Topic 1.2- Spotting a business opportunity

What are customer needs?

Customer needs are the wants, expectations and preferences that customers have when buying a good or service.

What are the six main customer needs?

• Price – Customers need value for money so they can buy within their budget and feel the purchase is fair.

• Quality – Goods/services must be reliable so customers trust the brand and avoid wasting money.

• Choice – Customers want variety so they can find exactly what they want and be satisfied.

• Convenience – Services must be quick and easy so customers save time and effort.

• Efficiency & reliability – Services must be consistent so customers can plan confidently and depend on the business.

• Design – Products/services should look attractive or appealing to meet emotional needs, boost confidence, and encourage repeat purchases.

Why is identifying and understanding customer needs important?

• Helps a business design goods or services that meet customer expectations

• Creates a strong USP, making the business stand out in a competitive environment

• Enables targeting the right market segment by understanding age, income, and attitudes

• Builds customer loyalty, turning occasional customers into regular, repeat buyers

• Positive word-of-mouth attracts new customers, increasing sales revenue

• Boosts profits if costs are controlled, as more loyal customers generate consistent revenue

• Reduces risk by making decisions based on market research rather than guesswork

What is meant by identifying and understanding customer needs?

• Identifying customers: finding out who they are: their age, gender, incomes, where they live and what they want.

• Understanding customers: learning why customers do what they do, making it easier to see how to make a product that better suits them.

What is market research?

• Market research is the process of gathering, recording, and analysing information about the market, including customers, competitors, and market trends.

What are the 4 main purposes of market research?

• Identify and understand customer needs

  • Understand what customers want, how they behave, and what influences their decisions.

  • Helps design products/services that meet expectations, build a USP, and increase customer loyalty.

• Identify gaps in the market

  • Shows which customer needs are unmet or poorly served.

  • Allows the business to spot market opportunities before competitors.

• Reduce risk

  • Reduces the chance of failure when launching new products.

  • Highlights if customers do not want the product or if demand is too low to cover costs.

  • Uses quantitative research to estimate demand and guide decisions.

• Inform business decisions

  • Provides accurate information for better evidence-based decisions.

  • Guides strategy, marketing, pricing, and product development.

What are the 2 methods of market research?

1. Primary research

• Conducted first-hand and tailored to a company’s specific needs.

• Provides specific, detailed information relevant to the business.

• Example: estimating sales for a new chocolate bar.

• Limitation: can be time-consuming and expensive.

2. Secondary research

• Uses existing research carried out for general purposes.

• Provides background information on the market, customers, or competitors.

• Advantages: cheaper and quicker than primary research.

• Limitations: may be outdated or less specific.

What are the two types of data in market research? 

1. Qualitative data

• In-depth research into opinions, views, and motivations of a small group.

• Helps understand why customers buy certain products or services.

• Provides insight for marketing messages or product development.

2. Quantitative data

• Factual, numerical research among a large enough sample for statistical reliability.

• Example: survey of 500 people aged 15–24 years.

• Shows trends, percentages, and market demand.

What is a focus group?  

• A group discussion among people selected from the target market.

• Uses psychology to provide qualitative insights into consumer attitudes and opinions.

What are the 4 main methods of primary market research?

• Online survey 

• Questionnaire

• Focus group

• Observation 

What are the advantages and disadvantages of an online survey? 

Advantages:

• Low cost and can be distributed to large numbers very quickly.

• Allows regular tracking of customer satisfaction or opinions (e.g. monthly).

• Data is easy to quantify and analyse using software.

Disadvantages:

• Response sample may be unrepresentative (mainly people with spare time).

• Usually provides surface-level answers, as questions are short and closed.

• Respondents may rush answers, lowering accuracy.

What are the advantages and disadvantages of a questionnaire? 

Advantages:

• Helps assess potential demand, target customer characteristics, and likely price customers will pay.

• Can gather quantitative data, which is useful for spotting trends.

• Can be distributed both online and in-person, giving flexibility.

Disadvantages:

• Time-consuming to design well and collect enough responses.

• Poorly written questions can be leading or biased, resulting in inaccurate data.

• Some people may not answer honestly or may skip questions.

What are the advantages and disadvantages of a focus group? 

Advantages:

• Provides rich, qualitative insight into customers’ feelings, motivations, and attitudes.

• Participants can discuss openly, giving firms deeper understanding than surveys.

• Useful for decisions about branding, advertising, product features, and packaging.

Disadvantages:

• Expensive and requires skilled moderators to run effectively.

• Social pressure or interviewer influence can affect people’s responses.

• Small group means data is not representative of the whole market

What are the advantages and disadvantages of an observation? 

Advantages:

• Shows actual customer behaviour, not claimed behaviour—useful for spotting layout problems.

• Can identify bottlenecks, areas customers ignore, or products that attract attention but aren’t bought.

• No direct interaction, so behaviour is often more natural and unbiased.

Disadvantages:

• Time-consuming and sometimes costly (e.g. staff observing, video equipment).

• Provides no reasons behind behaviour—no insight into customer attitudes.

• Hard to generalise results unless many observations are done.

What is market segmentation?

• Market segmentation means dividing customers within a market into smaller groups with common needs or wants, then finding a product or service that fulfils those needs or wants.

• Segmentation helps companies to focus on just one type of customer

What are the 5 ways a market can be segmented?

• Location – groups customers by region or area with distinct needs or preferences.

• Income – targets customers based on spending power and ability to afford different products/services.

• Lifestyle – considers interests, hobbies, values, and motivations.

• Age– divides customers into age groups, allowing tailored products and marketing.

• Other demographics – includes gender, race, religion, family status, supporting personalised marketing.

What is market mapping? 

• A diagram showing where existing brands are positioned based on two key features of a market (e.g. high price–low price, luxury–everyday, filling–light).

• Helps a business understand competition, customer perceptions, and where products sit in the market.

What is a gap in the market?

• An empty area on a market map where no brands currently operate.

• Suggests a potential business opportunity to meet an unmet consumer need.

What is the purpose of market mapping?

• To identify market gaps and overcrowded sectors.

• To avoid over-reliance on one part of the market.

• To help with new product development (NPD) by showing where demand might exist.

What can a business do to ensure a market map is right?

• Use high-quality market research:

  • Large samples

  • Surveys, focus groups, customer interviews

• Ask customers which factors matter most so the two chosen axes reflect real consumer views (e.g. price, luxury, modern/traditional).

• Base the map on customer perceptions, not just business assumptions.

Why a business might not be able to capitalise on a gap?

• No effective demand → customers don’t actually want the product.

• Gap exists for a reason → too risky, too niche, too costly to produce.

• High development + launch costs → business cannot afford it.

• Strong competitors may enter faster.

• Product may fail to meet customer expectations, even when the gap looks attractive.

What is a competitive environment? 

• The strength and intensity of competition between businesses in the same market.

• Shows how many rivals there are and how strongly they compete on price, quality, service, range, location, innovation, etc.

What features of your competition should a business analyse?

• Price

  • Competitor pricing levels and what is included (value for money).

  • Helps judge whether customers see rivals as cheap, premium, or overpriced.

• Quality

  • Reliability, performance, freshness, durability.

  • Customers now expect quality as a minimum standard, so weak quality is a vulnerability.

• Location

  • Convenience, footfall, accessibility.

  • A strong location can attract more customers; poor location reduces demand.

• Product Range

  • Variety offered by rivals; gaps in the range create opportunities.

  • Helps avoid competing directly in overcrowded areas.

• Customer Service

  • Speed, accuracy, politeness, after-sales support.

  • Weak service creates a clear competitive advantage for new entrants.

Why is careful competitor analysis essential for a new business?

• Helps identify weaknesses in rival businesses that a new firm can exploit.

• Shows whether the market is too competitive, reducing chances of survival.

• Prevents entering markets where rivals are too strong or well-established.

• Ensures decisions on price, quality, range, location, and service match customer expectations.

• Reduces risk by avoiding markets already saturated or declining.

Competition forces firms to be at their best. Competition forces firms to:

• Offer good-quality products and strong service to retain customers.

• Keep prices competitive to avoid losing demand to rivals.

• Innovate by developing new/unique products to stand out and escape price competition.

What might fierce competition force firms to do that can have negative consequences?

• Cut costs by cutting staff, harming morale and reducing customer service quality.

• Use short-term price cuts, which reduce profit margins and can weaken long-term performance.

• Adopt unethical practices, such as low-quality ingredients, poor treatment of workers, or misleading information, to reduce costs.

What is Innovation?

• Developing new or original products or processes to differentiate from rivals.

• Helps gain competitive advantage and avoid direct price competition.

What does Unethical mean?

• Behaviours or decisions that are morally wrong, even if legal.

• Includes misleading customers, environmental harm, or exploiting workers.