The purpose of market research
Market research is gathering information about customers, competitors and the market. The specification gives four purposes:
• To identify and understand customer needs — what people want, and what they will pay. • To identify gaps in the market — a group of customers whose needs nothing currently meets. • To reduce risk — evidence in place of guesswork, so less money is spent on products that will not sell. • To inform business decisions — pricing, location, product range and promotion all rest on what the research shows.
Reducing risk is the one that connects to the rest of the course. It does not remove risk, but it lowers the chance of the failure and financial loss covered in 1.1.2.
- Market research
- gathering information about customers, competitors and the market, in order to understand customer needs, identify gaps, reduce risk and inform decisions
- Gap in the market
- a group of customers whose needs nothing currently on the market satisfies
Methods of market research
Primary research is information the business collects itself, first-hand, for its own purpose. Secondary research is information that already exists, collected by someone else for some other purpose.
The four primary methods differ in what they are good for:
• Survey and questionnaire — reach many people and produce numbers that can be compared, but the answers are limited to the questions asked. • Focus group — a small discussion that reveals why people feel as they do, but too few people to generalise from. • Observation — watching what customers actually do rather than what they say. Useful because behaviour is more honest than opinion, but it cannot tell you the reason.
- Primary research
- information the business collects itself, first-hand, for its own purpose
- Secondary research
- information that already exists, collected by someone else for some other purpose
The use of data in market research
Qualitative and quantitative data. Quantitative data is numerical — how many, how much, what percentage. It is easy to compare and to put in a chart, but it does not explain itself. Qualitative data is descriptive — opinions, reasons and feelings. It explains why customers behave as they do, but it is based on small numbers and is open to interpretation.
Most useful research uses both: the numbers show what is happening, and the opinions suggest why.
The role of social media in collecting market research data. Social media gives businesses a fast, cheap way to gather information: polls and questions posted directly to followers, comments and reviews read as they appear, and data on which posts and products people engage with. It also allows a business to see what customers say about competitors.
The limitation is that it only reaches people who already follow the business and who use that platform — so the sample is not representative of everyone.
The importance of the reliability of market research data. Reliable data is data you can trust to reflect the real market. Unreliable data is worse than none, because it leads to a confident decision that turns out to be wrong.
What makes data unreliable:
• Too small a sample — asking ten people tells you very little about thousands of customers. • An unrepresentative sample — asking only existing customers, or only people in one place, or only people on one social media platform. • Out-of-date information — customer tastes and competitors change. • Biased or leading questions — "Don't you agree our prices are good value?" invites one answer. • Dishonest answers — people say what sounds acceptable rather than what they would really do.
Worked example
A business surveys 15 of its regular customers and finds 90% would buy a new premium product. Evaluate the reliability of this research.
- Check the sample size: 15 is very small, so one or two answers swing the percentage a great deal.
- Check who was asked: regular customers already like the business, so they are more likely to be positive than the market as a whole.
- Note what is missing: it tells the business nothing about people who do not currently shop there — who would have to be attracted for the product to grow sales.
- Note the honesty problem: saying you would buy something costs nothing; actually buying it does.
- Reach a judgement and say what would improve it.
Answer: It is not reliable. The sample is far too small, and asking only regular customers is unrepresentative — they are already favourable and say nothing about attracting new buyers. Surveying a larger, mixed group including non-customers, and testing with a product trial rather than a stated intention, would give a much more trustworthy result.
Common mistake
Primary and secondary describe who collected the data, not whether it is numbers or opinions. A government report is secondary and quantitative; a focus group is primary and qualitative. Questions often test both distinctions at once.
- Quantitative data
- numerical information — how many, how much, what percentage — which is easy to compare but does not explain itself
- Qualitative data
- descriptive information — opinions, reasons and feelings — which explains why customers behave as they do but is harder to compare
Before you practise
- Purposes: identify and understand customer needs, identify gaps in the market, reduce risk, inform business decisions.
- Primary research is collected first-hand: survey, questionnaire, focus group, observation.
- Secondary research already exists: internet, market reports, government reports.
- Primary is specific and up to date but expensive; secondary is cheap and quick but may not fit the question.
- Quantitative data is numerical and comparable; qualitative data explains why but comes from small samples.
- Social media collects data cheaply and fast, but only reaches followers on that platform.
- Unreliable data comes from small or unrepresentative samples, out-of-date information, biased questions and dishonest answers.