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Small Businesses Should Invest In Consumer Research Too – What’s Stopping Them And How To Change That

Why do consumer research

Small, Medium and Micro-sized Enterprises, or SMMEs, are important. In the USA, SMMEs create roughly 30% of nett new jobs and account for about 40% of economic activity. Only half of US small businesses make it through their first five years. In South Africa, the outlook is even worse: 70% of businesses fail within their first two years. (Luckily SenseLab is part of the remaining 30% – phew!). In the USA, the number one cause of business failure is that there weren’t a market for the product or service. What we can take out from that is that connecting with your consumer or customer from the get-go is an important strategy for creating a sustainable business.

The main challenges for SMMEs

  • Engaging in a consumer-centric business models by understanding consumers’ unmet needs
  • Building a sustainable business by reacting to those unmet needs with a product that their consumers will love

But what is keeping SMMEs from taking this approach to creating a business that works?

Looking at the SA alcoholic beverage industry as a case study

There are just over 400 wine cellars in South Africa. 45% of those contribute to only 10% of the total annual harvest. What’s more, only 15% of wine cellars in South Africa make a sustainable profit.

In the same vein, there are over 700 craft beer products on the market that competes for less than 1% of the total beer market.

In both the cases of wine and beer, we see many small businesses competing for a small bite of a massive and oversaturated market – and are struggling to survive.

Understanding the consumer plays a pivotal role in survival – what’s keeping SMMEs from using this approach?

There are a number of barriers that prevents SMMEs in the liquor industry from engaging in consumer research:

  • Lack of awareness
  • Perception that it is unnecessary
  • Cost prohibitive
  • Scope not aligned with research budget
  • Perception that it won’t be helpful
  • The timing is wrong

Let’s unpack these one by one

Lack of awareness

Perhaps the biggest challenge is that many small companies are unaware of:

  • The existence of formal consumer and sensory research
  • The value that it can add to their business and product development process

Without a clear view of the benefits to them, they are unlikely to spend on consumer research. The solution is that experts must communicate the tangible value (what problems can consumer research solve) on technical and social platforms. Clients must understand exactly what the can (and cannot) get from formal consumer research.

Perception that consumer research won’t be helpful

These are some very real comments that I have heard from small businesses regarding why they do not invest in consumer research. It can be sectioned into two belief systems: “I know better” and “I don’t trust it.” If a belief is very much ingrained, it is hard to change that belief. However, only target market consumers can tell you what they want – and you have to be very sure that your preferences and perceptions are aligned with that of your consumers if you’re going to take this attitude towards meeting consumers’ unmet needs.

 

Perception that consumer research is not necessary

As for the lack of trust. Yes, there is always a risk that your product will fail, no matter what you do. But if consumer research has failed you in the past, you have to ask yourself whether you have reacted to the voice of the consumer in the right way. This always makes me think of the very first case of consumer research that I was involved in. The company wanted to introduce a new product aimed at young black male consumers. The product tested very well and it was decided to go ahead with the launch. However, the advertising material was doing anything but speaking to the target market tested in the consumer research – very poor execution of the learnings from the research – and unsurprisingly the product failed.

Consumer research is cost-prohibitive

Many food start-ups simply do not have the cashflow to invest in proper consumer research. Sadly, I see many such cases in the alcoholic beverage industry where there is a lot of scope for innovation, but also lots of room for failure. As service providers, we must have options available that fit a tighter budget. Sometimes 80% of an answer is better than no answer.

Some indicate that when they have established their business and reached a certain threshold that they will look into investing in consumer research – but they need to know exactly where the funds are going to and what they will get for their money. We need to be clear and transparent about how different testing parameters impact on cost. And more importantly, we have to be honest and realistic about when the cost outweighs the benefits.

The scope and budget is mis-aligned

Sometimes there is interest in understanding the underlying factors that drive purchasing behaviour but the client struggles to refine their thoughts to a concept that can be measured within a reasonable budget. In this case, we need to phase the project by starting with the most important questions that can provide actionable insights that is within the immediate budget.

In another case the client might define the target market so minutely that it becomes impossible to recruit cost-efficiently. We need to determine the customer’s recruiting budget and recruit accordingly as close as possible to the original requirement.

It won’t be helpful

This is especially relevant to the wine industry. Smaller producers may feel that they have limited variety of product inputs therefore limited options for product development changes post research.

However, great taste is such a big driver of purchasing behaviour that it doesn’t make sense not to involve the voice of the consumer.

Using  a method like CATA with consumers can identify how the current product compares to an ideal product and where the current product is being penalized. An attribute that is unavoidable given the cellar/vineyard restrictions might not be penalizing at all.

The final step is partnering with knowledgeable viticulturists and oenologists to provide expert guidance in product optimisation now that the winery has a clear view of which attributes are required and more importantly which attributes should be eliminated.

The timing is wrong

SMMEs can get a new product to market faster than larger food companies due to fewer check points. Consumer research is one of these check points and it is tempting to skip this phase when they already trust their gut. By reducing the scope of the consumer research study lead times can be shortened for a rapid response. Providing topline results as early as possible can help decision makers to move forward more quickly in some cases.

The researcher’s responsibility

The SO-WHAT and WHAT NOW of a consumer research study need to be clear – and this can only be clear if we ask the consumers the right questions.

It is our responsibility to convince SMME clients that listening to consumers will help them profit in the long run and to guide them through the process so that they get the value that they are paying for. And this is SenseLab’s quality promise.

Invest in your business success – Contact us to enquire about consumer research

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