3.2.1 The role of market research and the methods used
Market research definitely comes under the “boring but important” category. The more a business knows about potential consumers, competitors and the market the greater the chance of success.
Market research allows a company to explore a target market and get opinions and other feedback from consumers about their interest in the product or service. Crucially market research can guide a business to the products and strategy that is most likely to be successful. Without accurate market research data, businesses will have to base their decisions on instincts or guesswork, a high risk strategy.
Market-orientated businesses
Market orientation is an approach that focuses on identifying the needs and wants of consumers and creating products that satisfy them. Essentially, finding out what customers want and giving it to them. The opposite is a product oriented or a “take it or leave it” approach, where a business focuses on making the best product, but does not consider consumer needs.
Most businesses aim to take a market-oriented approach. If a business finds out what consumers want, then builds a product or service to fulfill those needs, it is much more likely to have higher sales. A market-oriented approach, therefore, lowers the risk of failure when launching or updating a product or service.
So what do businesses use market research information for?
Firstly, identifying customer needs. What do consumers want? The more accurately a business understands customer needs the more likely they are to make a product or service to satisfy those needs and generate higher sales.
A business must also consider the current and future size of the market. How many potential customers are there? This is crucial in making decisions over developing a new product or choosing between a number of different options for offering new services.
How strong are the competition? Business can learn from the strengths of competitors when designing their own products, but also improve on competitor’s products offering by improving in areas where competitors are weak.
What marketing strategy to use? Business must figure out the most effective way of connecting with consumers, pricing their products and persuading them to buy, based on current market research.
Market research is also crucial for analysing consumers views about a business’s existing products. Furthermore, market research can help predict future trends and changes in consumer spending.
Primary Research Benefits and Limitations
Primary research is research you do yourself (or hire someone to do for you.) It involves going directly to a source, usually customers and potential customers in your target market, asking questions and gathering information.
The huge advantage of primary research is that the information is specifically for the individual business needs. If a Mariam at Local Kopi wants to know about what kinds of coffee people in her local area prefer, she can ask those questions directly to her target market. Primary research is tailor made for the specific business’s needs.
Furthermore, the information is up to date. Markets can quickly change, so research carried out a number of years ago may be inaccurate for a product launch today.
However, this is also the big disadvantage of primary research. As the business has to design and carry out the market research itself, this means a very high cost for the business. Furthermore, it takes time to complete the primary research process from design, to collection of results to analysing the results.
It also requires skills in market research to ensure the correct information is collected from a representative sample of the target market. If the wrong questions are asked, or if the sample is incorrect it can mean the research is inaccurate and unhelpful in guiding marketing decisions. A business can hire market research experts to conduct the primary research but this will further add to costs.
Methods of Primary Research
Consumer surveys ask the target market set questions about the product or trends and can be conducted face to face in an interview, or in written form either online or by post.
Interviews may be conducted by stopping potential customers in the street. It allows the market research participants to ask questions if they don’t understand a question. As there is human contact people are more likely to complete the research compared to a written survey.
However, as interviewers must be employed to conduct the research so interviews have a much higher cost than online surveys or written questionnaires.
Surveys can also be completed online and are now highly popular, as online surveys are quick and easy to set up, and can be sent to the target market easily by email or social media.
However, as there are so many surveys and requests for feedback sent to consumers these days, they are also easy for consumers to ignore, so response rate may be low and it is difficult to get accurate data. An incentive to complete a survey like a money off voucher or entry into a competition can help increase the number of potential consumers willing to complete a survey.
Surveys or questionnaires can also be sent by post. This may allow participation from consumers who can’t access online surveys. However, this increases cost as the business will have to pay for postage, and it is also more inconvenient for respondents as they have to spend time posting the survey. Therefore, the response rate may be low.
In focus groups a small group of potential consumers discuss a product or service in a relaxed setting. The discussion is led by a market researcher, however, there is a free exchange of ideas about the product, customer needs and preferences. Therefore, a business can find high quality information about what typical customers think about a product. For example, students at a University may be asked what they like and dislike at the University and how this compares to their expectations before arriving.
However, focus groups are costly and time consuming to organise. As the information is qualitative and comes from opinions and experiences, it is difficult to analyse statistics, patterns or represent the data from focus groups on charts.
So primary research can find high quality information specifically for a businesses target market, but is expensive and time consuming. Is there another option which is quicker and lower cost?
Benefits and Limitations of Primary Research Market Research
| + Research is tailor made to the businesses individual needs + Information is up to date | X Higher cost X Requires expertise in collecting accurate data |
Secondary Research Benefits and Limitations
Secondary market research uses information that already exists and has been collected by someone else for another reason. This could be finding information online, from government records, newspapers or business reports.
Secondary research has a much lower cost and is much more convenient for a business than primary research. However, as secondary research has been conducted for another purpose it is unlikely to contain the specific information about their potential consumers. It may be able to give a general view of the market, but won’t precisely tell Mariam about her target market for Lokal Kopi. The information may be out of date, and no longer reflect the needs and wants of consumers.
There is a huge range of information online, from blogs to competitors’ websites to reports on consumer trends. The difficulty is sorting through all the information to find useful, up to date market research which is relevant to an individual business.
Benefits and Limitations of Secondary Market Research
| + Lower cost than primary research and less time consuming | X Information may be out of date X Research is not focused on a business individual needs |
Methods of Secondary Research
Governments publish official statistics about the populations of their countries, for example the average income, population of different regions, average age and income. This may be useful to businesses launching a product in another country.
Market research companies produce reports on specific markets. For example, a cosmetics company considering expanding into India may purchase a report on the health and beauty sector.
Businesses will also have internal records of customer sales. This may guide a future marketing campaign. A ice-cream manufacturer may look at last summer’s sales of one flavour of ice-cream to plan for production of a new flavour.
| Past Paper Question Example Paper 2 (b) Consider the following three methods of market research Sandra used. Which do you think is the best method to use when deciding which product to produce? Justify your answer. – Online survey – Postal questionnaire – Focus Group – Recommendation [12] |
The need for sampling
How can we make primary research more cost effective and what effect will that have on the accuracy of the data?
When conducting primary research, it will be too expensive for a business to survey every single potential customer of their products. So they use sampling, taking a small number of potential customers and finding out their preferences. If the target market is 10,000 consumers, a business may survey 1% of their target market or 100 consumers.
Sampling is one of the factors that can affect the accuracy of market research results.
Generally speaking, the larger the sample, the more accurate the results. However, the sample must be representative, so the age, gender and income of the target market is reflected by the sample.
If the sample is too small or unrepresentative it won’t be an accurate reflection of the target market. If I only ask ten friends in the UK their opinion of my new website, it won’t accurately tell me the views of the thousands of potential customers in South East Asia.
Furthermore, market research is only as good as the questions asked. If the questions aren’t understood, or lead the participants towards a certain answer, it will be less accurate. Participants may also not give their honest views or researchers may make mistakes when recording the information.
The accuracy of secondary research is often limited as it can often be out of date, or not specifically related to the business.
So is market research actually necessary if it can be expensive, time consuming and is not always accurate?
Certainly businesses need to be careful when making business decisions based on market research. Market research can be a very useful guide, but conducting market research and following the results is no guarantee of future success.
However, it is a much higher risk to ignore customer preferences and base decisions on instinct rather than hard data about market trends and consumer needs.
Generally, the more a business invests in market research the more accurate the results. However, there is also an opportunity cost of investing capital on market research rather than other areas, like product development. Therefore, businesses need to find a balance between accuracy and cost to keep the market research budget low. Cost effective market research methods like online surveys can be less time consuming and lower cost.
3.2.2 Presentation and use of market research results
Presentation and use of market research results is not a very popular question. Using the information from an appendix in paper 2 is crucial for boosting your application marks, but is unlikely to be a stand-alone question.
You may be asked shorter questions to identify and explain ways of representing information. So what are the benefits of using charts, graphs and diagrams?
Charts can bring information to life. It is much easier to see trends represented visually rather than figures on a computer screen.
Pie charts are useful for showing the breakdown of market share.
Line graphs are useful for showing market trends and performance against competitors.
Bar charts are an effective way of comparing results visually, but it’s difficult to see precise results so it is more useful for seeing an overview of performance.
With all market research results it’s important to think about the accuracy of the results. Was the sample size large enough to get representative results? What further information would be useful to know before making a decision?
