Chapter 11: Market research

The role of market research

• Market research - is the process of gathering, analysing and interpreting information
about a market.

• A business needs to find out how many people would want to buy the product it is
planning to offer for sale.

• If there is not a very big market for the product, a great deal of money could be
wasted developing a product that not many people will buy.

• It could even cause the business to fail altogether.

• Therefore, it is very important that market research is carried out accurately.

• By carrying out market research, a business can identify customer needs in a

changing and competitive international environment.

• This is essential if a business is to remain competitive in the future.

Product-orientated and market-orientated businesses

Product-orientated businesses
• Product-orientated business - is one whose main focus of activity is on the product
itself.

• These businesses produce the product first and then try to find a market for it.

o Product-orientated businesses often produce basic necessities required for

living, such as agricultural tools or fresh foods
• These products may not have a brand name and are general products that consumers
need to buy.

• The producer and retailer are mainly concerned with the price and quality of the
product

• When new technologies are being developed, new products, such as the original
iPad, are launched on the market without first investigating possible demand for
them.

o Consumers may not buy these products until they have been fully tried and
tested and until advertising has persuaded them to purchase the products.

Market-orientated businesses
• Market-orientated business - is one which carries out market research to find out
consumer wants before a product is developed and produced.

• Market-orientated businesses believe that :

o They cannot usually afford to be product-orientated as they have national or

international markets.

o It is risky to produce products and hope that they will sell, without first carrying
out market research to find out if consumers will want the product.

o Each business has to identify the wants and desires of customers, both now
and in the future, in order to produce the right goods which will sell well and
make a good profit for the business.

o These businesses need to have a marketing budget.

• Marketing budget - is a financial plan for the marketing of a product or product range
for some specified period of time. It specifies how much money is available to market
the product or range, so that the Marketing department knows how much it may
spend.

Conclusion
• Market-orientated businesses are better able to survive in the market and be
successful because they are usually more adaptable to changes in customer tastes.

• They are able to take advantage of new market opportunities which may arise.
 • New products are launched with more confidence when customer needs have been
identified before the product is introduced on to the market.

Types of information
• Quantitative information - which answers questions about the quantity of something,

o For example ‘How many sports shoes were sold in the month of December?’ or
‘What percentage of children drink sugar-free cola?’

• Qualitative information - which answers questions where an opinion or judgement is

necessary

o For example, ‘What do customers like about a particular product?’ or ‘Why do

more women than men buy the company’s products?’

Primary research
What is primary research?
• Primary research - is the collection and collation of original data via direct contact
with potential or existing customers. (Also called field research.)

Advantages of primary research Disadvantages of primary

research

• It is up to date and relevant to the business undertaking • It can be expensive, for

it. example, individually
interviewing many
• First-hand research - It is usually planned and carried out
people.
by the people who want to use the data.
• It is not available
• It is most effective when it is used to gather information
immediately – it takes
which will help the business with a specific problem,
time to collect.
for example, to test the market to see if a new product
would be likely to succeed.
• It is not available to other businesses (unless they
undertake their own research).
The process of primary research

Methods of primary research

 questionnaires

Methods
focus groups of primary online surveys
research

interviews

Questionnaire

• Questionnaire - is a set of questions to be answered as a means of collecting data for

market research.

• Questionnaires may be conducted face-to-face (for example, in the street), by

telephone, by post or on the internet.

• Closed’ questions often require a Yes/No answer but ‘open’ questions allow
respondents to explain answers in their own words.

• Deciding what questions to ask is difficult if you want to be sure of getting accurate
results.

o Some questions may not be very clear, some questions may lead the
respondents to answer in a certain way which may not be what they really
think.

o The researcher also needs to decide whom to ask.

 Advantages of questionnaires Disadvantages of questionnaires

• Detailed qualitative information • If questions are not well thought out, the answers to
can be gathered about the product them will not be very accurate. It may be very misleading
or service. for the business if it is thought that a product is liked by
consumers, when in fact the respondents were only
• Customers’ opinions about the
saying they thought the product was quite attractive but
product or service can be
they would not actually buy it.
obtained.
• Carrying out questionnaires can take a lot of time and
• To encourage people to fill in the
money.
questionnaire, vouchers can be
offered or participants entered • Collating and analysing the results is also time-consuming.
into a ‘prize draw’.

Online surveys

• Online surveys - require the target sample to answer a series of questions over the
internet.

• These can be carried out on specialised websites using any internet-connected

device, including mobile phones.

• Researchers can design their own survey and post this on their website.

o The researcher will then email people to ask them to go to the website and
complete the questionnaire.

Advantages of online surveys Disadvantages of online surveys

• Fast, with quicker response times • Absence of interviewer to explain open-ended

than other forms of survey. questions or to ask follow-up question to gain more
detailed information.
• Cheaper than interviews or postal
questionnaires. • Cannot reach potential respondents who do not have
access to the internet.
• Easy to complete for the
participant. • Scope for fraud – some people will just answer an
online survey to gain any incentives being offered and
• Data collected can be quickly
not give honest answers, or they complete the survey
presented and analysed using IT
carelessly.
tools.

Interviews
 • Interviews - involve asking individuals a series of questions, often face-to face or over
the phone.

• When interviews are used, the interviewer (the person asking the questions) will
have ready-prepared questions for the interviewee (the person answering the
questions).

Advantages of interviews Disadvantages of interviews

• The interviewer is able to explain • Whether consciously or unconsciously,

any questions that the the interviewer could lead the
interviewee does not interviewee into answering in a certain
understand. way, resulting in inaccurate results due to
interviewer bias.
• Detailed information can be
gathered about what the • Interviews are very time-consuming to
interviewees like and dislike carry out and, therefore, they are often
about the product. an expensive way of gathering
information.

Focus groups

• Focus group - is a group of people who are representative of the target market.

• This is where groups of people (focus groups) agree to provide information through a
group discussion with a researcher present.

• The group might discuss a specific product or their reaction to an advertising

campaign, for example.

o This helps the business make future marketing decisions.

o Groups may also test new products and then discuss what they think of them,
explaining what they like and what they dislike about them.

Advantages of focus groups Disadvantages of focus groups

• They provide detailed • They can be time-consuming and

information about consumers’ expensive if conducted by a
 tastes and preferences. specialist market research agency.
• Interaction between members • Discussion could be biased if some
of the group can help the people on the panel are influenced
business understand the by the opinions of others.
reasons for people’s opinions. • Can be dominated by just a few
• Quicker and cheaper than people so the researcher will need
individual interviews. to be experienced to deal with this.

The need for sampling

 Sample - is the group of people who are selected to respond to a market research
exercise, such as a questionnaire.

Random sample

• Random sample - is when people are selected at random as a source of information

for market research.

• Every member of the population has the same chance of being selected.

• People are selected at random (often by computer)

o for example, every hundredth name in a telephone directory.

• Advantage - is that everyone has an even chance of being picked.

• Disadvantage - Not everyone in the population may be a consumer of the particular

product being investigated.

Quota sample

• Quota sample - is when people are selected on the basis of certain characteristics
(such as age, gender or income) as a source of information for market research.

• If they are carrying out street interviews, the researchers can choose whom to
interview, providing they ask a certain number of people with particular
characteristics.

o For example, they may be required to interview 20 people from the age group
10–25, 30 people from the age group 26–45, and 20 people from the age group
46–60. The researchers can then find out the views of these specific groups.
Secondary research
What is secondary research?
• Secondary research - uses information that has already been collected and is
available for use by others. (Also called desk research.)

Advantages of secondary research Disadvantages of

secondary research

• Often a much cheaper way of gathering • Data may have been

information than primary research, as the data collected several
collection has already been done by others. years ago and be out
• It can be used to help assess the total size of a of date.
market by finding out the size of the population • Data is available to all
and its age structure. This type of information businesses – not just
could not be obtained by primary research. collected for the sole
• Newspapers may carry vital economic forecasts if use of one business.
you are trying to assess when a recession is coming • Data may not be
to an end and your sales are likely to increase completely relevant
again. as it was not collected
• It is usually quicker to obtain secondary data than with the needs of one
to undertake primary research. business in mind.

Internal sources of secondary data

• A lot of information may be readily and cheaply available from the business’s own
records.

• Relevant quantitative information will be available from the Sales department, which
will hold detailed data on which brands of products have been selling well and in
which area.

• The Finance department could give detailed information on the costs of

manufacturing products or providing services.

• Examples of internal sources of information include:

o Sales department records, pricing data, customer records, sales reports

o Opinions of Distribution and Public Relations personnel

 o Finance department

o Customer Service department.

External sources of secondary data

• External sources are many and varied and tend to depend on the type of product that
is being researched.

• Information from external sources is inevitably of a general nature as it has been

gathered for some purpose other than the research that is being undertaken.

• The data can still be useful, as long as the limitations are taken into account.

• External sources include :

o Government statistics
o News paper
o Trade associations
o Market research agencies
o Online surveys
 Who carries out market research?
• Businesses can carry out their own research into different aspects of the market for
their existing product or the possible market for a new product.

• Secondary research is often easier and cheaper to carry out, as primary research may
be too expensive for the business to undertake itself.

o The business may decide that it can afford to pay a specialist market research
agency which will carry out whatever research it is asked to do.

• It will find out consumers’ spending habits as well as what they think about an
individual business’s products and its competitors’ products. However, these
agencies are expensive to use.
Factors influencing the accuracy of market research data
Factor Explanation

Reliability how carefully the sample was drawn up

Relevance the way in which the questions in the questionnaire were phrased to ensure
honest responses
the sample selected it is unlikely to be truly representative of the total population, but it needs to be
as near as is possible. If a quota sample is used, rather than a random sample, it
is easier to get more accurate data
Size of the sample The larger the sample, the more accurate the results are likely to be, but the
more expensive will be the research. Therefore, the researchers need to decide
how many people will give them the accuracy they want and can afford
The wording of the trying out questionnaires on a small group of people before using them on a
questions large sample can help to show if any of the questions could be misinterpreted.
Any such questions can then be rephrased
Who carried out the secondary research may not be as accurate as first thought because it was
research initially carried out for some other purpose and you would not know how the
information was actually gathered
Bias articles in newspapers sometimes have a bias and important information may
be deliberately left out
Age of the statistics can quickly become out of date, no longer relating to current trends in
information consumers’ buying habits, but reflecting what they used to be spending their
money on.

How to design and use a questionnaire

Writing the questions
• When deciding what questions to ask, it is advisable to ask no more than 12
questions.

• Keep the questions short and clear. It is a good idea to keep the answers simple too,
for example, ask for yes/no answers or provide a choice from which the respondents
have to choose.

• If you want to know the age of the interviewee, give a choice of age groups, for
example 21–40.

• Avoid open-ended questions unless people’s opinions are sought.

 • Be careful not to lead the interviewee into an answer that may not be true by asking
too direct a question.

• Think about the order in which you ask the questions. Be logical!

Carrying out the questionnaire

• Before going out and asking the questions, think about how you will ask the
questions and how you are going to record the results. You may need to create a grid
to put the respondents’ replies on.

• How many people are you going to ask?

• At what time of the day are you going to carry out the questionnaire? Will this affect
who will answer the questions?

• Where are you going to carry out the questionnaire? Will this have an influence on
whom you ask?

Presentation of data from market research

• When information has been gathered as part of market research, it may be difficult to
make sense of what it means.

• The raw data will need to be converted into a form which is easy to understand.

• The significant points need to be made clear.

o For example, after conducting a questionnaire, it may not be clear which

answer has the greatest number of ‘yes’ responses.

• The type of data that has been collected and what it is to be used for will affect the
form of presentation which will be used. Information can be displayed in different
forms:

A table or tally chart

A chart

A graph