How to Perform Market Research for a Credit Startup

Market research is a critical aspect of building any successful startup, especially in the fintech space. But what does it actually mean to do “market research?” True market research involves several key steps, which include:

1. Define your target audience
2. Identify market gaps
3. Analyze the competition
4. Survey Customers

In this post, we will explore each of these steps in detail and provide practical tips on how to conduct market research for credit startups. Whether you are launching a new credit product or trying to grow your existing credit business, this blog will provide you with the knowledge and tools you need to succeed in the competitive world of fintech.

1. Define your Target Audience

Defining a target audience is an essential first step in market research for any startup, especially those in the fintech space. Market research involves understanding the characteristics, demographics, and behaviors of your ideal customers. In the era of big data, there are seemingly endless ways to analyze and categorize your customer base, but there are a couple of core areas founders must explore:

• Demographics
• Psychographics 
• Behaviors
• Pain Points 

Let’s take a closer look at each of these areas below. 

Demographics

Demographics in market research refer to characteristics of a population, such as age, gender, income, education, and other relevant factors. Demographics are a key aspect of market research for startups because they help entrepreneurs identify and understand their target market, which is crucial for developing effective marketing strategies and creating products or services that meet the needs and preferences of their potential customers. By analyzing demographics, startups can gain insights into consumer behavior, buying habits, and preferences, which can inform their decision-making and increase the likelihood of success. Demographics can also help startups identify gaps in the market and develop niche products or services that cater to specific demographic groups.

Psychographics

Psychographics refer to the study of consumer attitudes, values, beliefs, interests, and lifestyle preferences. Psychographics are key for startups because they provide a deeper understanding of their target audience beyond just demographics. By looking at  psychographic data, startups can develop more personalized marketing messages and product offerings that resonate with their target audience, build brand loyalty, and differentiate themselves from competitors. Additionally, psychographics can help startups identify untapped market opportunities and create innovative products or services that meet the unique needs and desires of their target customers.

Behaviors

Behaviors in market research refer to the actions, habits, and purchasing patterns of consumers. It’s important for startups to understand how their customers behave because understanding how customers interact with products or services can help entrepreneurs make informed decisions about product design, pricing, and marketing strategies. By looking at customer behaviors, you can identify pain points and opportunities for improvement in their products or services, optimize their pricing strategies, and develop targeted marketing campaigns that resonate with their potential customers. As an added benefit, startups can stay ahead of changing trends and preferences in the market, allowing them to adapt quickly and stay competitive.

Pain points

And finally, pain points are the specific problems, challenges, or frustrations that your customers experience. Pain points are a key aspect of market research because identifying and addressing the specific needs and challenges of potential customers can help entrepreneurs create products or services that provide unique value and competitive advantage. This allows credit startups to develop financial solutions that address unmet needs and differentiate themselves from competitors. Additionally, addressing pain points can help startups build strong customer relationships, increase customer loyalty, and generate positive word-of-mouth marketing. Understanding pain points also helps startups avoid wasting resources on ineffective marketing strategies or product features that do not meet the needs of their target audience.

2. Identify Market Gaps

After identifying your target audience and, specifically, their pain points, you can start to address their issues. Identifying market gaps involves understanding areas where there is an unmet need in the market that your startup can fill. This involves continuing to analyze customer behavior, identifying areas of opportunity, and conducting customer surveys. 

As discussed above, analyzing customer behavior is one of the keys to good market research. Looking at customer behavior patterns can help you identify areas where customers are looking for a product or service that is not currently available in the market. It can help you identify what products or services they’ve purchased but haven not been satisfied with, too. 

Any pain point that either lacks a solution completely or lacks a solution that actually addresses the issue is a market gap. These are the opportunities and are exactly where founders need to focus their energy. If you find there’s an underserved market, create a loan product for that population. If you find that the current offerings of payment solutions don’t meet the needs of a particular group, build one that does. 

By identifying market gaps, you can create a unique value proposition that meets the needs of your target audience and differentiate your startup from competitors.

3. Analyze the Competition

In addition to looking at your target audience and market gaps, founders will also want to keep an eye on their competitors. Analyzing your competition is an essential step in market research that involves identifying your competitors, understanding their products and services, and assessing their strengths and weaknesses.

The first thing credit startups need to do is identify the competition. Who are your competitors? What do they offer? What is their market share? From these three simple questions, you should be able to start building out profiles for each of your competitors. 

The next step is to perform a SWOT analysis for each of your main competitors. A SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) of your competitors can identify areas where you can differentiate your startup. Here’s a quick overview of how to do a SWOT analysis:

1. Identify the objective. Determine what you want to achieve and what aspect of your business or project you want to analyze.
2. Identify strengths. List your business’s internal factors that give you an advantage over your competitors.
3. Identify weaknesses. List your business’s internal factors that put you at a disadvantage compared to your competitors.
4. Identify opportunities. List external factors that can help your business achieve its objectives.
5. Identify threats: List external factors that can potentially harm your business’s success.

By analyzing your competition, you can identify opportunities to differentiate your startup and create a unique value proposition that sets you apart from the competition.

And the third and final step is differentiation. Once you determine how your products and services differ from those of your competitors, you can leverage that differentiation by offering unique features, benefits, or experiences that set them apart from competitors.

4. Conduct Customer Surveys

Even after you’ve launched your credit product, market research never truly ends. You need to make sure that your product adequately addresses the pain points of your target market. You need to learn where it falls short and how it can be improved. To do this, you need to conduct customer surveys. 

Conducting customer surveys involves collecting quantitative and qualitative data on customer behavior and preferences. The general guidance on customer survey involves a few steps:

1. Defining your survey objectives
2. Developing survey questions
3. Choosing a survey method
4. Analyzing  the data

One of the biggest challenges founders face with customer surveys is that, honestly, most founders just don’t know how to conduct them properly or in a way that yields meaningful data. The cure to this, however, is the Mom Test. 

The Mom Test

The Mom Test is a framework for conducting effective customer surveys developed by entrepreneur Rob Fitzpatrick. It involves asking questions that focus on the customer’s experiences and emotions, rather than opinions or hypotheticals. This approach is based on the idea that people are more likely to tell you what they think you want to hear, rather than the truth, especially if they are trying to be polite or avoid hurting your feelings, as your mother might do. 

Below are the key steps involved in conducting a customer survey using the Mom Test approach:

• Start with context. Begin the conversation by explaining the context of your product or service and the problem that it solves. This sets the stage for the conversation and helps the customer understand why you are asking certain questions.
• Ask about the past. Ask the customer about their past experiences related to the problem your product or service solves. This helps to uncover insights based on real experiences rather than hypothetical scenarios.
• Listen for specific examples. Listen carefully to the customer’s responses and ask follow-up questions to uncover specific examples. This helps to reveal patterns in their behavior and identify pain points or opportunities.
• Avoid leading questions. Avoid asking leading questions that suggest a particular answer or that prompt the customer to provide opinions rather than insights based on their experiences.
• Test your assumptions. If you have assumptions about your product or service, test them by asking open-ended questions and listening to the customer’s response. This can help you validate or refute your assumptions and refine your product or service.

The key benefit to the Mom Test is that the data you collect is based entirely on actual past usage of the product instead of hypothetical future uses. Armed with this data about how the product actually performs, you can go about iterating and improving upon your product moving forward.

Final Thoughts

Market research is an essential aspect of any successful startup, especially those in the fintech space. Defining a target audience, identifying market gaps, analyzing the competition, and conducting customer surveys are all critical steps to creating a unique value proposition that sets your startup apart from competitors. 

By analyzing customer demographics, psychographics, behaviors, and pain points, founders can gain valuable insights that inform their decision-making and increase the likelihood of success. Customer surveys, conducted using the Mom Test approach, are a powerful tool for gathering meaningful data that helps startups iterate and improve upon their products or services. 

Ultimately, the success of any fintech startup depends on its ability to understand its target audience and provide innovative financial solutions that meet their unique needs and preferences.

Credit Startup Market Research FAQ

Below, you’ll find some common FAQ startup founders have about market research and their answers

What is the best market research method for startups on a budget?

For startups on a budget, online surveys and social media listening can be effective and cost-efficient ways to gather insights about their target audience. Online surveys can be distributed to a large audience at a relatively low cost, while social media listening allows startups to monitor and analyze conversations about their brand or industry on social media platforms.

How do I identify my target market?

To identify your target market, startups should conduct thorough market research that includes analyzing demographics, psychographics, and customer behaviors. This information can help you create customer personas that represent your ideal customer and tailor your marketing efforts accordingly.

How do I stay up-to-date on market trends?

To stay up-to-date on market trends, startups should regularly monitor industry publications, attend conferences and networking events, and analyze data from their own customer interactions and sales. Additionally, startups can use tools like Google Trends and social media listening to track relevant keywords and hashtags related to their industry.

How do I know if my market research is accurate?

To ensure the accuracy of your market research, startups should use a variety of research methods and sources, and triangulate the data to ensure consistency across sources. Additionally, startups should conduct research on a regular basis to keep up with changing trends and preferences in the market.

How do I use market research to develop my product or service?

Market research can help startups identify unmet needs and pain points of their target audience, which can inform the design and development of their product or service. Additionally, customer feedback and insights gathered through market research can be used to optimize the user experience and increase customer satisfaction.

Frank Gogol

A seasoned SEO expert, Frank has a long history of working with and for startups. Starting in mid-2018, Frank served as the SEO Strategist for Stilt, a fintech startup that provided fair loans for immigrants in the US and other underserved markets. While with the company, he scaled site traffic from zero to more than 1.5 million unique visits per month, driving the bulk of the company’s lead generation until it was acquired by J.G. Wentworth in December 2022. As employee #5 at Stilt, Frank was witness to, and part of, the successful building and sale of a fintech company, uniquely positioning him to create content for founders about all things startups.

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