DOING YOUR OWN MARKET RESEARCH
Tips on Evaluating the Market for New Farm-Based Enterprises
by Judy Green
Innovation, experimentation, and change are not new to farmers. Over the years most
farms have been through many changes in production, marketing, and management strategy.
However, the level of interest in new markets and nontraditional agricultural enterprises has
risen dramatically in recent years as farmers look for new ways of generating income from
their farm resources. Consider these examples:
The Evans family has been in the dairy business for 48 years. "When my dad started in
dairy," says son Paul, "he was milking 40 cows. Now we milk 85, and we do a good job. But
with folks moving out here from the city and property taxes going up all the time, we've been
thinking about ways to diversify and keep the farm in business. We're thinking about putting
in a roadside vegetable stand to take advantage of all that traffic that goes by here nowadays.
But we've got a lot of competition already - we don't know whether the area can support one
more roadside stand or not."
Bill and Colleen Ryan have been raising free range chickens on a small scale for the
past few years. This year they have been selling broilers along with their market vegetables
down at the Farmers' Market every Saturday. "It seems we just can't begin to meet the demand
for fresh, locally raised chicken," says Colleen. "We're considering building a small scale
slaughter facility next year and tripling our production of broilers. We're just not sure if we'll
be able to sell that many birds at Farmers' Market alone."
Don Delevan raises beef cattle on his 400 acre ranch, and sells them at the auction
house 50 miles away. He's interested in developing his own label and marketing his beef as
high quality, lean, and chemical-free to customers who will pay a premium price. "I need to
find out where my customers are and how I can get my product to them. I know they're out
EVALUATING NEW IDEAS
You may also be faced with evaluating a new idea - one you think may generate higher
profits for your farm business. But before launching any new enterprise, it is essential to look
carefully at all the factors involved in starting up and developing the idea. There are five key
questions that should be answered before committing dollars and time to a new venture:
Is there a market for this new enterprise? Will you be able to sell enough of your new
product or service at a price above your cost of production? In each of our examples,
there are critical questions about the market that need to be answered before we can
judge the feasibility of the idea.
Is the new enterprise consistent with your family's goals and your farm business
goals? If you don't know what your goals are, or if family members disagree about
goals, you'll need to sort this out before going much further with the idea.
Do you have the resources needed to be successful in this enterprise? A complete
inventory of your resources should include not only land, soils, water, buildings,
and equipment but also skills, labor and management time, sources of information,
assistance and credit, input suppliers, processors and distributors. Try to take
advantage of underutilized resources, and be wary of enterprises whose peak labor
requirements coincide with existing labor needs.
Will it be profitable? You will need to carefully project income and expenses for an
"average future year" to determine whether revenues will be higher than projected
costs of production.
Can you afford to get into this business? Initial investment and cash flow may be
problematic even if the enterprise is a profitable one. A new enterprise may take
some time - up to several years - to become profitable.
It is surprising how often people jump into a new venture without taking a good, hard
look at feasibility. Unfortunately, many end up wasting precious resources that could have
been put to good use with proper planning. Answering each of the questions listed above does
require quite a bit of homework. But remember that the time spent in planning is one of the
best investments you can make in your farm business.
WHY DO MARKET RESEARCH
Perhaps the most challenging problem in developing new enterprises is assessing the
market. Part of the challenge arises simply from the fact that marketing is new and
somewhat intimidating for many farmers who may not have had an active role in marketing
their products in the past.
The first step is to understand that there is no magic to market research. It is not a
crystal ball that can predict future markets with certainty. However, it can provide
information that will make our projections about the future far more accurate, and it can
help immeasurably in developing a successful marketing strategy.
It is also important to know that you don't need any esoteric knowledge or advanced
technical training to do useful market research. Like any other information gathering
process, it is a matter of asking the right questions and looking in the right places for the
answers. The goal of market research is twofold:
to project the volume of sales and the price you might reasonably expect to achieve
with a new enterprise, which is information you will need to analyze profitability
and cash flow potential; and
to gather information about potential buyers and competitors that will help in
developing a marketing strategy.
Some important questions that can be answered through market research include:
What is the
Total Market Size
presently for this product (or service) within a given area?
are there for this market? What are their strengths and weaknesses?
What type of buyer are they targeting?
can you expect to receive for a given level of quality?
do you see in consumption, competition, and pricing?
What are the
Characteristics of Buyers
of this product or service? Age? Income level?
Lifestyle? What are they looking for? Where are they looking for it? And how can you do a
better job than your competitors in meeting their needs?
What proportion or
of the total market might you expect to capture?
MARKET RESEARCH TECHNIQUES
There are two general types of market research: primary and secondary. Primary
research is anything that involves going out into the real world and gathering information
for yourself - by observing people, by counting cars or pedestrians, by surveys, interviews or
other direct means. Secondary research involves studying data that has already been
collected and published by somebody else. Chances are you will need to use both primary and
secondary research to understand the market for your particular enterprise.
Secondary Research: Using Existing Data
Despite the name "secondary", this type of research is described first because it is often
the easiest and cheapest way to obtain market information. There are several important
types of information you can obtain through secondary research:
Population and demographic data provides information about the number of people
within a given geographic area and their characteristics, such as income level, age
distribution, level of education, household size, etc. This is important in estimating
the total size of the market, and in knowing how many of what type of customers
you have access to. Demographic trends within your area can also be analyzed.
Information about your local and regional economy is usually available, which can
tell you the numbers of various types of business establishments, availability of
support services, credit sources, zoning and other regulations which may affect your
Production data can sometimes be found which will show the existing level of
production of the product or service you are considering, as well as production
trends. However, if your idea is new or simply not a major commodity for your
region, there may be little information available.
Consumption data shows the per capita level of purchases by consumers for a given
product or service. Again, this information may not be available for your
There are numerous sources of secondary data - public libraries, Census Bureau,
Chambers of Commerce, universities, local transportation departments, planning boards,
economic development agencies, state departments of agriculture, and so on. Extremely
useful information can often be found in the most unlikely places. In fact, the most difficult
aspect of secondary research is figuring out where to find the information you need.
Primary Research: Do It Yourself
Because you are unlikely to find all the answers to your marketing questions using
secondary data, plan on rolling up your sleeves for some real do-it-yourself, primary market
research. Primary research is especially important when you are considering an innovative
enterprise, a new market, or a very local market for which there isn't much published data.
Good primary research can be extremely elaborate, sophisticated, and expensive but it
can also be very simple and inexpensive. Having a small budget is no excuse for not doing
your marketing homework. It just means you will need to be creative in developing the most
cost-effective method for collecting the information you need. Some common methods for
conducting primary research include the following:
OBSERVATION - Observation involves counting the number of things or events that
may be relevant to your marketing situation. For example, the Evans family in our
examples might want to collect the following information by observation and
counting: the number of roadside stands within a 30 mile radius of their farm; their
specific locations; product lines; number of customers per hour; rate of traffic flow
past the stands; the rate of traffic flow past their own farm at various times of the
WRITTEN SURVEYS - Surveys can be used to solicit information from potential
buyers about individual buying patterns, preferences, unfulfilled needs and wants,
and other questions that may have an impact on your marketing success. For
example, Bill and Colleen Ryan would do well to survey their present Farmers'
Market customers to find out how often and in what quantity they would like to
purchase fresh broilers next year. They might also use the survey to find ways to
improve their service to customers.
A survey must be very carefully designed to yield useful information and
distribution of the survey must be well planned to avoid biasing your results. Some
tips for good survey design are:
Keep it short. A single sheet of paper printed on two sides is usually plenty.
Phrase your questions so that you receive clear-cut and meaningful answers.
For example, instead of asking "Would you buy more broilers from us next year
if they were available?" the Ryans might ask "How many three pound broilers
would you expect to purchase from us each month between June and October?"
Use multiple choice questions rather than open-ended questions wherever
possible. This makes it easier both to fill out the survey and to analyze the
Don't be afraid to request personal demographic information. For example,
information about your respondents' ages, income levels, and areas of
residence can be very valuable. You may even want to ask for an address for
your mailing list. However, most people are sensitive to the way in which this
information is solicited. Be sure to
the information, and
explain how it will be used (e.g. "to serve you better"). Provide multiple-choice
categories of ages and income rather than asking people to reveal their exact
age and salary.
The procedure used to distribute the survey is critical in determining how to
interpret the results. For example, if Don Delevan wants to find out about
consumer interest in purchasing lean, chemical-free beef, he is likely to get
very different responses depending on whether he surveys shoppers at the local
health food store or at the supermarket. Either approach would be valid -- Don
simply needs to be careful about interpreting his results and making
projections based on his particular sample.
Test your survey on a small number of "guinea pigs" first. You will be surprised
at how often your questions are misunderstood. A simple test usually results
in great improvements in the survey's usefulness.
TELEPHONE SURVEYS are increasing in popularity. A good phone survey can yield
much information quickly and can be relatively inexpensive. Don Delevan might
use a telephone survey, for example, to reach 50 supermarket meat buyers within a
200 mile radius and inquire about their interest in lean, chemical-free beef, their
delivery schedules, packaging requirements, and so on.
In designing a telephone survey, follow the same principles described for written
surveys, but include only the
most critical questions and keep them short. Work
from a written script so that you are sure to ask questions consistently. Before
calling, prepare a form for recording responses efficiently and, as always, test your
survey and make adjustments if needed.
PERSONAL INTERVIEWS can be extremely informative and are the method of
choice when dealing with a limited number of potential buyers. A market research
interview will often be your first step in establishing working relationships with
wholesale buyers. An interview will not only provide you with detailed
information on the buyer's policies and preferences, but will provide the buyer with
that all-important first impression of your professionalism and commitment. Be
prepared with a list of specific questions and with solid information about the
product or service you are proposing to provide. Be sure to leave a calling card. But,
above all, don't make any commitments you can't live up to! There is nothing that
will ruin a good marketing relationship faster than a broken promise.
Personal interviews can also be used to sample potential consumers in a variety of
situations. For example, the Ryans could conduct personal interviews with their
Farmers' Market customers rather than having them fill out a written survey.
Again, the method of selecting people to interview will affect the results.
TEST MARKETING involves offering your product or service on a limited basis in
order to evaluate potential sales. Test marketing is especially important when your
product is new and unfamiliar to most of your customers. Don Delevan might
conduct a market test as simple as offering tastes of his lean beef to customers at the
fair, or as elaborate as a three month sales campaign in cooperation with a regional
Test marketing will obviously be impossible until you are producing a product or
service in some quantity. The best use of test marketing is as a follow-up to some of
the previously discussed market research techniques, to fine tune your marketing
strategy or to provide better information on costs and returns. It is also a useful
strategy when evaluating minor changes in your enterprise, or when attempting to
tap into a new market with a product or service you are already providing.
EVALUATING THE COMPETITION
A necessary component of any market research is a thorough assessment of the
competition. Studying your competition will help to determine the volume of similar
products and services already in the marketplace, the strengths and weaknesses of your
competitors, and the various "segments" of the market -- that is, the specific types of buyers --
that are being served by each competitor. This information may help you identify a "niche" in
the marketplace where you can gain a foothold by outdoing your competition in serving a
particular market demand.
There are a number of ways you can learn about your competition. Visit your
competitors' businesses, use their products or services, survey their customers, or interview
them directly if possible. Some competitors may refuse to share any information with you,
but you may be surprised to find some that are quite helpful. They may have suggestions that
can decrease direct competition, or that can even be of mutual benefit.
BEFORE YOU BEGIN -- PLAN YOUR MARKET RESEARCH STRATEGY
Market research can be simple or complex, cheap or fantastically expensive,
depending on your needs and your budget. Make sure your research is targeted and cost-
effective by following these guidelines:
First, allocate a reasonable amount of your time and money to this effort, and plan to
work within that allocation. What is "reasonable" depends of course on your judgment of the
risks and rewards involved. Second, develop a list of specific questions about your market
which you feel you
must answer before proceeding to develop the new enterprise. Third, define
the specific type of data that you need to collect in order to answer those questions. Fourth,
determine which of that data is already available from secondary sources. Fifth, determine
what primary research technique(s) you will use to collect the data which isn't already
If your plan appears to fit within your research budget, you are ready to implement it
except for one important step: SEEK ASSISTANCE! You can save a tremendous amount of
time and energy by enlisting the aid of competent professionals, and you need not spend a
dime to do so. You should be able to find a small business development program in your area
whose staff can review your market research plans, suggest tactics, and even help in
developing and analyzing surveys. You should be able to find a librarian who can help track
down the secondary data you need. Your local Chamber of Commerce or Cooperative
Extension office can help identify the local resources available to help you in designing and
carrying out your market research.
Of course, unless you are able to hire a consultant, you will have to do most of your own
marketing homework yourself. But with some planning, some assistance, and some hard
work, do-it-yourself market research will pay off in improving the odds for your new
enterprise. And it is a skill that you will use over and over as your farm business grows into