Why Businesses Use Market Research
→ Market research is the process of collecting and analysing information about customers, competitors and the market.
→ Businesses use market research to reduce the risk of making poor decisions.
Identifying Customer Needs
→ Research helps businesses understand what customers want.
→ Customer preferences identified
→ Products can be designed to meet customer needs
→ Customer satisfaction may increase
Example:
→ A restaurant surveys customers before introducing a new menu.
Identifying Market Opportunities
→ Research can identify gaps in the market.
Example:
→ Research shows that customers in an area want affordable healthy meals, but few businesses provide them.
→ This could create an opportunity for a new restaurant.
Understanding Competitors
→ Businesses can research competitors’:
→ Prices
→ Products
→ Quality
→ Promotion
→ Customer reviews
→ Distribution methods
→ This helps a business decide how to compete.
Reducing Business Risk
→ Starting a new product or entering a new market involves risk.
→ Market research provides information before money is invested.
→ Better information
→ Better decision-making
→ Lower risk of failure
Forecasting Demand
→ Research can help businesses estimate how much customers may buy.
→ Expected demand
→ Production can be planned
→ Resources can be allocated more effectively
Supporting Marketing Decisions
→ Research can help businesses decide:
→ Which customers to target
→ What product features to offer
→ What price to charge
→ Which promotional methods to use
→ Where to sell the product
Primary Market Research
→ Primary research is the collection of new information directly from customers or other sources for a specific purpose.
→ The business collects the information itself or pays someone to collect it.
Questionnaires and Surveys
→ A questionnaire asks people a series of questions.
→ Surveys may be conducted:
→ Online
→ Face-to-face
→ By telephone
→ Through mobile devices
Example:
→ A clothing business asks 500 customers which colours they would prefer for a new product.
Advantages
→ Information is collected specifically for the business
→ Large numbers of people can be surveyed
→ Results can be compared easily
→ Online surveys can be relatively inexpensive
Disadvantages
→ Questions may be misunderstood
→ People may give inaccurate answers
→ Some people may not respond
→ Designing and analysing surveys takes time
→ Results depend on the quality of the questions
Interviews
→ An interview involves asking questions directly to an individual.
→ It can be conducted face-to-face, by phone or online.
Advantages
→ Detailed information can be obtained
→ Interviewer can ask follow-up questions
→ Answers can be clarified
→ Useful for understanding opinions and reasons
Disadvantages
→ Time-consuming
→ More expensive than some other methods
→ Usually involves fewer people
→ Interviewer may influence the answers
Example:
→ A hotel interviews guests to understand why some customers did not return.
Focus Groups
→ A focus group is a small group of people brought together to discuss a product, service or idea.
→ A researcher asks questions and encourages participants to discuss their opinions.
Advantages
→ Provides detailed opinions
→ Participants can react to each other’s ideas
→ Useful for testing new products, packaging or advertising
→ Can reveal reasons behind customer preferences
Disadvantages
→ Usually involves a small number of people
→ Results may not represent the whole market
→ One participant may influence others
→ Some participants may dominate the discussion
Observation
→ Observation involves watching how customers behave rather than asking them questions.
Example:
→ A supermarket observes which products customers look at before making a purchase.
Advantages
→ Shows actual behaviour rather than what customers say they do
→ Useful for studying buying patterns
→ Customers may behave more naturally
Disadvantages
→ Does not explain why customers behave in a particular way
→ Can take time
→ Observer may interpret behaviour incorrectly
→ Privacy concerns may arise
Sampling
→ A business often cannot ask every person in its target market for their opinion.
→ A sample is a smaller group selected from the target population to take part in research.
Example:
→ A company wants to understand the opinions of 50,000 customers.
→ It surveys 500 customers instead.
→ The 500 customers form the sample.
Why Sampling Is Useful
→ Saves time
→ Reduces research costs
→ Makes large markets easier to research
→ Results can be collected and analysed more quickly
→ A carefully selected sample can provide useful information about the wider target market.
Importance of a Representative Sample
→ A sample should reflect important characteristics of the target market.
Example:
→ If a business sells products to both teenagers and adults, a sample containing only adults may give misleading results.
→ More representative sample
→ More useful results
→ Better business decisions
Advantages and Disadvantages of Primary Research
Advantages
→ Information is collected for the business’s specific purpose
→ Data can be recent
→ Questions can be designed around the business’s needs
→ Business controls how the research is conducted
→ Can provide detailed information about customer opinions
Disadvantages
→ Can be expensive
→ Can take a long time
→ Requires planning and analysis
→ People may provide inaccurate answers
→ Poorly designed research can produce misleading results
Secondary Market Research
→ Secondary research uses information that has already been collected by another person or organisation.
→ The business does not collect the original data itself.
Competitor Websites
→ Businesses can examine competitors’ websites to find information about:
→ Products
→ Prices
→ Promotions
→ Features
→ Delivery options
Example:
→ A new online clothing business compares the prices and products of existing competitors.
Government Sources
→ Governments publish information such as:
→ Population statistics
→ Employment data
→ Income data
→ Economic growth
→ Consumer spending
→ Business statistics
→ This information can help businesses understand changes in the market.
Market Reports
→ Market reports provide information about particular industries or markets.
→ They may contain:
→ Market size
→ Market growth
→ Consumer trends
→ Competitor information
→ Forecasts
Trade Magazines
→ Trade magazines provide information about specific industries.
Example:
→ A hotel business may use a hospitality industry magazine to understand new technology and changing customer trends.
Advantages of Secondary Research
→ Usually cheaper than primary research
→ Faster to obtain
→ Large amounts of information may be available
→ Useful for understanding market trends
→ Can provide information that would be difficult for a small business to collect itself
Disadvantages of Secondary Research
→ Information may be outdated
→ Data may have been collected for a different purpose
→ Information may not exactly match the business’s needs
→ Sources may not be reliable
→ Competitor information may be incomplete
→ Businesses may have to pay for some market reports
Primary Research vs Secondary Research
| Primary Research | Secondary Research |
|---|---|
| New information is collected | Existing information is used |
| Collected for a specific purpose | May have been collected for another purpose |
| Can be highly relevant | May not exactly meet the business’s needs |
| Usually more expensive | Usually cheaper |
| Can take longer | Usually quicker |
| Business controls the research | Business depends on the quality of the existing source |
Accuracy of Market Research Data
→ Market research is only useful if the information collected is reasonably accurate.
Sample Size
→ A very small sample may not represent the whole market.
→ Larger, appropriate sample
→ More reliable indication of market opinions
→ However, simply having a large sample does not guarantee accurate results.
Representativeness of the Sample
→ The sample should reflect the characteristics of the target market.
Example:
→ A business selling products mainly to teenagers surveys only retired people.
→ The results are unlikely to accurately represent its target customers.
Quality of Questions
→ Questions should be clear and unbiased.
Poor question:
→ “Don’t you agree that our new product is much better?”
→ This encourages a positive response.
Better question:
→ “How would you rate our new product?”
→ This allows a wider range of responses.
Honesty of Respondents
→ People may not always tell the truth.
→ They may give answers they think are socially acceptable rather than their actual opinions.
Timing of Research
→ Consumer preferences can change.
→ Old research may no longer accurately represent current customer behaviour.
Reliability of Secondary Sources
→ Information from unreliable or biased sources may lead to incorrect conclusions.
→ Businesses should compare information from several reliable sources.
Researcher Bias
→ Researchers may unintentionally influence participants or interpret results according to their own expectations.
→ Clear procedures and objective analysis can reduce this problem.
Analysing Simple Market Research Data
→ Businesses need to do more than collect data.
→ They must analyse the information to identify useful patterns and make decisions.
Percentages
→ Percentages make it easier to compare responses.
Example:
A survey asks 200 customers whether they would buy a new product.
→ 120 customers say Yes.
Percentage saying Yes:
→ 120 ÷ 200 × 100
→ 60%
→ This means 60% of the sample said they would buy the product.
Identifying the Most Popular Response
Survey results:
| Preferred flavour | Number of customers |
|---|---|
| Chocolate | 80 |
| Vanilla | 50 |
| Strawberry | 40 |
| Mango | 30 |
→ Chocolate is the most popular choice.
→ The business could consider producing more chocolate-flavoured products.
Comparing Results
→ Businesses can compare responses between different groups.
Example:
→ 70% of teenagers prefer Product A.
→ 45% of adults prefer Product A.
→ Product A is more popular among teenagers in this sample.
→ The business could consider targeting Product A more heavily towards younger customers.
Identifying Trends
→ A trend is a general pattern in the data.
Example:
→ Survey results show that the percentage of customers interested in online delivery has increased from 40% to 65%.
→ This suggests increasing customer demand for online delivery.
→ The business could consider investing in an online ordering and delivery service.
Using Market Research to Make a Decision
→ Data should be linked to the business decision.
Example:
→ A business surveys 500 potential customers about a new product.
→ 350 say they would consider buying it.
350 ÷ 500 × 100 = 70%
→ 70% of respondents showed interest.
→ This suggests there may be demand for the product.
→ However, the business should consider the sample size, whether the sample represents the target market and whether respondents’ stated intentions are likely to reflect their actual buying behaviour.
From Research to Business Decision
→ Collect data
↓
→ Analyse the results
↓
→ Identify patterns and trends
↓
→ Consider reliability and limitations
↓
→ Make a business decision
Example:
→ Market research shows strong demand for environmentally friendly packaging.
→ Business identifies customer preference
→ Develops environmentally friendly packaging
→ Promotes the environmental benefit
→ Monitors customer response
→ Adjusts the product if necessary.