance:
   • Your city has 500,000 people
   • 30% are in your target age and income range (150,000)
   • Industry data shows 20% go camping (30,000)
3. Calculate your TAM: 
   
   Average customer value × Total potential customers

$350 × 30,000 = $10.5 million TAM

Which Number Should You Trust?

The truth usually lies somewhere between your top-down and bottom-up calculations. Use both numbers to create a realistic range for your business planning. More importantly, use this process to identify:

• Whether your market is big enough to support your business goals
• Which segments of the market offer the best opportunities
• How to explain your market potential to investors or lenders

Pro Tip: In HubSpot, create a custom property called "Customer Lifetime Value" to track actual purchase patterns. This will help you refine your TAM calculations over time:

1. Go to Settings > Properties
2. Click "Create Property"
3. Name: "Customer Lifetime Value"
4. Field Type: "Number"
5. Group: "Contact Information"

Set up a monthly reminder to update this data – it will become invaluable as you grow and need to revisit your TAM calculations with real data.

Step 2: Segment Your Market

Market segmentation isn't just a theoretical exercise—it's about understanding the different groups of customers who might buy from you and why they would choose your products. Effective segmentation helps you target your marketing, develop the right products, and use your resources efficiently.

Understanding Your Customers' Stories

Start by thinking about your customers as real people with specific needs and challenges. Instead of just collecting demographic data, ask questions like:

• What problem are they trying to solve?
• What frustrates them about current solutions?
• What would make their lives easier?
• How do they make purchasing decisions?

For example, a parent buying camping gear has very different needs than a solo backpacker. The parent might prioritize:

• Easy setup (because they're managing children)
• Durability (to withstand family use)
• Safety features (to protect their children)
• Value for money (because they're buying for multiple people)

While the solo backpacker might care more about:

• Weight (because they carry everything themselves)
• Technical specifications (for challenging conditions)
• Premium features (willing to pay more for personal gear)
• Brand reputation (for reliability in remote areas)

Creating Actionable Segments

Once you understand your customers' stories, it's time to create formal segments. Here's how to do it effectively:

1. Start with broad categories based on your customer research: For example, GEAR UP Outdoors identified three initial segments:
   • Urban professionals who camp on weekends
   • Families who camp during vacations
   • Serious outdoor enthusiasts who trek regularly
2. For each segment, document:
   • Primary motivation for buying (escape from city life, family bonding, outdoor challenge)
   • Typical purchase journey (research online vs. in-store, decision timeframe)
   • Price sensitivity (budget-conscious vs. premium buyers)
   • Common objections to purchasing (price, product knowledge, trust)
   • Preferred communication channels (social media, email, phone)
3. Test your segments by asking:
   • Can you identify these customers easily?
   • Are they reachable through specific marketing channels?
   • Do they have distinct needs you can address?
   • Are they large enough to be profitable?
   • Will they respond to different marketing messages?

Setting Up Segment Tracking in HubSpot

Don't just leave your segments in a document – make them actionable in your CRM. Here's how to set this up in HubSpot:

1. Create Custom Properties for Segmentation:
   1. Navigate to: Settings > Properties > Create Property
   2. Property Name: Customer_Segment
   3. Field Type: Dropdown select
      1. Options: Urban Weekend Warrior, Family Camper, Serious Outdoors Person
   4. Group: Contact Information
2. Set Up Automatic Segment Assignment: Create workflows that automatically assign segments based on customer behavior:
   1. Navigate to: Workflows > Create Workflow
   2. Trigger: Form Submission or First Purchase
   3. Actions: Set property Customer_Segment based on:
      1. Products viewed
      2. Price points selected
      3. Family status
      4. Weekend vs. extended trip preferences
3. Create Segment-Specific Lists:
   1. Navigate to: Contacts > Lists > Create List
   2. Type: Dynamic
   3. Criteria: Customer_Segment equals [Selected Segment]

Step 3: Understand Your Market's Needs

Now that you've identified your segments, it's time to deeply understand what each group needs. This isn't just about products – it's about the entire customer experience.

Conducting Effective Customer Research

You don't need a huge budget to understand your customers. Here are practical research methods that work for small businesses:

1. Direct Customer Conversations
   • Set up a free coffee meeting with 5 potential customers
   • Ask about their challenges, not your products
   • Sample questions:
     • "Walk me through your last camping trip planning process."
     • "What's the most frustrating part about buying outdoor gear?"
     • "What would make camping easier for you?"
2. Online Research
   • Join Facebook groups where your customers gather
   • Read Amazon reviews of similar products
   • Follow relevant hashtags on Instagram
   • Document common:
     • Complaints
     • Feature requests
     • Usage scenarios
     • Purchase barriers
3. Competitor Analysis Create a simple spreadsheet to track:
   • Product offerings and prices
   • Marketing messages
   • Customer reviews
   • Service features Look for gaps that represent opportunities for your business.

Setting Up Customer Feedback Systems

Create ongoing feedback loops using HubSpot's free tools:

1. Post-Purchase Surveys: Navigate to: Forms > Create Form
   1. Type: Survey
   2. Questions:
      1. What made you choose our product? (Multiple choice)
      2. How did you hear about us? (Multiple choice)
      3. What almost stopped you from buying? (Text)
      4. What could we do better? (Text)
2. Automated Feedback Collection: Navigate to: Workflows > Create Workflow
   1. Trigger: 14 days after purchase
   2. Actions:
      1. Send feedback request email
      2. Create task to review responses
      3. Update customer profile with insights
3. Feedback Dashboard: Navigate to: Reports > Create Dashboard
   1. Customer satisfaction scores
   2. Common feedback themes
   3. Response rates by segment
   4. Improvement suggestions

Step 4: Track Market Changes and Trends

Markets aren't static – they evolve constantly. Here's how to stay current without getting overwhelmed:

Setting Up a Market Monitoring System

1. Create a Simple Trend Tracking Document (a spreadsheet works best, track monthly):
   1. Industry News:
      1. Major competitor actions
      2. New product launches
      3. Price changes
      4. Technology developments
   2. Customer Behavior Changes:
      1. New needs or preferences
      2. Shifting purchase patterns
      3. Emerging problems
   3. External Factors:
      1. Economic conditions
      2. Seasonal impacts
      3. Regulatory changes
2. Set Up Digital Monitoring:
   • Create Google Alerts for key industry terms
   • Follow industry leaders on LinkedIn
   • Join relevant professional associations
   • Subscribe to industry newsletters
3. Track Competitive Changes (update monthly):
   1. Pricing changes
   2. New products/features
   3. Marketing messages
   4. Customer feedback

Using HubSpot to Monitor Market Changes

1. Set up tracking for market indicators:
   1. Create custom properties for:
   2. Lead source trends
   3. Price sensitivity
   4. Product interest changes
   5. Conversion rate changes
2. Create a Market Trends Dashboard: Reports > Create Dashboard
   
   1. Lead source distribution
   2. Conversion rates by segment
   3. Popular product combinations
   4. Price point performance
3. Implement Regular Review Processes (monthly):
   1. Review dashboard metrics
   2. Compare to previous month
   3. Note significant changes
   4. Update segment profiles
   5. Adjust marketing messages