1.3.5 Understanding the consumer

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    Market research – gathering and interpreting of information about customer needs and                                 preferences. Process of gathering data to understand current and future                       needs and the market

    Market research can be used to identify a market gap (something under-provided in the market) and helps show what customers buy and why. Business decisions can be based off the analysis of market research information.

    Why do businesses do market research?

    • To identify what is happening in the market.
    • To predict what will happen in the market in the future.
    • To explore new possibilities in the market

    There are two types of market research: primary and secondary:

    Primary is research that has not been carried out before which is first-hand information e.g. questionnaire/ survey, focus group, observation and test marketing.

    Secondary research is that which has been previously carried out by a third party such as the government or an organisation. Sources of this include the library, the internet and newspapers.

    Qualitative data – market research that gives results based on feelings and opinions.

    Quantitative data – market research that gives numerical results and can be analysed    statistically

    QUESTIONNAIRE

    • Asking pre-planned and closed questions which can involve the use of visual evidence.
    • Carried by the business itself or by an agency on its behalf.
    • Advantages: reactions can be analysed, misunderstandings can be clarified, visual material can be used.
    • Disadvantages: time consuming, false answers may be given under pressure, too many closed questions will not give good overall response.

    FOCUS GROUP

    • Group of consumers brought together by business or agency to discuss and test products.
    • Can be certain social groups specific to product or mixed for general public.
    • Advantages: realistic and detailed answers can be gained, taste pf a product can be analysed.
    • Disadvantages: only possible to have small sample so opinions may not be representative, expensive if done on a large scale.

    OBSERVATION

    • Watching consumers in stores or going past stores to analyse patterns/ general reactions.
    • Advantages: fairly cheap and easy, can reveal useful information.
    • Disadvantages: only observation so reason cannot truly be determined.

    CONSUMER PANELS

    • Consumers are asked (often by an agency) to test a product over time. They then ‘test’ it and then answer a survey.

    TEST MARKETING

    • Selling the product in a restricted section of the market e.g. geographically.
    • Advantages: avoids costs of a national launch, consumer reaction to the product can be used to make improvements before the national launch.
    • Disadvantages: particular section of the market may not be representative of the views of the whole country.

    Limitations of market research

    • Some markets change very quickly (dynamic markets) making market research invalid. These markets are often product-oriented as they don’t do market research and focus on making and developing the product.
    • Smaller samples of research may be biased as they may not be representative of the population.
    • Can be expensive so smaller businesses cannot afford to carry it out.
    • Especially difficult to research foreign markets.
    • Sometimes product decisions may be taken by managers who have not understood/factored in the results of market research (reduces impact of market research.

    Market segmentation – dividing a broad market into subsets of similar consumers, by                                             needs, interests, or purchasing behaviour.

    Markets can be segmented in a manner of ways:

    • Age – Religion/ethnicity                 – Hobbies
    • Socioeconomic group – Education level                     – Family size
    • Income – Geographical area                – Gender

    Different buyers (segments) require different products and marketing approaches. Businesses can target each segment by adapting products and advertising to best suit them.

    Socioeconomic groups are a way of classifying according to their income (and so their spending power). This is important as the income of their target audience affects how much they can charge for the product. It is determined by the occupation of the head of the household, from which the family is put into a social group.

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