1.1.3 Market Research

Market Research 

Key Definitions

Market Research: The gathering of information about consumers, competitors and distributors within a target market as a way of identifying and analyzing consumer's buying habits and attitudes to current and future products. 

Market Orientation: When the business is focusing on the needs of the market as a priority, putting the customer at the heart of any business. 

Product Orientation: When the business focuses on the internal efficiency of the business to improve their products/services instead of the consumer.

Primary Research: The first hand gathering of data through methods such as questionnaires, surveys and one-to-one interviews. 

Secondary Research: The gathering of information  that has already been obtained by other people, such as the use of the census, government research and trade press.

Qualitative Research: The analysis of opinions and motivations behind consumer habits. This does not analyze figures and it does not produce statistics.

Quantitative Research: The use of pre-set questions to gain statistical answers to analyze consumer habits. There are 3 elements to this research: sampling, creating the research method, and assessing the validity. 

Market Segmentation: The way a market is divided up into groups based on customers' age, gender or income to find where the demographic is being overlooked. 

Bias: A factor that impacts research, potentially making it unrepresentative or misleading. 

Sample Size: The number of people interviewed or surveyed in the research process. This should be large enough to give a representative figure. 

Product and Market Orientation

The most effective marketing often comes from a market-orientated approach, in which the needs of the customer are prioritized overall. This contrasts the product-orientated approach which focuses on the efficiency of the business and their products or services. 

The use of product orientation strategy may push the business to using 4 strategies when it comes to their sales: 

1. The hard sell - using a large sales force to convince customers to buy the product, this sales force will be incentivised to do well with a low basic salary, individualized sales targets and high commission rates. 

2. Cutting costs and prices - if the products are not selling well the managers may respond by cutting costs, which can lead to price cuts without risking loss of profit margins.

The problem with product orientation is that it tends to ignore changing consumer needs and consumer demands as it keeps the business doing what it would be traditionally doing, therefore not anticipating change in consumer demands. This happened with Sony when the iPod became popular: instead of adapting to the change in the demand for digital and the new "digital world", Sony kept trying to improve their Walkman, and so they became less popular and lost customer loyalty to rivals Apple. 

However there are also problems with market orientation, as some companies believe that customers are attracted/appeased by marketing gimmicks. This was seen in the collapse of Rover, who believed that their customers would be attracted to their range of "special edition" cars or cars with angular steering wheels. A greater focus on the quality and reliability of their cars would have avoided Rover's failure. 

Primary and Secondary Market Research 

One of the biggest causes of business failure is a poor understanding of their market, and this is why market research is often essential for a business to survive against competitors and on the market. For a new business, finding out the market size and strengths of competitors is essential to help the business survive. For an established business it can reveal where customers are starting to lose faith in a particular product or brand- which could provide an opportunity for the business to create an innovative new product. 

Secondary Research

This is often done first to find out what information already exists. There are 3 main types of secondary research a company can use for their research: use the internet, use trade press, and use government-produced data. 

1. The Internet

Google is often used as a search engine for research. This can provide the information needed to businesses, as well as links to online providers of market research (although they may charge) and relevant articles that can be sourced and cited for information. 

2. Trade Press

Some magazines provide information on market performances. Every major operating market has at least one magazine that provides this information, including statistics on expenditure and customer spending patterns, and these are written for those working within the trade. Many of these magazines can be found in public libraries. 

3. Government-Produced Data

Government-funded agencies such as National Statistics produce highly valuable reports full of information a business can use on things like population trends and forecasts. 

Primary Research

Once the background information has been gained, the business will then move on to getting information specific to their needs. This is the primary research. There are different method of primary research including questionnaires, surveys and interviews. 

For a company that has just started up, regular surveys for customer satisfaction is an important way of checking the quality of the customer service. Small companies can take advantage of 2 main types of primary research:

1. Retailer Research

The people closest to the market are those who would have the best understanding of social trends, brand loyalties and the importance of price and packaging, which is crucial information for a small business if they want to expand and become successful. 

2. Observations

When setting up a business that provides a service the location is everything as it can help analyze the number of pedestrians (and also traffic) moving past the potential site compared to that of a rival company. 

However larger companies need to use different methods as their market research will focus mainly on product development. When developing new products there is a market research process a business often uses, as shown below (the example we will use here is for a new flavour of chocolate):

1. Developing the Product Idea

A group discussion among those who regularly buy chocolate, a collection of both young people and the older generation is carried out before the product testing happens to gain an idea of what customers want.

2. Product Testing 

A taste test happens with a sample of 200+ chocolate buyers to make the results representative. This may happen on street corners or in a hall, and helps to develop and understanding into the market and whether they like it or not. 

3. Brand Name Research

Carrying out quantitative research using a questionnaire or poll to a representative sample of 200+ potential customers. 

4. Packaging Research

Again this involves carrying out quantitative research by using questionnaires or polls to a representative sample of 200+ people. 

5. Advertising Research 

Group discussions run by psychologists will allow the business to discover which method of advertising has the strongest effect on their product image and recall, helping them to choose the best method of advertising. 

6. Total Proposition Test 

Quantitative research is done using a questionnaire and product samples on at least 200+ potential consumers to test the level of purchase interest and to help make sales forecasts.

Qualitative Research 

This is in-depth research into customer motivation and the motivations behind customer attitudes and buying habits. No statistics are produced from qualitative research, what is produced are thoughts and opinions that can be analyzed. This research is usually done by psychologists who know how to interpret how people say things. There are 2 key types of qualitative research:

1. Group Discussions (also known as Focus Groups)

These are free ranging discussions led by psychologists among groups of six-to-eight consumers. The leader of the group will have a list of topics for discussion but will be free to discuss and follow up any points made by a group member. Group discussions are good because any problems or opportunities are revealed that the company may not have noticed, and consumer psychology is also revealed, allowing, for example, the business to analyze the importance of image and peer pressure in the group.

2. Depth Interviews

These are informal interviews between a psychologist and an individual consumer. They have the same function as a focus group, but they avoid having group opinions swayed by one influential member of the group.

Quantitative Research

This is the use of pre-set questions to gain statistically valid information that can be used to analyze the market. This information can then be used to see where consumer trends are and to analyze demographics which can be useful for the business to help find their target market. 

There are 3 key aspects to quantitative research:

1. Sampling

The business must ensure that the research results will be representative of the whole population, even though a small selection of the population are interviewed. 

2. Avoiding Bias

The questionnaire used must be written in a way that avoids bias but meets the set research objectives.

3. Validity

The business must assess the validity of the results to ensure that the results of the questionnaire can be used. Invalid research will just be a waste of time, money and resources.

Logic Chain for Market Research

1. Set realistic research objectives

2. Write an unbiased questionnaire

3. Choose the right sampling method

4. Set a representative sample size

5. Get valid and reliable results. 

Limitations of Market Research

The main problem with market research is the accuracy of the results. People can often give false answers to questions, especially in group discussions if a particularly influential person is able to sway group opinion. This can be avoided by using a large sample of people, as if a lot of people are used any results that seem false can be ignored. 

Validity of the results is also a huge problem with market research. This process can reveal true consumer opinions, such as the level of interest in a new flavour of crisps, but it can be said that market research cannot be used to see potential in real leaps forward in terms of innovation. 

Limitations of Sample Size

Getting a representative sample size can be difficult as you need to get a sample big enough to reflect the opinions of the masses and to gain statistical confidence in the meanings of the findings. A sample of 10 people is not enough as any variations in the results may not be meaningful. A sample of 1000 people gives a high level of confidence , however it is unrealistic for all businesses to use a sample of 1000 people as it can be quite costly. A good sample size to use would be 100 people as it is a large sample size that can provide meaningful information for the business without being too expensive. 

Limitations of Sample Bias

Despite having a larger sample size it is still possible to get inaccurate information from the sample due to sample bias. The best way to avoid a sample bias is to ensure that the people in the sample have no ties to the business involved, and this can be done by not only hiring an external company to perform the questionnaire, but also doing checks prior to having people do the survey. 

The Use of IT to Support Market Research 

Websites

Many websites can automatically create questionnaires for customers, targeting everyone who visits the page through the home page, or focusing on a sub-group such as those searching for specific products. Despite seeming like a great way to get "free" information, this comes with a lot of negatives, these being that they take a lot of time to set up and the results can be easily questionable, and there can be bias towards those who have a lot of time on their hands, or those who think highly of the product/brand. 

Social Media

Social media has allowed businesses to communicate more with their potential customers, which creates many benefits, such as the allowing of the business to gain a fuller understanding of their customer needs and what they love or hate about the business, This allows the business to gain better results from their market research, as customers can interact more with the people running the business. The use of social media also allows the business to gain more customer loyalty due to the direct communication between the customer and the management. 

Databases

The use of things like loyalty cards and similar schemes, such as the Tesco Clubcard scheme, enable a business to set up a multi-million user database. This allows the business to analyze the database to find the results to any quantitative research question, such as what percentage of purchases of Lynx are to households with boys under the age of 15. This form of research easily outweighs the benefits and the ease of questioning a small sample of customers. 

Market Segmentation

This means to find a way to divide a market into groups in order to identify gaps in the market. This is how companies acknowledge that all customers are not the same, and some have different demands and needs to others (such as those that are lactose or wheat intolerant). One market can be broken down into smaller segments in which people have common demands and characteristics, such as similar likes and dislikes, or similar ages. If the segmentation is successful customer satisfaction can increase and this can, in the long term, lead to an increase in company profits- a customer may be willing to pay more for a product focused purely on the subject they are interested in rather than the general product. 

Small companies find market segmentation useful as it allows them to break into a large established market. For larger companies market segmentation can provide two main possibilities for growth:

1. To add a niche product to a portfolio already dominated by the mass market

2. To create a variety of niche brands through multiple segments of the market to create a market-leading position. 

Successful market segmentation happens as follows:

1. Research 

The business should research into the different types of customers in the marketplace, analyzing the different age groups, genders, regions, and personality types. 

2. Identify 

Identify common tastes and habits within the groups, such as brand preferences, tastes in fashion or music. 

3. Focus

Identify the segment you wish to target and then conduct some qualitative research into customer motivations and customer psychology. 

4. Create

Create a product that suits the needs of the targeted segment and focus on the sale of that product to that particular segment.