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Why Market Research Is Important: A Complete Guide

Did you know that 66% of customers expect companies to understand their needs, while customer-centric companies are 60% more profitable than companies that aren’t. Meanwhile, over half (53%) of business executives are concerned about competition from disruptive businesses.

If you aren’t on top of your market and meeting your ideal customers’ needs, you risk being left behind. Outmanoeuvred by better informed, faster-moving competitors.

This is why market research is important: it gives you valuable insights that protect your market position. In this article, we take a deeper look at the value it can bring to your business in a comprehensive guide.

Defining Market Research

Market research refers to the process of gathering and analysing data about customers, competitors, and market trends to gain insights and make informed business decisions. It helps businesses understand their target audience, identify opportunities, and develop effective marketing strategies.

By undertaking market research , businesses can make data-driven decisions that drive growth, innovation and competitive advantage.

The Core Components Of Market Research

Market research comprises several essential components and methods:

A) Qualitative research

This approach focuses on exploring the underlying motivations, attitudes and perceptions of individuals or groups. It often involves techniques such as interviews, focus groups and open-ended surveys. Qualitative research helps uncover insights that quantitative data alone cannot provide, offering a richer understanding of consumer behaviour.

B) Quantitative research

In contrast to qualitative research, quantitative research relies on numerical data and statistical analysis. It involves surveys, questionnaires, experiments, and structured observations to gather data from a large sample size. Quantitative research is valuable for measuring and quantifying trends, patterns, and correlations within a market.

C) Primary research

Primary research involves collecting firsthand data specifically for the research objectives at hand. This can be done through surveys, interviews, observations or experiments tailored to the research’s unique requirements. Primary research provides fresh and specific insights but can be time-consuming and costly.

D) Secondary research

Secondary research, also known as desk research, involves the analysis of existing data and information collected by others. Researchers access databases, reports, academic papers and publicly available data to gather insights. It’s a cost-effective way to obtain a broader perspective on a market but may lack the specificity of primary research.

E) Market segmentation

Market research often involves dividing a market into distinct segments based on various criteria such as demographics, psychographics, behaviour or geographic location. Segmenting a market helps businesses target their marketing efforts more effectively and tailor their products and services to meet specific customer needs.

F) Data collection methods

Market researchers employ various data collection methods, including surveys, interviews, focus groups, observations and online analytics. The choice of method depends on the research objectives, budget and the type of data required.

G) Data analysis

Once data is collected, it must be analysed to extract meaningful insights. Statistical tools, software and expertise are often used to process and interpret data accurately.

Market research is not a one-size-fits-all activity. The choice of components and methods depends on the specific research objectives, the target audience and the resources available. It’s a dynamic and iterative process that can uncover valuable insights, guide strategic decisions and ultimately contribute to business success.

The Importance of Market Research: An Overview

In an increasingly competitive and rapidly changing business landscape, market research is important because it helps organisations of all sizes and industries. It offers critical insights, reducing uncertainty and enabling data-driven decisions. 

In this section, we’ll delve into the overarching importance of market research in today’s business environment.

1) Navigating uncertainty

Businesses operate in an environment marked by uncertainty. Market conditions can shift unpredictably due to economic fluctuations, technological advancements and global events. Market research acts as a stabilising force, helping businesses navigate uncertainty by providing a solid foundation of knowledge.

2) Risk mitigation

One of the primary roles of market research is risk mitigation. Understanding the potential risks and challenges that lie ahead allows businesses to prepare effectively. By identifying market trends, consumer preferences and competitive landscapes, organisations can anticipate challenges and develop strategies to mitigate them. This proactive approach not only safeguards businesses but also positions them for resilience and growth.

3) Strategic decision-making

The strategic decisions made by a business are pivotal to its success. Market research informs these decisions by offering insights into market dynamics, customer behaviour and industry trends. Whether it’s expanding into a new market, launching a new product or fine-tuning marketing strategies, businesses can align their actions with market realities, increasing the likelihood of success.

4) Customer-centric approach

In the age of customer-centricity, understanding the needs, preferences and expectations of consumers is paramount. Market research places the customer at the heart of business operations. By collecting and analysing customer feedback, businesses can tailor their products, services and marketing efforts to resonate with their target audience. This customer-focused approach enhances customer satisfaction and loyalty.

5) Competitive advantage

In a crowded marketplace, gaining a competitive edge is a constant pursuit. Market research provides the tools to outmanoeuvre competitors by offering insights into their strategies, strengths and weaknesses. Armed with this knowledge, businesses can differentiate themselves, identify unexplored opportunities and stay ahead of the competition.

6) Financial planning & resource allocation

Efficient resource allocation is essential for a company’s financial health. Market research informs budgeting decisions by identifying areas where investments will yield the highest returns. Whether it’s allocating marketing budgets, research and development funds, or capital for expansion, businesses can optimise their resource allocation based on data-driven insights.

7) Adaptation to change

Change is the only constant in the business world. Market research equips businesses with the agility to adapt to shifting market dynamics. By staying attuned to emerging consumer trends, economic shifts, and unforeseen events, organisations can pivot their strategies effectively. This adaptability is crucial for survival and growth, particularly in fast-paced industries.

8) Measurable outcomes

A well-executed market research strategy comes with measurable outcomes. Businesses can track the impact of their decisions, assess the effectiveness of marketing campaigns, and adjust strategies in real-time based on data-driven insights. This leads to less waste, improved efficiency and better results.

9) A strategic asset

Market research is not an optional extra but a strategic asset. It is the compass, the risk mitigator and the foundation upon which successful businesses are built. It guides organisations through uncharted waters, helping them make informed choices, seize opportunities and navigate challenges.

How To Conduct Market Research

Market research is a process that involves gathering, analysing and interpreting data to gain insights into markets, consumers and competitors. 

Conducting effective market research requires careful planning and the use of various research methods and techniques. In this section, we will outline the steps and strategies involved in conducting market research.

Step 1: Define your research objectives

Before diving into research, it’s essential to clearly define your objectives. What specific information are you seeking to obtain through market research? Are you interested in understanding consumer preferences, evaluating market trends or assessing the competitive landscape? Clearly defined research objectives will guide your research efforts and help you stay focused.

Step 2: Choose your research methodology

Market research can be broadly categorised into two main types: primary research and secondary research .

Primary research : Involves collecting original data directly from sources via methods such as surveys, interviews and observations, offering specific and current insights aligned with research goals.

Secondary research : Entails analysing existing data from sources like market reports and academic studies, providing cost-effective access to valuable context and background information.

Select the research methodology that aligns with your research objectives, timeline and budget. Often, a combination of primary and secondary research is used to gain a comprehensive understanding of the market.

Step 3: Design your research instruments

If you choose to conduct primary research, you’ll need to design research instruments such as surveys, questionnaires or interview guides. Ensure that your research instruments are clear, unbiased and designed to collect relevant data. Pilot testing your instruments with a small group can help identify and address any issues before full-scale data collection.

Step 4: Collect data

Data collection is a critical phase of market research. For primary research, you’ll administer surveys, conduct interviews or organise focus groups to gather data from participants.

Ensure that data collection methods are consistent, and follow ethical guidelines when handling sensitive information. For secondary research, you’ll access and review existing data sources, extracting relevant information for your analysis.

Step 5: Analyse data

Once you’ve collected data, the next step is data analysis. This involves organising, cleaning and interpreting the data to extract meaningful insights. Data analysis may include statistical techniques, content analysis or qualitative coding, depending on the nature of the data.

6) Interpret findings

After analysing the data, it’s essential to interpret the findings in the context of your research objectives. What do the data and insights reveal about the market, consumers and competitors? Consider the implications of your findings and how they relate to your business goals.

7) Make informed decisions

The ultimate goal of market research is to inform decision-making. Based on your research findings, make informed decisions about product development, marketing strategies, target audiences, pricing and other aspects of your business. Use the insights gained from market research to enhance your competitive advantage.

8) Continuous monitoring

Market research is not a one-time activity. Markets evolve, consumer preferences change and competitors adapt. Therefore, it’s important to establish a system for continuous monitoring and updating your market research efforts. Regularly gather new data, track market trends and reassess your strategies to remain competitive.

Final Thoughts

To conclude, market research is vital in today’s business landscape. M arket research is a dynamic and iterative process that empowers businesses to make informed decisions, minimise risks and stay competitive . By understanding customer preferences, industry trends, and competitive landscapes, businesses can tailor their strategies for success.

Market research is the compass that guides product development, marketing campaigns and expansion efforts, ensuring resources are invested wisely. By following these steps and adopting a research-driven mindset, organisations can unlock valuable insights and position themselves for success in today’s ever-changing business landscape.

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4.3: The importance of market research

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The modern world can feel unpredictable. It is increasingly difficult to keep up with trends, customer needs, popular opinions and competitors. So, how can you keep your brand and products relevant to ensure you are meeting your customers’ needs?

The answer is to conduct market research. Market research helps you make informed business decisions. It involves systematically gathering, recording and analysing data about customers, competitors and the market, and turning this data into insight that can drive marketing strategies, product design and positioning and communications strategies.

Online market research is the process of using digital tools, data and connections to glean valuable insights about a brand’s target audience. In other words, it’s the process of learning about your audience by engaging and observing them online. Technology plays a key role in gathering data and connecting with research participants, and can make the whole process quicker and easier to manage than traditional offline research methods.

Traditional and online market research have the same goals and underlying principles, but online market research has the benefit of using digital technology, which provides a range of benefits.

• The Internet is always on, meaning that data is readily available at any time.
• Many of the processes for finding, gathering and storing data can be automated. For example, you can get an automatic email alert if someone mentions your brand, or you can set up self-administered digital surveys.
• You have access to a large number of participants around the world at the click of a button. A lot of the information you will use is already being automatically collected such as web analytics and social media data all you need to do is access it.

Remember that comments made on social networks cannot represent the views of your entire target market. The validity of any data must be considered in light of your research design.

People are often happy to share their own research, insights and methodologies online, so you can access this trove of resources to inform your own research.

Online market research can be much more cost effective and quick to set up than traditional research techniques.

There are many reasons why you should conduct regular market research:

• What customers want and need from your brand
• What customers like and dislike about the brand
• Why customers buy the brand’s products or services
• Why potential customers might choose your brand over another
• Why (or why not) customers make repeat purchases
• Understand the changes in your industry and business
• Discover new market trends on which you can capitalise
• Find new potential sales avenues, customers, products and more
• Find and engage new audiences
• Allow customers to help steer your business.

If you are able to understand your customers and the greater business context, you will be able to market more effectively, meet their needs better, and drive more positive sentiment around your brand. All of this adds up to happier customers and, ultimately, a healthier bottom line.

The state of marketing analytics in research and practice

• Original Article
• Published: 07 August 2019
• Volume 7 , pages 152–181, ( 2019 )

Cite this article

• Dawn Iacobucci 1 ,
• Maria Petrescu 2 , 3 ,
• Anjala Krishen 4 &
• Michael Bendixen 5  

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This paper presents a systematic review of marketing research on the burgeoning new area of “marketing analytics” and considers the importance of marketing analytics for marketing research and practice. This article contributes to the marketing literature with a systematic review of studies and findings on marketing analytics, which allow for further recommendations. We identify the central themes and concepts related to marketing analytics present in marketing research and provide a comparison between the focus of marketing research, practice, and academics regarding this topic. The study also provides practitioners with a summary of the current findings and a more natural way to translate and apply theoretical findings in practice. Academics can also use these results in the classroom to promote and demonstrate the importance and benefits of marketing analytics.

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Dawn Iacobucci

ICN Business School Artem, Nancy, France

Maria Petrescu

Colorado State University, Global Campus, Greenwood Village, CO, USA

University of Nevada Las Vegas, Las Vegas, USA

Anjala Krishen

Gordon Institute of Business Science, University of Pretoria, Johannesburg, South Africa

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See Tables  5 and 6 . To date, what the analysis of marketing analytics research suggests is that the concepts and terminologies as yet appear somewhat fragmented concerning the different areas of marketing and their uses or benefits from marketing analytics. For example, recall the varieties even in defining marketing analytics (Table  1 ), and the array of coverage across the literature (in Appendix Table  5 ) of research foci, theoretical approaches, and types of data requiring analyses.

Current marketing analytics seem to represent a somewhat higher tendency towards practical and concrete marketing aspects, yet these studies could also benefit from the consideration of a more rigorous theoretical base when developing a conceptual model. Perhaps this focus on practical over theoretical is understandable given the influx of big data from the real (non-academic) world, hence bringing with the accompanying practical questions. We echo a call from leading marketing analytics scholars who encourage that academics provide theory-based criteria for managers concerning marketing metrics use and interpretation (Hanssens et al. 2014 ).

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Iacobucci, D., Petrescu, M., Krishen, A. et al. The state of marketing analytics in research and practice. J Market Anal 7 , 152–181 (2019). https://doi.org/10.1057/s41270-019-00059-2

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Issue Date : 01 September 2019

DOI : https://doi.org/10.1057/s41270-019-00059-2

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Home Market Research

Importance of Market Research + Types & How to Plan it.

Market research will help you develop a successful marketing strategy. It is one of the reasons why market research is so important for organizations that want to make informed decisions. This article will highlight the relevance of market research and importance of market research.

For your products and services to be well-accepted by customers, you must know the choices and preferences of your target audience . Market research provides you with essential information about your competitors and existing products. 

The results offer you insights into what it would take to succeed in the market. Hence, organizations base their business decisions on good market research, such as sales and marketing strategies.

LEARN ABOUT: Market research vs marketing research

Market research helps reduce risk by allowing you to determine product features, pricing, and promotions from the outset. It also helps you focus resources where they will be most effective.

LEARN ABOUT: Marketing Insight

This blog will discuss the importance of market research, its types, and how to plan it for your business.

Content Index

What is market research?

Types of market research, the importance of market research for your business, how to plan market research, how questionpro helps in market research.

Market research is a systematic process of gathering, evaluating, and interpreting data. It is the basis of any business that does well. The data could be about a target market, customers, competitors, or the industry as a whole. The research serves a variety of reasons, ranging from identifying a new market to launching a new business.

Market research assists entrepreneurs in making sound business decisions. It may remove the guesswork from innovation and direct resources to the most promising ideas and projects. Different companies conduct market research for different purposes.

Businesses use various types of market research to gather information about their target market, competitors, and market research industry trends . There are two main types of market research: 

• Quantitative research.
• Qualitative research.

Quantitative research

Quantitative research focuses on generating numbers, for example, what percentage of the population buys a specific product. It is conducted using surveys and questionnaires. You can do simple quantitative research yourself by talking to customers. 

More detailed quantitative research can be used to identify markets and understand customer profiles while launching a new product.

Qualitative research

Qualitative research relies on facts and figures to discover what people think and feel about products and what factors affect their purchasing decisions. Researchers use surveys and focus groups to gather this information while interpreting the results is a job that requires certain research skills .

To learn more about the differences and characteristics of these types of research, we recommend reading Qualitative vs. Quantitative Research .

LEARN ABOUT: Qualitative Interview

You can also conduct secondary research using existing surveys and business reports. Use free online information on market size, sales trends, customer profiles, and competitor activity.

Your customer records can give you a wealth of knowledge about purchasing patterns, the most popular services among various demographic groups, etc. 

Market research can help you analyze key trends and predict how the market will change. Here are some of the reasons why market research is important for your business:

Identifies new products and services

Market research can assist you in determining what new products or services the market requires and how you can provide them. Key issues with developing a specific product or service can be identified, allowing you to avoid costly development mistakes. 

It also assists you in determining which factors are most important to customers and how to implement them into what you want to bring to market.

Identifies potential customers

Demographic information such as gender, age, income, occupation, and lifestyle can help you better understand your customer base. If you know who your current customers are, you can target them in the future. Marketing to the wrong type of customer can lead to poor product performance.

Establishes product or service viability

If your company plans to launch a new product or service, you must first determine whether the market is ready for it. Will the product be well received? Is the product required by the customers you want to reach? Will it be workable, and what are the chances of success?

Keeps your company ahead of competitors

Comparative studies are excellent for tracking your competitors’ progress compared to your company’s. 

If they are far ahead of you, this is an excellent opportunity for you to learn what they are doing differently than you. Business strategies can be developed to help you stay ahead of your competitors.

Reduces risk and enhances profitability

Knowledge can help reduce your company’s risks and determine which risks are worth taking based on past and future market trends. 

Market research help in determining market viability , lowering the risk of failure. Understanding your customers’ needs is also important for risk reduction. At the end of the day, lowering risk helps to increase profitability.

Helps to understand existing customers

Your customers are complex, and what they require previously may not be what they require now. To be successful, you must constantly monitor the pulse of your customer base. Market research can help you better understand your current customers. 

The market research also helps to determine customer satisfaction levels. If you discover their low satisfaction levels, you can figure out why and fix it. If it is high, you can figure out why and learn how to keep it that way.

Helps set realistic goals

You can set realistic goals by using current data about your market and customer base. Establishing a growth pattern over time lets you know what to expect in the future and how to really develop that growth. 

Setting attainable goals will save resources, succeed before you start, and miss out on better long-term goals for your company.

Effective market research starts with knowing what you are trying to accomplish and what information you need. You can do it yourself. 

For example, if you are considering buying or renting a store, you can analyze traffic levels at different times. Or you can talk to your potential customers.

However, to make good business decisions , you will need a more comprehensive approach. 

For example, if you conduct a market survey , you will need survey software to design a survey, customize the look and feel and generate reports. You might also want to integrate the tool with other CRM and marketing automation software. 

Survey software can let you export results in standard formats or share the reports with others. You can also create online surveys in multiple languages and let your respondents select the language of their choice.

One of the most important aspects of planning market research is asking the right questions. Design the survey such that it collects meaningful and high-quality data.

If you want to know more about how to do this, we recommend our article: How to Write a Market Research Plan?

LEARN ABOUT:  Test Market Demand

QuestionPro is a market research software platform that assists businesses in conducting various types of market research. It has market research tools to create, distribute, and analyze surveys and other research methods. QuestionPro can assist organizations with their market research in a variety of ways, including:

Surveys: QuestionPro has a full survey builder that lets organizations make their own surveys, add questions, and choose from a variety of question types, like multiple choice, open-ended, and rating scales.

Data collection: QuestionPro enables organizations to collect data via online surveys, email, web pop-ups, and mobile devices. It also provides a variety of data collection methods, including panel sampling, random sampling, and targeted sampling.

Data analysis: To assist organizations in gaining insights from their data, QuestionPro offers a variety of data analysis tools such as cross-tabulation, descriptive statistics, and inferential statistics .

Real-time data reporting: QuestionPro provides real-time data reporting, allowing organizations to monitor the progress of their research in real-time and make changes to their survey design as needed.

Integration with other tools: QuestionPro integrates with a variety of other tools, including Google Analytics, Salesforce, and Zapier, to provide organizations with a comprehensive view of their market research data.

QuestionPro offers businesses a comprehensive platform for conducting market research and gaining valuable insights into their target audience, competitors, and industry trends. It enables businesses to make informed decisions based on data-driven insights.

LEARN ABOUT: market research trends

Market research should be well-structured, concise, and provide useful insights to help the organization make informed decisions. It should also serve as a starting point for future research and assist organizations in identifying areas for improvement in their business strategies.

Market research is an important component that summarizes the research findings and insights. It gives you a clear picture of the market and its trends, consumer behavior, and the overall competitive landscape.

If you are interested in conducting online survey research, QuestionPro can help you. Request a demo and learn how our survey software works and the advantages of using it in your next market research. Get started today!

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11 Benefits of Market Research + Free Templates

The benefits of market research are long-proven. Yet still, there are many who focus on instinct instead of insight.

While intuition is all good and well, there’s no getting away from the power of cold-hard data.

In this post, I list 11 market research benefits, with real-world examples and six free research templates thrown in for good measure.

1. Better communication with customers

Why it matters: Effective communication is the cornerstone of good relations. And, with how much time, effort, and money it takes to win a new client, ensuring you stay in their good books isn’t just nice – it’s a necessity.

The first benefit of market research is the ability to learn about your customer’s likes and dislikes – so you can adapt how you position the business and its products accordingly. Tailored communications speak to customers in a way that resonates far better than generalized messages.

The one-size-fits-all approach no longer works. Delivering comms in the right format, at the right time, via the right platform can boost engagement and help focus on driving value. With it, customers feel appreciated and receive information that’s both useful and relevant.

These days, all it takes is a quick click, and customers can unsubscribe from communications. This is why businesses must ensure every communication counts.

Example: Market research surveys are an ideal way to quickly understand how customers feel about your communications with them. Be direct, and ask them about the content, frequency, and formats they prefer.

If you want to establish the best time or day of the week to email, you can use your email campaign tracking data to show you the best and worst times, based on open rates, and click-through rates.

2. Enables strategic, data-driven plans

Why it matters: Market research benefits all types and stages of business planning. It gives you the numbers and insights you need to make accurate forecasts. It can also impact key decisions that can help you develop and adapt your strategy.

Here are a few examples where market research can benefit data-driven decision-making :

• Deciding whether to modify or discontinue a product.
• Prioritizing new features to develop for an existing product.
• Establishing which marketing channels to invest in.
• Selecting which social media platforms to utilize.
• Choosing which new markets to enter or where to open a new retail outlet.
• Evaluating the impact of a cost increase or change to pricing strategy.
• Discover new partners, affiliates, or publishers to work with.
• Targeting a new persona or different segment of a market.

Market research serves as a trusty compass, helping guide and steer decisions that impact growth and profitability. Once you implement a new tactic or campaign, you can again benefit from market research to measure and track ongoing success.

3. Develop detailed target personas

Why it matters: It’s no secret that a comprehensive understanding of one’s target audience is fundamental to an organization’s success. Everything from product development to positioning and marketing is impacted by the effective development of target personas.

While most companies have a decent understanding of what their ideal customer profile looks like; a distinct advantage of market research is the depth of detail it offers about the preferences, behaviors, and habits of a target audience – based on actual facts and everyday actions they take online.

By doing audience analysis and consumer journey tracking , organizations can discover insights about their ideal customers quickly and in finite detail. So instead of having a static persona that doesn’t really change with the times; marketers can discover things like:

• Age, gender, and geography
• Audience loyalty & interests
• Cross-shopping behaviors
• Product search trends
• View audience overlaps with rivals
• Identify drop-off points in funnels
• Optimize conversion funnels
• Discover which marketing channels appeal to a specific audience

Grab our customer persona template to use a framework for this research – it’s at the end of this post, along with 5 other useful market research templates !

4. Reduce costs and save time

Perhaps one of the biggest benefits of market research for a business is its ability to help organizations improve efficiency and reduce outlay – both from a time and cost perspective. While each business achieves different outcomes, doing proper research can help pave the way for process improvements.

A few examples include:

• Spending less on marketing channels that don’t appeal to a target audience or drive ROI.
• Decrease customer churn via surveys, enhanced support, or more suitable product offerings.
• Prevent you from entering a new market in a territory that’s already saturated.
• Testing the viability or appetite for a new product or service before making investment decisions.
• Reduce customer acquisition costs (CAC) through clearer targeting and messaging.
• Identification of new partnerships or affiliates who can drive referrals to your business.

DocSend uses Similarweb to reduce marketing spend by 20% and reduced research time by 10% – as an added bonus it saw website traffic gains of around 10%.

Read more about how market research benefited DocSend here .

5. Stay ahead of the competition

Why it matters: These days, the competition is fierce in almost every market. Customers have many options to choose from, and outpacing your rivals is a constant battle. From new product or service offerings to campaigns and content – not to mention promotions and partnerships; keeping a keen eye on your market positioning is key.

A core benefit of market research is knowing what other players in your market are doing. More to the point, market research actually shows you how well these offerings are doing.

A competitive analysis framework is a great way to systematically record and track what your rivals are doing. It can help you spot opportunities, such as:

• Develop new marketing campaigns and creatives
• Adapt your product or service offerings
• Give insights into new content to write about
• Show you which channels work best for your target market
• Find underserved segments of a market
• See what customers like or dislike about your rivals
• Help you develop your unique selling proposition (USP)

Good market research can be the differential factor that gives you an edge in your market.

In this scenario, I want to analyze the competitive landscape of a social media management company. I chose Sprout Social to review as it’s considered a market leader.

See how much competitive intel I can grab in less than a minute

In a snapshot, I can see an overview of its traffic and engagement. This includes the total visits, unique visitors , a link to its apps, and a breakdown of traffic by channel. With a quick compare, I see how these metrics stack up against others in the market. Later.com and influencermarketinghub.com are two players who consistently outperform sproutsocial.com – which means I can delve deeper into their successes, campaigns, and content next.

From the platform, I can see how many referrals they’re getting, and from where. Which ad networks and campaigns they’re running, and copies of the creatives being used.

Next, I look at the most popular pages on Sprout Social’s site. This shows several pages on the topic of small business social media are achieving significant growth – indicating my target audience is responding to these pages, so I should be covering or promoting content on a similar theme.

So, in less than a minute, I’ve discovered

• How my competitor stacks up vs others in the market
• Which traffic channels are growing
• The best referral partners and advertisers
• What marketing channels are showing the best results
• Copies of their ad creatives
• What content topics are the most popular
• Top industry search terms
• Uncovered two other major players to evaluate

Software like Similarweb makes it quick and easy to see the insights and metrics that matter most. Here, you can discover where you can get a competitive edge, and keep track of market trends and rival campaigns.

6. Discover the best marketing channels

From email marketing to socials, affiliates, referrals, paid ads, and more; there are many marketing channels to leverage – and it’s not always obvious which is right for your business. Another key benefit of doing market research is the ability to hone in on the channels that deliver the best return on investment.

A trial-and-error approach can be costly. Not just from a dollar perspective, it can be a drain on your resources too. By first establishing the optimal marketing mix for your target audience or market, you can save time and money, and reach your goals faster.

Similarweb Digital Research Intelligence can show you which channels work best for your market and rivals. It also highlights the specific ad creatives and content being used for high-performing campaigns.

Here, you see a snapshot of the marketing channels being used across five competitive sites. It shows the biggest drivers of traffic are direct and organic search. By clicking on any single channel, you can get a complete breakdown of the respective details. I’ve clicked to expand social media, as just one example, here’s what it tells me.

As well as being able to instantly see the insights that count, I can click on any channel to see a detailed breakdown of performance. Next, I can compare each channel to see who is outperforming others – which tells me exactly who I need to take a closer look at.

7. Identify growth opportunities

The benefits of doing market research apply to those launching new products or entering new markets . However, periodic research can also help you spot growth-focused opportunities that may not have been considered before.

Another compelling entrant to include in the benefits of market research is its ability to unearth opportunities to grow. Whether that’s through finding new customers, markets, channels, or creative ways to go to market and get more eyes on your business. A good case in point is in the identification of new partnerships for referrals; something that often comes about when doing a competitive analysis .

The advantages of using market research for growth are ongoing, throughout the lifecycle of your business. For example:

• Reviewing competitor marketing channels could uncover key findings about a new affiliate site that’s sending a volume of traffic to their site.
• A guest post or piece of content generates a high level of interest and drives traffic to the site.
• Untapped segments for your products. Perhaps a rival is doing a better job of appealing to a different demographic. This, in turn, presents an opportunity to diversify your messaging or switch marketing channels. The same could apply to a new location or geographic region.
• New partnerships. Joint ventures between businesses that share a similar target demographic can be mutually beneficial – helping both parties reach a new ready-prepped customer base.
• Perhaps a rival is offering an add-on or upsell that you’ve failed to consider.
• You might also conduct market research surveys where customers tell you something they’d like but which you don’t yet offer.

Success story: See how AirBnB used Similarweb to uncover opportunities for growth in new markets.

8. Spot new or emerging trends

Why it matters: With how quickly consumer behaviors change and markets shift, it’s important to move with the times. Market research can help businesses stay in touch with what’s happening – something that applies to consumers, competitors, and the industry as a whole.

From changes to purchasing behaviors, new technologies, new products, or service features; researching trends and staying close to rising players in your market allows you to keep tabs on what things are attracting attention.

• Which keywords or phrases are trending in your industry?
• Is there a new player showing significant growth in your market?
• What are your rival’s highest-hitting pages?
• How are apps impacting your market – do you know which of your competitors have one, and is it successful?
• Which campaigns in your industry are working and gaining traction?
• Is there a specific asset, whitepaper, or offering that your target audience responds to?
• Are there any seasonal trends that impact your market?
• Can you see spikes in specific search terms or phrases?

While you can use digital research tools like Similarweb to quickly analyze a market, search trends, seasonal patterns, mobile app intelligence , and more – qualitative data, like surveys can be leveraged to understand customers and changing behaviors too.

Read more about how Wonderbly achieved its success here.

9. Makes it easy to evaluate and track your success

Why it matters: With the knowledge of where your business is performing well, or falling behind, you can set goals and direction more clearly. Benchmarking shows you industry standards, and maps out how rivals are doing; so you can measure relative performance.

For a business to grow, it needs to push the boundaries. The benefit of using market research here is that it shows you where and how big those boundaries are. A survey from PWC found businesses that set benchmarks achieve 45% more productivity and grow, on average 69 times faster than those that do not.

There are various types of benchmarking – each of which makes it possible to unpack and track the successes of those in your market and drill down into what success looks like for your business.

10. Inform market analysis – SWOT

Why it matters: A further benefit of doing market research is that it can show you any relative strengths, weaknesses, opportunities, and threats that exist between competitors and in a market. Greater awareness of these facts helps drive the right actions and gives clarity on areas of focus for the business. Without it, your business is susceptible to preventable mistakes.

With company and market research , you find out where opportunities and threats exist in your ecosystem. From environmental or technological factors to internal considerations; forewarned is forearmed. What’s more, a regular review of your SWOT, informed by market research, allows you to capitalize on new opportunities faster than others and keeps you in the strongest position where gaining a competitive edge is concerned.

Helpful: Read our complete guide to doing an industry SWOT analysis .

11. Inform a content marketing strategy

Why it matters: These days, the importance of having an effective, relevant, and successful content marketing strategy cannot be overstated. According to a 2020 competitive intelligence survey , companies have, on average, 29 competitors. So, regardless of your sector, in the digital world, it’s constant competition – be it for better visibility online, a higher CTR, or increased engagement.

So, how does market research benefit a business? And how can you stand out and get found online? With content marketing, of course.

An advantage of using market research to inform your content marketing strategy is that data doesn’t lie. Yes, it’s an old one but a good one. A data-driven approach to content marketing is a surefire way to uncover the most searched keywords , the right topics, and content to harness to your advantage.

You can use market research to uncover the following:

• The busiest pages on any website.
• Which topics and keywords drive the most traffic in your market?
• New topics or keyword phrases that are trending or appearing seasonably.
• Inform topic planning or theme building for a blog.
• Help you discover new opportunities for dedicated landing pages.
• What content or assets an audience engages with most.
• Which channels are the most effective to deliver content?
• The best time of day to post new content.

Success story:  See how Tourism New Zealand benefits from market research ; and how they use Similarweb to research content and keywords.  

Limitations of Market Research

Regardless of whether it’s for an enterprise company or an entrepreneur – time, cost, and experience are viewed as the biggest limitations of market research. But this is an outdated perception that is no longer relevant or true to life.

Here’s how things are in 2022.

• If cost is considered a limitation of market research – use secondary market research methods. Most of the time, the data can be found online, for free.

This guide to desk research shows you the best places to find secondary research data. 

• Should you view time as a limitation – use software like Similarweb Digital Research Intelligence to quickly view insights in almost any market, company, or product.

If you’re on a deadline, let’s say you need to do market research for a business plan , market research tools can help you get it done in a day.

• Perhaps you feel a lack of experience is preventing you from doing market research. Most market research tools require little to no training and are highly intuitive.

Use market research templates to guide you through the key data points you need to collect. 

Benefits of market research – In summary

Market research benefits any business, at any stage. From product teams to sales, customer support, marketing, operations, and management – there’s a relevant application in almost every department. However, many organizations choose only to use it for limited periods in limited areas of their business.

Similarweb Research Intelligence makes key insights accessible to all. And with the ability to impact an entire business, at almost every level, it’s a market research tool with the power to deliver immense value and insights at pace.

Stop Guessing, Start Analyzing

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What are the advantages and disadvantages of market research?

The advantages of market research include things like gaining a competitive edge, data-driven decision-making, reducing expenditure, finding new markets to enter, trend-spotting, and developing growth-focused strategies. The only disadvantage is in how it’s conducted, and the time it takes to carry out the research. However, market research tools are designed to make the task of conducting research more efficient, and cost-effective.

Which goals can market research help you accomplish?

Market research can help you achieve key business objectives, such as growing your customer base, retaining a higher number of customers, improving marketing effectiveness, and increasing revenue.

How can market research benefit entrepreneurs?

The benefits of market research to entrepreneurs are plentiful. It can help startups and new businesses research the viability of a new product or service they want to bring to market. In addition, it allows entrepreneurs to accurately forecast demand, which can help both operationally and financially.

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Why Is Market Research Important: We Give You 7 Reasons

Planning and conducting market research is a critical component of any business. It provides decision-makers with important information to decide the course of the company, launch a new product, or to keep a tab on what competitors are doing.

Data indicates that market research is a growing industry of 47.36bn USD , globally – and rightly so. For a business to succeed, all its resources – financial and otherwise – must be invested in areas where they are needed the most. Conducting market research helps you identify those areas. It also helps you discover and understand your customers’ needs so you can innovate better, expand when the time is right, and work with more focus.

In this article below, we will share a few pointers with you about why market research is important for every business – big and small. But first, let’s talk about the types of market research.

Types Of Market Research

Depending on the purpose of your research, you can choose either of the two main types of market research. These are primary research and secondary research.

– Primary Research

Primary research is direct research that you conduct yourself or hire someone else to do it for you. It involves reaching out to your target market, asking them questions, collecting data, and analyzing the information gathered. Based on the data, strategies are devised, decisions are made, and policies are created.

Primary research helps you explore issues, dig deeper, and ask specific questions that are relevant to what you are looking for. Because it takes more time and effort, it may also cost a bit more than secondary research but it is more effective and helps you gain a solid picture of what’s going on.

– Secondary Research

Secondary research is using somebody else’s primary research for your business purposes. Research that is already conducted, organized, and published is often used by small businesses to gauge market trends, current economies, and to devise plans.

A lot of government agencies conduct market research for various purposes. If you’re on a budget, going to one of those agencies may help you out a lot as most of that research is freely available to the public. If you want to access a private market research company’s report, you may have to pay a fee to access the complete file.

However, there are private companies that publish their reports publicly. Additionally, you can also go online and conduct Google searches looking for specific phrases relevant to your research purpose to find valuable data.

Why Is It Important?

Now that we know what market research is and what different kinds it has, it’s time to learn why it is important, and why you should invest in it if you want to become a successful entrepreneur.

1. It Helps You Identify The Problem Areas As Well As Strong Areas

Knowing what you are good at and what you’re not, help you take profitable risks in life. It’s true in business too. Accurate market research helps you identify business areas that are performing well, those that need more attention, and also those that you should perhaps give up.

Back in 2010 , two young tech enthusiasts launched a location-based app – Burbn – that would allow consumers to check-in, make plans of hangouts with friends, share pictures, and more. Few weeks into the launch, they realized through internal discussions and reevaluation of the market, that Burbn is cluttered and their target market is more into Foursquare and they won’t be able to budge them.

They took a long, hard look at their app again – which had already been launched – and started working on it from scratch, removing all the features and only letting the photo-sharing, liking, and commenting options intact. And thus, Instagram was born.

It also helps you discover and understand your customers’ needs so you can innovate better, expand when the time is right, and work with more focus. For example, if you plan on starting a digital marketing agency, you’d know that there’s more need for social media in your area, than for PPC services. Thus, you’ll hire more social media experts.

2. It Helps You Understand Your Customers’ Needs

It is not enough that you know your business; you got to know what your customers are saying about you – and about your competitors. If you have got your pulse on what your customer is thinking, you’d create products that solve their issues, reach out to them when they are most ready to listen, and help them become your loyal ambassadors.

A huge part of business market research is always dedicated to gauging customer satisfaction rates, their reactions to a new product, and what they are looking for next.

In 2005, when YouTube initially launched, it was for a very different purpose : dating. Pretty soon into launch, however, and by investing in robust market research (a part of which they conducted themselves) the founders realized that their video dating app is not what their customers are looking for. Analyzing the data, they discovered that there is no app or platform in the market for video sharing. The websites that were offering this service were patchy at best and not intuitive at all.

Being attuned to their customers’ needs and spotting a wide space in the market, they tweaked their video platform and launched YouTube .

Following what your customers are talking about, listening to them, and then delivering on their needs is an important task that you can fulfill with timely customer-centered market research.

3. Helps You Conduct Your Marketing Based On Informed Decisions

Launching and running a business means making decisions every day – about products, services, expansions, HR, and so much more. Without solid market research backing your decisions, all you are doing is guess-work, hoping the results will be in your favor.

With research helping your business, you are better informed about areas to invest in, gauge the potential success of new products, test new markets to expand into, and to determine what kinds of products/services will be most favored by your customers.

This is certainly what Starbucks does. The company has a whole dedicated platform ‘My Starbucks Idea’ where employees and customers and anyone who wants can pitch in and share what they think the company should do next, the flavors it should try, the new products it should launch, bring back some old favorites, and more.

The platform helps them remain informed on all important aspects of business investment and propels them towards ventures and venues that hold the most potential.

If you aren’t a humungous company like Starbucks and cannot afford to host dedicated platforms to gain important information, invest in market research whenever you have a big decision coming up. It isn’t as expensive as you think and doesn’t take that much time. Plus the results can be relevant for a lot of related areas that you may want information on.

4. Helps You Keep An Eye On Your Competitors

As a startup founder, you may think being original is all about being focused on what you’re doing and not worry about what everyone else may be up to. This approach spells long-term disaster. While you should certainly keep your focus on your own efforts, it is critical – and smart – to keep tabs on your rivals and know what they are thinking or planning.

With sound market research on your side, you can better prepare for what your competitor may be about to do next and make sure they aren’t able to put a dent in your market share. With regular research, you can not only learn to anticipate their next move but be in a better position to avert any possible damage from their end.

In addition to conducting market research, you can pair it up with regularly monitoring their social media or to increase Instagram followers , blog posts, and seeing what is trending in your market. Here is a great resource on how you can go about it.

5. Helps You Expand And Innovate

Market research can help you identify markets and geographical areas where you can expand to. It can also help you to invest in ideas that have the most potential to succeed based on what customers are looking for and what the market is lacking.

For example, if you are a retail company, conducting market research can help you identify locations where your store can profit the most. If you are planning to buy a business to increase your market share, market research can help you point towards businesses that may be ripe for acquiring. Not only that, conducting market research before you launch your business can help you figure out ways to put your best foot forward.

It guides you towards opportunities where you have the most room to innovate and take risks with the highest return potential. For example, if your competition is employing cutting edge tech such as VoIP to get better results, you can also employ the same to improve your customer care and business goals.

6. Helps You Set Business Goals

Goal-setting is one of the major parts of running a business – big and small. Goals give you directions, help you remain in sight of the bigger picture, and set you on the path of continued success. Goals can be of different kinds: short-term, long-term, department-oriented, over-arching, and such.

To set all these kinds of goals and get ready to meet them, businesses need to have a thorough and complete knowledge of their strengths and weaknesses. They need to be aware of how the market is behaving and predict what may come next.

All of this is only possible after conducting market research. With the help of focused market research, you can set achievable business goals and not follow some vague notions of instant success. These often include how to improve productivity, customer satisfaction, and business’ financial health. You can also use market research to learn ways you can reduce expenses without hurting the business, find out how to amplify your digital marketing, generate copywriting tips for research paper writers , or introduce a new employee incentive program.

7. Helps You Know Which Risks To Take And Increases Earning Potential

Risk-taking is an important component of the business. Without it, you can become stagnant and a sitting-duck for a more ambitious rival. But risk-taking cannot be a shot in the dark. To know which risks to take and when to take the plunge are attributes of successful innovators. From Dropbox’s Drew Houston who refused Steve Jobs to Google’s buying of YouTube when it was a fledgling startup, the history of business success and innovating is packed full of stories of ambitious – but informed – risk-taking.

Using market research, you can also join the ranks of informed-decision makers who do not shy away from taking risks. It prevents you from making costly mistakes that could have been avoided and take steps that result in massive profits.

Take the example of Frito-Lay . When the potato chip maker wanted to introduce a new brand, it launched online market research conducted through Facebook to ask its customer-base which flavor they would like the best. The results showed that beer-battered onion-ring flavor is a hit in California and Ohio, while New Yorkers preferred the Churros flavor idea. This research also helped him increase Instagram followers as his posts became popular over the internet.

The research helped the company come up with different flavors and market them strategically to different states. If the research would not have been done, the company would have come up with a new flavor that could have been a hit – or a miss.

Popular Instruments Of Market Research

As technology keeps advancing, market research keeps evolving. Where before you had to rely on face-to-face interviews, telephone surveys, or lengthy online questionnaires, now it’s all about short online surveys, instant case studies aided by technologies, and focused groups that are already available on your social media channels.

Below we talk about 4 popular instruments of market research that are frequently used by companies worldwide with excellent results.

– Surveys

The survey is a quantitative method of research which means it gives you numerical scores. These scores pertain to specific answers and don’t leave much room for multiple interpretations. Because they are precise, provide specific answers, and immediate interpretation, quantitative methods are popular to conduct research when you are looking for exact information: to find out how to solve a particular problem, etc.

According to a study conducted by Statista.com , 26% of all market research is conducted through online quantitative methods, with online surveys accounting for a major share of 79%.

If you know how to create an easy survey online for your company, here is a great resource to get you started.

– Case Studies

Case studies are usually qualitative research methods; however, you can incorporate a mixed approach with a quantitative questionnaire thrown in for additional information. Using case studies, you focus on a single individual or single entity to research them thoroughly. The purpose of using case studies in business market research is usually to test theories of what went wrong in a particular situation or what went right.

Case studies are time-taking but provide extremely valuable information, detailed data, and in-depth analysis opportunities.

– Focus Groups

Focus groups are another popular instrument to conduct market research in business. A focus group consists of a small portion of your target audience that you can study in detail. It is a qualitative method of research and allows you to bring together a group of individuals that can take part in a guided form of discussion.

You can give them one or more focus questions that the group can talk about and share their views on. Focus groups are great to use when you’re creating a new product, researching a particular market segment, or want to know what your customers are thinking about you or your market.

Similar to case studies, focus groups give you a comprehensive view of a situation and allow you to conduct an in-depth analysis of different business elements.

The Future Of Market Research

The future of market research is bright. As a budding and burgeoning industry, it shows all the trends of continued growth. But as technology becomes more accessible and mobile devices more popular than desktops, market research is also evolving to fulfill the shifting customer needs.

The surveys are becoming shorter as nobody has got the time or interest to fill out a 10-page questionnaire. Artificial Intelligence is making the data collection process quicker and more intuitive, including contact database . And as time passes, you’ll see more and more market surveys being optimized for mobile.

So use all that modern market research has to offer you and use it to propel your business for the success you’d always dreamed of.

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About The Author Kelvin Stiles

Kelvin Stiles is a tech enthusiast and works as a marketing consultant at SurveyCrest – FREE online survey software and publishing tools for academic and business use. He is also an avid blogger and a comic book fanatic.

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Why Market Research Is Important for Strategic Decision Making

by Sarah Schmidt , on May 29, 2018

Consider the following scenarios:

• A CEO who is thinking about making a large acquisition to enter a new market
• A product developer working to stay ahead of shifting trends
• A management consultant advising a client on how to reboot their business
• A brand manager creating buyer personas to shape marketing efforts
• An entrepreneur building a pitch to secure funding from venture capitalists

Each of these individuals may have previous experiences and gut instincts that inform their thinking and planning, but they must also incorporate high-quality data and analysis into their decision-making process in order to understand the bigger picture, persuade key stakeholders, and back up their conclusions.

Risk is inherent in each of these situations, and a fumble at the wrong moment can lead to serious consequences for an individual’s career success and a company’s longevity. When the competition is fierce and the margin of error is thin, relying on faulty assumptions can be fatal.

As we explore in the white paper The Importance of Market Research for Validation and Decision Making , high-quality industry research can mitigate these risks by helping to test your hypotheses, validate your insights, and build your sense of confidence.

Why You Need an Outside Point of View

Since 2000, more than half of the companies in the Fortune 500 have merged, gone bankrupt, or been acquired, according to Forbes . A new generation of innovative companies has sprung up, creating unique business paradigms for the organizations of tomorrow.

In this volatile environment, it’s not enough to just predict or forecast within the existing scope of business (though you should). To avoid getting “Ubered” like the cab industry, companies must leverage accurate data and qualitative assessments about the industry direction and identify gaping holes in customer satisfaction that outsiders may prey on. Rigorous analysis should be used to drive decision making and adapt in a timely manner, and in this regard, third-party market research can protect you in more ways than one.

Market research can open your eyes to products and trends beyond your own company and help you become more aware of influential variables such as:

• New technology
• Rising competitors
• Shifting consumer preferences
• Socio-economic changes
• New regulations
• Growing and shrinking markets
• Potential new partners and suppliers

With adequate research, you can seize valuable opportunities for product development and new market entry. You can also make more prudent investments — increasing spending on markets that still have room for growth and re-evaluating investments in markets with lower demand.

Market research can also give you the foundation you need to make other pivotal shifts in your business. For example, you may find that you need to build new external partnerships to quickly adapt to technological changes (such as cloud computing, virtual reality, or automation), or it may be in the best interest of your company to acquire a start-up to maintain a foothold in an evolving industry (such as Walmart acquiring Jet.com to boost its e-commerce side of the business).

Making smart business decisions — and gaining buy-in from stakeholders along the way — is much easier when you have credible evidence to back up your strategies.

Interested to learn more? Download MarketResearch.com's free white paper for more practical insights and recommendations.

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• 5 Benefits of Market Research Reports
• The Power of Market Research: One MBA Student's Story

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Why is market research important? Here are 7 reasons

Doing your own market research on a regular basis is essential for keeping up with current market trends and maintaining a competitive edge. Whether you are starting a new business, expanding, or developing new products, conducting market research is essential. It helps you to understand your target market, increase sales, and spearhead business growth. In this article, we share 7 reasons why you should be investing in market research .

Use Netigate to send your market research surveys .

1. Identify new customers

In order to identify potential new customers, you must first understand who your customers are. You will also need to know key demographics.

When looking at your product or service, it’s important to consider questions such as:

• Who will use your product or service?
• What is the age range of your customers?
• What is their income level, marital status, and geographical location?

Using market research to understand these factors will enable you to target customers more effectively.

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• Send surveys via email, links, API or individual logins
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2. Get to know your existing customers

Similar to the above point, you should also take the time to understand who your existing customers are. Here are some questions to ask:

• Why do your customers choose your products over your competition?
• How do your customers use your products?
• How do your products solve a challenge?
• Who or what influences their purchase decisions?
• What do your customers enjoy doing, watching, and reading?

Understanding how your existing customers use your products as well as what challenges your products solve will help businesses improve their products as well as identify upsell opportunities with existing customers.

3. Set realistic targets for your business

Now that you are armed with information about your target customers and existing customers, you can use this data to set achievable and realistic goals for continuous improvement and business growth.

Being customer-centric in your approach is essential in today’s business climate. The most common approach in market research is to use an STP model: Segmentation – Targeting – Positioning.

Segmentation : Who will your product appeal to in terms of demographic, location, or other factors?

Targeting : How can you target and reach those sectors that your products appeal to?

Positioning : How can you position yourself in front of your competitors as your target market’s choice?

4. Develop new and effective strategies 

Data from market research will help you to make more informed decisions. For example, relating to pricing, distribution channels, marketing mediums, or to identify opportunities to introduce a new product or service. These results will also help you to make more informed decisions about your existing operations and activities.

• Should you expand or reduce?
• Is there room in your current operations to diversify?
• Are you targeting the right audience with your marketing activities

Casio used market research to get better insights on customers & resellers and adjusted the marketing strategies to be more effective.

5. Solve your biggest business challenges

If you have already identified a problem in your business, conducting market research will help you determine the source of the issue. For example, you can determine if a new competitor has entered the market or if brand awareness has fallen short, causing a decrease in sales. There are several types of market research that can help you identify different shortcomings: brand research, consumer research, product development and usability testing, consumer research, and many other areas.

Get started with our free market research survey templates.

6. Investigate expansion opportunities

Market research helps you identify areas for possible business expansion. Given that it offers the opportunity to test markets to determine if there is room for a new product or service. You can also conduct market research to find the best location to open a new store.

7. Identify how to expand your offering

Market research may help you discover new markets that are under-serviced or in demand. For example, you can identify changing market trends due to new housing construction, increased levels of education, or other changes that will bring new opportunities for your business.

All in all, market research isn’t just for new startup businesses. Businesses of all shapes, sizes, scope, industry and experience levels can benefit from market research. Market research can help you to learn about new and existing customers, identify issues and solve problems, and even help explore new opportunities that pave the way for business growth.

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How Financial Frictions Hinder Innovation

May 7, 2024 • 5 min read.

A recent study co-authored by Wharton’s Thomas Winberry reveals that financially constrained firms face a trade-off between investing in existing ideas and pursuing new ones.

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When it comes to funding, existing projects tend to take precedence over innovative ideas, according to a study by Wharton and University of Maryland experts. The researchers analyzed project funding patterns at publicly listed U.S. firms between 1975 and 2018 and developed a model to explain their findings. In their paper, “ Capital, Ideas, and the Costs of Financial Frictions ,” they delve deeper into this discovery.

“Financial markets tend to fund the implementation of existing ideas or investment-intensive projects but often fail to adequately fund the discovery of new ideas,” said Wharton finance professor Thomas Winberry , who co-authored the paper with Pablo Ottonello, an economics professor at the University of Maryland.

While innovative ideas are abundant, securing funding for them can be challenging. “If you have a revolutionary new product idea, it’s relatively easy to attract investors and scale up,” Winberry explained. “However, if you’re still exploring ideas and don’t have a tangible product to showcase, you’ll need to rely on internal resources or alternative financing sources, which can be harder to come by and more costly.”

Making the Case for Business Innovation

In the long run, economic growth is driven by new ideas that push the technological frontier, the paper noted. While new firms bring many of these ideas, existing firms also play a significant role. However, they face a trade-off when choosing between scaling up production using existing ideas and innovating with new ideas. As these two spheres compete for funds, firms must make choices based on their financial constraints, shaped by internal resources and the frictions they encounter when raising money from banks or public markets.

According to Winberry, the distinctive feature of their study is its exploration of the competition between investment and innovation within firms. Most growth models focus on innovation financing in isolation, without considering the competition for funds from other activities, he noted.

“There hasn’t been enough focus on how imperfections in financial markets can hinder growth,” Winberry continued. “We’re trying to make the case that financial markets do indeed impede growth significantly. If we can identify ways to address these imperfections, it could have a pro-growth effect on the economy.”

Firms balance the trade-off between investing in tried-and-tested projects and innovative ideas based on the financial frictions they face. Financial frictions can take various forms; the paper focuses on the limits of firm borrowing against collateral. Other frictions might include debt-equity ratios guiding bank lending, the creditworthiness of a firm’s management, or psychological biases against specific industries or types of firms.

“We’re trying to make the case that financial markets do indeed impede growth significantly. If we can identify ways to address these imperfections, it could have a pro-growth effect on the economy.” — Thomas Winberry

The study examined how financial frictions distort the mix of investment and innovation at both the firm and economy levels. It tracked investment-intensive activity in physical assets like plant and equipment, and innovation-intensive activity using R&D expenditure and patenting activity as proxies.

Firms attempt to overcome financial frictions with internal resources; the paper uses net worth as a measure of these resources. “Firms with low net worth are more likely to be affected by financial frictions, as they need to borrow more to finance their investments than firms with higher net worth,” Winberry explained.

The Pecking Order of Growth

The authors found evidence of this in their empirical study of publicly held firms. “Empirically, we find a pecking order of firm growth: Firms are investment-intensive when small and have low net worth but become more innovation-intensive as they grow and accumulate net worth,” Winberry said. The paper’s model supported this finding.

In addition to studying the effects of financial frictions on firms, the authors also assess the macroeconomic impact. Without financial frictions, the economy’s growth rate would be about 40 basis points higher per year, or approximately 0.4%, according to their model. Assuming a 2% annual GDP growth rate, the absence of financial frictions would increase it to around 2.4%.

“That’s because more firms are innovating, more new ideas are being discovered, and more new technologies are emerging. Ultimately, that’s what drives long-term growth,” Winberry said. “If you accumulate 2% growth versus 2.4% growth over 20, 30, or 40 years, those are significant differences in terms of GDP.”

Winberry traced the evolution of small firms with low net worth into a state where they are ready for innovation-intensive investments. “Over time, they build up their productive capacity and eventually reach a natural scale. Then it makes sense for them to start looking for their next idea.”

The paper does not offer specific policy recommendations, but Winberry suggested that removing or reducing financial constraints can spur innovation. Policymakers can achieve this by subsidizing innovation expenditure or enabling innovation by requiring fewer financial resources from firms, he said.

He noted that over the past five or six decades, the U.S. has made it easier for firms to invest with increases in investment tax credits and depreciation allowances. “We’ve changed a lot through the tax code to provide an implicit subsidy to investment. The more you do things like that, the more innovation you’ll get, and ultimately, higher growth.”

More From Knowledge at Wharton

The U.S. Housing Market Has Homeowners Stuck | Lu Liu

How Bank Depositors Are Becoming More Alert

Why Is Financial Literacy Important? | Olivia S. Mitchell

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What to Know About Mortgage Preapproval

Having mortgage preapproval has always been important, but it might be even more significant than it was a half-decade ago.

NEW YORK – Shopping for and ultimately purchasing a home can feel like a day at an amusement park. Much like a ride on a roller coaster, buying a home can be both exciting and a little scary, and those peaks and valleys have been even more profound in recent years, when the real estate market has been as tough as ever to navigate due to low inventory and high prices.

Though the real estate market has changed significantly in recent years, some conventional home buying wisdom still holds true. The importance of mortgage preapproval is one such notion, and it's even likely that being preapproved for a mortgage before making an offer on a home is more significant now than it was as recently as half a decade ago.

What is mortgage preapproval?

Mortgage preapproval essentially confirms to sellers and sellers' agents that a given buyer has qualified for a mortgage they can use to purchase a property. In a competitive real estate market like the current one, mortgage preapproval can set buyers apart from the competition, increasing the likelihood that their offers will be accepted over ones submitted by buyers who have not been preapproved.

What is prequalification?

Some buyers may hear the term 'prequalification' and assume it's the same thing as preapproval. However, the lending experts at LendingTree report there is a notable distinction between the two terms. Prequalification is less formal and based on a casual conversation with a lender that may or may not involve details about a buyer's credit history, income, monthly expenditures, and other pertinent financial information. Preapproval is a formal examination of a buyer's finances and financial history that is conducted after documentation such as W-2s and bank statements are provided.

A lender also will conduct a credit inquiry through three major credit bureaus during the preapproval process.

How do I get mortgage preapproval?

Mortgage preapproval is a simple process and it's a service offered by most mortgage lenders. A simple phone call or email to a lender can get the process started, and it does not take long for a lender to decide if an applicant qualifies for preapproval. However, insufficient documentation or misleading information can slow down the preapproval process (and potentially cause a lender to deny an application), so prospective home buyers are encouraged to provide ample and honest documentation of their finances.

Does mortgage preapproval expire?

It can take buyers a long time to buy a home in a competitive market with low inventory. So it's important that prospective buyers recognize mortgage preapproval has a shelf life of around 60 to 90 days. The preapproval letter provided by a lender will indicate an expiration date for the preapproval. If that date comes and goes without buyers purchasing a home, they will have to reapply for preapproval.

Must I borrow from the lender who preapproved me?

Buyers also should know that a mortgage preapproval does not bind them to the lender who preapproved them. Buyers can still shop around for a mortgage once they make an offer on a home.

Mortgage preapproval is a vital part of the homebuying process and can be especially useful in a competitive real estate market.

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From the military to the workforce: How to leverage veterans’ skills

US employers face multiple challenges when it comes to filling jobs and retaining workers, including a shortage of skilled labor and an aging workforce. To meet the moment in this era of technological change, some companies are broadening their hiring lens beyond the traditional college résumé. They are evaluating candidates on their capacity to learn , their intrinsic capabilities, and their transferable skills.

About the authors

This article is a collaborative effort by Scott Blackburn , Michael Kim, Charlie Lewis , Hannah Oh, and Kallman Parry.

This is where military veterans can make a difference. Veterans represent a source of labor potential that is untapped relative to the breadth of experience and depth of skills  that they acquire and develop during their service. Members of the military receive technical training, operate under pressure in austere environments, and develop strong interpersonal skills throughout their service, making them well qualified for numerous civilian occupations. While not every military role is directly transferrable to a civilian job, most skills are—including those that correspond to US industries experiencing labor shortages, such as infrastructure and manufacturing.

And veterans aren’t the only ones who stand to benefit from a longer look by employers: the economic opportunity of unleashing the value of veterans’ work experience through skills-based hiring could reach almost $15 billion over a ten-year period, new McKinsey research shows.

In this article, we explore the complex employment picture for military veterans , including in jobs and industries that will be most affected by automation and generative AI . We look at actions the military can take to help service members prepare for their transition to civilian work. We focus particularly on enlisted veterans, who make up the majority of those shifting out each year but who tend to fare worse in the labor market because employers don’t recognize their technical skills. We then discuss ways that the military and the private sector can close the veteran opportunity gap by improving employment outcomes.

The veteran employment landscape

Military veterans are not a homogeneous demographic, nor is their labor profile. Veterans’ work experiences differ by age, skills, and educational degrees. Our research shows that, in the aggregate, veterans with bachelor’s degrees and those skilled through alternate routes (known as STARs 1 According to the not-for-profit Opportunity@Work, STARs are individuals who are at least 25 years old, are currently active in the workforce, and who have a high school diploma but no bachelor’s degree. ) outearn their nonveteran peers (Exhibit 1).

Veteran STARs are, on average, eight years older and earn $3.91 more per hour than civilian STARs, though they tend to cluster in fewer, technical occupations. The largest veteran STAR group is aged 45 to 54; this cohort has the highest median hourly wage ($26.44) of all STAR groups. The group with the highest median hourly wage overall ($42.58) is made up of veterans aged 55 to 64 and with a bachelor’s degree or higher.

The roles with the highest representation of veterans are often analogs of military specialties. These roles include aircraft pilots, flight engineers, and aircraft mechanics and service technicians, as well as detectives and criminal investigators. Veterans are also well-represented in middle- to high-wage occupations that are accessible from low-wage jobs and rarely require an undergraduate degree. These roles include occupational-health and safety specialists and technicians, crane and tower operators, paramedics, and construction and building inspectors.

When viewed as a monolith, veterans are doing relatively well. But when broken down into subsets, many veterans are struggling to find jobs that use, recognize, and compensate them commensurate with their level of military experience. This is especially true for those who have difficulty translating their experience to civilian employment opportunities—in particular, veterans without a four-year degree, who represent 61 percent of all employed veterans. 2 Opportunity@Work analysis of the Integrated Public Use Microdata Series (IPUMS) 2021 Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS).

Of the roughly 150,000 active-duty service members who transition from the military each year, 3 Demographics report , US Department of Defense, 2021. approximately 90,500 earn less in their first year after being discharged than they did on active duty, resulting in billions of dollars of lost economic value (Exhibit 2). 4 Integrated Public Use Microdata Series (IPUMS) 2022 Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS), as well as data analysis of the US Census Bureau’s Veteran Employment Outcomes. And while some categories of veterans fare better than others—including former officers, as well as Special Forces and personnel who specialized in intelligence, IT, and cyber operations—veterans across categories are, on average, entering the civilian workforce at lower median wages than they had in the military.

Enlisted service members are disproportionately affected: veteran STARs tend to occupy lower-paying and more physically demanding roles than veterans with bachelor’s degrees, indicating that they may be hampered by not having a four-year degree.

Our methodology

To understand the lost economic opportunity associated with the lower wages for transitioning enlisted service members, we grouped junior enlisted service members who had undervalued occupational skills and noncommissioned officers (NCOs) who had undervalued managerial skills. We identified the one-year postdischarge salary for each category as a baseline, then assigned best-fit skills-based careers to each category. We narrowed the field of choices by factoring in required education, preparation needed, and projected annual job openings. Based on those choices, we identified salaries and calculated projected future earnings. We then determined the economic difference between current and potential salaries for all categories. Top careers included registered nurses; electricians; first-line supervisors of mechanics, installers, and repairers; industrial-machinery mechanics; and municipal and forest firefighters.

The cohort of enlisted veterans postdischarge excludes occupational groups (intelligence, Special Operations forces, and IT) that earn roughly equal to or greater than their last year of active-duty regular military compensation. The comparison of actual and potential average salary for enlisted veterans postdischarge is based on the latest data set to track income relative to military occupation from the US Census Bureau’s Veteran Employment Outcomes, which covers army veterans who left active-duty service between 2000 and 2015. 1 “Veteran Employee Outcomes,” US Census Bureau, accessed October 24, 2023. Actual earnings are from the Department of Labor; future-earnings projections are based on the 2023 Bureau of Labor Statistics annual wage increase and converted to 2018 dollars to match the Department of Labor data set. We also referred to the Department of Defense’s digital employment tool, Occupational Information Network, or O*NET; a 2023 RAND report on service members’ knowledge, skills, and abilities 2 Elizabeth Hastings Roer, Jeffrey B. Wenger, and Jonathan P. Wong, Military-to-civilian occupational matching: Using the O*NET to provide match recommendations for the US Navy, Marine Corps, and Air Force , RAND, 2023. ; and an internal survey of veterans working at McKinsey that matched the RAND findings.

McKinsey analyzed what the total potential loss of annual earnings for a cohort of 90,500 transitioning enlisted service members would mean in terms of lost overall economic potential (Exhibit 3). The research, which combined labor data and a skills-based analysis, found that the economic potential of improving employment outcomes for a single cohort of transitioning veterans could be almost $15 billion over a ten-year period (see sidebar, “Our methodology”). This presents a significant opportunity for the military, the private sector, and not-for-profit organizations supporting veterans as employers seek workers with ready-made skills.

How veterans’ skills apply to jobs—now and in the future

In the broad economic context, McKinsey research on the US labor market shows a disconnect  between available jobs and people qualified to fill them. Two industries in particular stand out: infrastructure and manufacturing.

The Bipartisan Infrastructure Law (BIL) is expected to create hundreds of thousands of additional jobs on projects ranging from roads, bridges, and waterways to clean energy and electric vehicles. However, a labor crunch in construction jobs exists across sectors, occupations, and geographies . In manufacturing, McKinsey analysis suggests that reviving the industry —in which the bulk of employees don’t need four-year degrees—could boost GDP and add up to 1.5 million jobs. 5 “ Delivering the US manufacturing renaissance ,” McKinsey, August 29, 2022.

Veterans map well to these high-demand jobs. To identify the specific actions that can help improve veterans’ employment outcomes in these industries and others, the research matched military specialties and skills to their full spectrum of civilian occupations. The goal was to identify high-potential pathways that are likely to improve veterans’ livelihoods based on skill overlap. 6 To focus the analysis and gain an understanding of the distribution of veterans across occupations, their education attainment levels, and incomes today, we examined employment and demographic data from external sources such as the US Bureau of Labor Statistics and the US Census Bureau, in addition to analysis from internal sources such as the McKinsey Global Institute. For the purposes of this research, veterans’ livelihood represents their overall well-being, as well as the strength of their means to provide essentials (for example, food, shelter, clothing, healthcare) to support themselves and their families. Our ratings of veterans’ occupational skills were based on a 2023 RAND survey of more than 5,100 veterans and augmented with a small sample of McKinsey veteran employees. For more, see Elizabeth Hastings Roer, Jeffrey B. Wenger, and Jonathan P. Wong, Military-to-civilian occupational matching: Using the O*NET to provide match recommendations for the US Navy, Marine Corps, and Air Force , RAND, 2023.

The analysis found that enlisted veterans are highly rated on occupational skills associated with trades such as electricians, mechanics, and construction professionals. For example, veterans were consistently rated higher on technical skills such as installation, equipment maintenance, repairing, and troubleshooting than the threshold required for the average civilian occupation.

Conversely, enlisted veterans were rated lower on “softer” occupational skills associated with management, sales, and office and administrative-support roles, such as reading comprehension, persuasion, and negotiation, suggesting real or perceived deficiencies in interpersonal skills that are required to succeed in business environments. However, these lower ratings tended to improve with military rank and the accompanying experience that rank brings, as both midlevel and senior noncommissioned officers (NCOs) scored above average on all occupational skills. 7 Melissa A. Bradley et al., Helping soldiers leverage army knowledge, skills, and abilities in civilian jobs , RAND, 2017.

Veterans overall score higher on service orientation, which the analysis defined as “actively looking for ways to help other people,” than the threshold for the average civilian occupation. However, this skill may not fully capture inherent veteran strengths, such as dependability, punctuality, discipline, and integrity.

While the typical veteran tool kit favors technical ability over verbal and written communication, veterans can consider developing and refining their soft skills to allow for better access to high-potential “gateway” roles , while continuing to pursue in-demand occupations that require technical skills. 8 “New research finds workers without four-year degrees not realizing wage gains despite having the skills for higher-wage work; identifies 51 job roles that unlock economic mobility,” Opportunity@Work press release, accessed October 30, 2023. These roles create a bridge between frontline work and destination roles, which require higher-level skills training and academic credentials.

The top 15 occupations that employ veterans today are generally expected to experience strong positive labor demand change and low change-of-work activities in the coming years as digitization and other technological changes take hold  (Exhibit 4). These occupations include nursing (expected to experience a 41 percent increase in labor demand); laborers and freight, stock, and material movers (a 26 percent increase); construction laborers (a 22 percent increase); and truck drivers (a 12 percent increase). Veterans can continue to pursue these occupations at even higher rates.

On the other hand, certain occupations that employ veterans are at risk of displacement due to declining job demand and adoption of automation, as well as the acceleration of generative AI in these occupations. This includes retail salespeople (expected to experience a 23 percent decrease in labor demand), supervisors of office and administrative-support workers (a 20 percent decrease), and customer service representatives (a 14 percent decrease).

Transitioning veterans can consider avoiding these roles, and veterans already in these occupations can continue to focus on upskilling, while taking advantage of reskilling opportunities to move into more secure occupations. Veterans looking to move into more senior positions can also use generative AI tools to their own advantage to help boost their capabilities and output.

Veterans looking to move into more senior positions can use generative AI tools to their own advantage to help boost their capabilities and output.

Several gateway occupations offer high potential to improve veterans’ livelihoods, including heating, ventilation, and air-conditioning (HVAC) mechanics and installers, human resources specialists, and industrial-machinery mechanics. However, these occupations are being accessed by less than 2 percent of employed veterans today (Exhibit 5).

Closing the opportunity gap: Actions stakeholders can take

We’ve looked at the skills that many veterans offer and the potential roles that a majority of veterans pursue, including gateway jobs for those without four-year degrees. To carve out better pathways and help make transitions more successful for those who need more support, the military services and employers can consider the following interventions.

The military: Recruit, retain, retrain

The military can address three recruiting and retention challenges by communicating the value of service and how skills developed in the military can translate to future careers.

Reverse declining interest in military service. The US military itself is facing a recruiting crisis that is likely to worsen if the value proposition of employment beyond military service doesn’t improve. 9 Ben Kesling, “The military recruiting crisis: Even veterans don’t want their families to join,” Wall Street Journal , June 30, 2023. The general population is largely unaware of the benefits of service, with 50 percent of young people saying they know little to nothing about military service and its unique professional-development offerings. 10 “Facts and figures,” US Army Recruiting Command, accessed August 29, 2023.

To shift perceptions and to help support candidates on their holistic career journey, the military can train recruiters to promote how service-developed skills can lead to well-compensated civilian careers and improved livelihoods, including how different military specialties map to various civilian occupations. As discussed earlier, there are several high-potential career pathways that are open to veterans that will continue be viable even as AI adoption increases. Recruiters who can communicate the value of military service in the context of these pathways could improve interest levels over the longer term.

The US Department of Defense (DOD) and service branches can launch a public relations campaign that highlights how the military develops desirable skills during service and provides support, education, and training opportunities during and beyond the transition. These programs include the GI Bill, tuition and credentials assistance, leadership academies, military occupation-related training, and SkillBridge, which allows transitioning service members to intern with civilian employers during the last 90 to 180 days of their service. 11 For more, see Army Credentialing Opportunities Online (Army COOL), US Army; “Education and training,” US Department of Veterans Affairs; “Tuition assistance,” US Army; and “What is SkillBridge?,” US Department of Defense, all sources accessed October 23, 2023.

Reduce disparities in commercial-sector employment opportunities . As noted earlier, the military has effective transition programs aimed at increasing the presence of veterans in the tech space and elsewhere. In one example of a successful transition, a naval flight officer looking for a civilian job emphasized her experiences in combat, as a NATO instructor, and in leading teams. Through the DOD SkillBridge program, she found a role focusing on public sector sales at a tech start-up. Starting as a customer success manager, she was promoted three times to a director-level role at the company, which is now a unicorn.

However, in many cases the digital career tools available to those transitioning to civilian work are inconsistent and often focus on literal job translations, neglecting inputs beyond military occupational specialties, such as rank, education, and formal training. For instance, recruiters from the Army and the Marine Corps receive different career recommendations from a widely used digital tool, the DOD’s Occupational Information Network, or O*NET, which transitioning service members are encouraged to use to evaluate potential careers.

Service members with critical skills, such as cyber-operations specialists and unpiloted-aerial-systems operators, are more likely to leave for commercial opportunities after their first enlistment, while other specialties are less in demand because of a lack of clear occupational analogs. The services could adopt reenlistment incentives that amplify the value of more military experience for skill development, rather than providing potentially ineffective financial incentives for service members so they stay for an additional enlistment.

For instance, promoting the long-term NCO tool kit, with a focus on leadership of personnel and resources, could improve both retention and recruiting outcomes. The services could enhance NCO leadership academies to offer upskilling and additional training, which improve the likelihood of employment in civilian occupations that offer increased earning power.

The military could also promote occupations such as nursing, which has a significant labor shortage, with more than 200,000 openings annually . Veterans with experience as medics are well suited for nursing roles. In addition, the military could offer nursing prerequisites on base as a part of its Installation Education Centers and highlight veterans in diverse nursing careers (in intensive care units, emergency rooms, and flight or transport roles).

In another individual example, an air force aerospace medical technician earned his associate’s degree in nursing while in the service, then used the GI Bill to complete his bachelor’s degree in nursing after leaving the air force. He then went on to earn his MBA and is now a healthcare consultant.

Increase job satisfaction rates. Twenty-two percent of active service members report dissatisfaction with their military experience, 12 See “Military-to-civilian occupational matching,” 2023; and “Navy readiness: Actions needed to evaluate and improve surface warfare officer career path,” US Government Accountability Office, June 17, 2021. a percentage that spikes further in certain demographics, such as the 88 percent of female Naval Surface Warfare Officers who leave within their first ten years.

To encourage younger generations to seek out military service as a career, the military can partner with more universities, trade associations, and employers to diversify the service member experience and to allow service members to pursue opportunities outside their specialty while still contributing to the capabilities of their service.

The private sector: Build a talent model around skills

As the United States invests in infrastructure- and climate-related projects, the labor shortage the country is currently experiencing may only grow . And as generative AI and other technologies take off, productivity changes will likely affect the occupations that veterans pursue and the skills that transitioning service members will need to be competitive for employment.

To help expand talent pools , corporate leaders should take note that 60 percent of American workers over the age of 25 don’t hold a four-year degree. 13 “Hire for the skills it takes to do the job,” Opportunity@Work, accessed October 24, 2023. That roughly matches the percentage of those transitioning out of the military who don’t have a bachelor’s degree.

By moving to a skills-based approach, companies can boost the number and quality of applicants  who apply to open positions. Internally, they can build skills and retrain their existing workforces to prepare people for new roles. Retention improves when workers find more opportunities to advance internally, McKinsey research shows . 14 Sandra Durth, Asmus Komm, Florian Pollner, and Angelika Reich, “ Reimagining people development to overcome talent challenges ,” McKinsey, March 3, 2023. Skills-based practices have a greater impact when they’re implemented across the whole talent journey, including in sourcing, hiring, and career development.

Companies can also set targets for veteran recruitment and hiring. One company that has pledged to hire veterans is Micron, which is building a $100 billion semiconductor plant in upstate New York. 15 Steve Lohr, “Micron pledges up to $100 billion for semiconductor factory in New York,” New York Times , October 4, 2022. Of the 9,000 people it expects to hire for the plant, Micron is aiming to hire 1,500 veterans, or 17 percent of its workforce. The company has found that veterans are a good fit for the semiconductor industry because of their experience with heavy machinery and technology, along with their disciplined mindset and team-building skills.

In the public sector, US states and local governments that are receiving BIL funding  can reserve a portion of jobs for veterans, just as they have for stakeholders such as local construction companies, engineering firms, trade schools, and others.

A hiring strategy that focuses on expanding the pool of potential talent can help communities by creating more and better job opportunities for a broader, diverse pool of workers. It can also provide upward mobility for millions of workers—including veterans—at a crucial time for the US economy.

The military can take more steps to support veterans, particularly enlisted service members, as they navigate the transition to civilian work. Companies can open their hiring practices to consider veterans for a variety of roles, not just those that match perfectly with their military skills. Together, these actions can add billions in value to the US economy as veterans moving into civilian jobs maintain or increase their earning power to support their families and build their communities.

Scott Blackburn is a senior partner in McKinsey’s Washington, DC, office, where Kallman Parry is a senior analyst; Michael Kim and Hannah Oh are consultants in the Southern California office; and Charlie Lewis is a partner in the Stamford, Connecticut, office. All are veterans of the US armed forces.

This article was edited by Barbara Tierney, a senior editor in the New York office.

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