I was once conducting a seminar on the topic of ‘need for market research and feasibility studies’. When it was time for the question answer round, someone from the audience posed a question, “What is the cost of conducting such a study”? Before I could answer, it felt nice when a client of ours answered the gentleman. “The cost of such a study shall be way less than the cost of your failed business venture”. It was an apt answer. Cause the repercussions of a failed venture is not only in terms of money but equally important in terms of time, energy and morale. In these situations, our society isn’t very kind too. We get quickly dismissed as worthless.
So, the question is, why is it necessary to conduct such a study?
Lets assume two cases:
Peter wants to commence a Café in Anjuna. He wants to invest his hard earned Rs 15 lakhs into it. However, he is worried. Will a café work at that location? He has heard from many that the existing cafes at the location are minting money. His close friends tell him that it shall be a sure success. But how can he be sure? More important how will he know how much money will he make? What to offer at the café? What prices to charge? How much to invest?
In another case let us say Arjun wants to start a business. He has been in a job all this while and has saved some money. But he is not sure of what he wants to get into. He possibly wants to do something in the vicinity of his residence. But what can he possibly do? How does he know what’s the requirement in the vicinity which perhaps is not being fulfilled? How can he bridge the gap? How does he know if he is capable of providing that good or service which has a potential in his vicinity?
Both these above cases require market research and feasibility study.
Now what is market research and feasibility study?
•Market research in simple words is to ascertain whether the business venture you are planning to start has demand or not.
•Similarly against this potential demand what is the cost to start the venture and what is the cost to operate the venture.
•We also need to do a competitor survey to understand how well are our potential competitors performing? What is the time of the day when demand is heaviest and lightest? •Basis the above we need to ascertain our potential profits – no. of customers x average purchase price per customer – costs to operate the business venture = Profits. In other words is the business feasible or not?
•These profits are compared with your initial investment into the business. Initial investment shall be in terms of the shop to be purchased, equipment required, interiors to be done etc. These are all one-off expenditures. When you compare your yearly profits calculated above with initial investment you will know how quickly will you recover your money – Yearly profits / Initial investment x 100% = Returns on investment (ROI) %. So lets say you ROI is 50%, it means you will recover your investment in two years. If its 25%, it will take you 4 years for the same.
Let’s take Peter’s case to begin with.
•Peter needs to spend a minimum of 7 days at the location (during the business hours)
•He needs to do a supply side and demand side study
•In case of supply side, he needs to visit each of the competitors at the location – the ones which are similar to the standards of café he wants to set up and study the following:
? What are they offerings interms of menu?
? What are the price points?
? Other amenities at the café – eg. A/C, sitting options etc.
? Locations of those cafes with reference to customer footfalls
? Footfalls of customers at different time zones – morning, noon, evening etc
? Number of staff and other factors which will have cost implications
• On the demand side we need to understand the customer base. This largely includes:
? The kind of potential customers – age, sex, income levels, residents or tourists etc
? Places around creating footfalls – other retail offerings, schools, offices etc
? It’s always advisable to have a small sample survey of potential customers to understand their expectations and choices
•Also, the above study helps in understanding other aspects like – the best marketing technique, whether Peter should start his own brand or take franchise etc.
Now what about Arjun?
•The process is similar to Peter. However, Arjun needs to do a market research of the vicinity (location) to understand gap in demand and supply.
•Basis study of the population base in the vicinity one case ascertain the demand. Eg. If there is a school there will be a need for stationary etc.
•Next it is important to verify, is there enough supply? So, is there enough stationery shops or superstores in the vicinity? Accordingly, is there a gap?
•Lastly, which of those opportunities fall within his budgetary constraints. Arjun will have limited money. Hence, he needs to decide which of those opportunities can he execute.
Accordingly, Arjun decides what he wants to do but now being more informed.
Irrespective of whether you are putting up a large manufacturing plant that shall have global operations or a small shop in your neighbourhood, we need to do a market research and feasibility study to the best of our capabilities. Do remember you don’t want to suffer the cost of your failed business venture.
(The author is Managing Director, Ashutosh Kharangate Mangal Analytics and Research Consulting Pvt Ltd.)