The Fallacy of the Market Study

Small cities and towns in rural America struggle to meet the challenges of declining populations.  Businesses in these towns now face not only the “box store” competition that has been with us for decades, but now an ever increasing presence of competition on the Internet.

Many of these cities end up engaging in the “Market Study”.  The Market Study is not cheap.  It usually requires several visits by the consultants to the city and most of the time local volunteers spend many hours polling visitors and shoppers.  All the information gathered is combined with all kinds of demographic and statistical information available through various government agencies and Internet sources into a big cauldron of stew.  The stew is cooked—often for excessively long periods of time—until it can be poured into the bowel of the completed market study.  Meanwhile, the town’s folk have anxiously awaited the long and expensive (many times upward of $50,000 or more) Eureka information that will give them the answer to the town’s growth challenges.

The results finally arrive, sometimes after threat of legal action due to the delays.  The town’s folk pour over the details, looking for the Eureka idea that will spur growth.  There is a nice history of the town, and analysis of the town’s demographics.  There is typically a nice table showing dollar figures for all the categories of the goods and services the survey respondents buy.  Those dollar figures shown in black indicate more is purchased locally than purchased elsewhere, while the red figures show how much the folk are spending outside the city (they call this “leakage”).

Some people actually read the study from front to back.  Rarely is there a Eureka idea.  Here are some characterizations I heard summarizing a study for a Southeast Kansas town of about 9,000 population.  (Please note I said characterizations by readers of the study, not necessarily the study itself.)

·        The town is really doing pretty well compared to other rural cities in small town America (is that really what the people that paid the money for the study want to hear?)

·        We have some leakage, but one is in clothing.  Everyone knows you have to have two or three clothing stores in a cluster because that’s how people like to shop.  (Really?  There are examples of some of our small towns of independent small clothing stores making it.  What if we study them to figure out how they are managing?)

Thinking back over the nearly ten years I’ve worked in entrepreneurship and small business development, I can’t think of a single new business recruited or started because of information in a market study. 

The problem with the market study is that it’s built around “conventional wisdom”.  Good innovative business models fly in the face of conventional wisdom.  Conventional wisdom says don’t start a restaurant; it’s such a tough business to make work.  But people do start new restaurants and the ones with concepts people like thrive if they are operated properly.  Conventional wisdom says don’t start a clothing store unless you can be in a cluster.  But then there are stores scattered among our small towns that are doing well.

In today’s world, even the local market changes quickly.  So, even if the data gathered in a market study were to be helpful, is already becoming very old by the time there’s a long delay in producing the finished study.  So, don’t look to the market study to provide you with the Eureka discovery.

The best solution is to inspire entrepreneurs that have been shown how to uncover problems in the local marketplace and work toward solutions that people want.  There’s really no way outside consultants can do that regardless of how much they are paid.