1.1.2 Market research

Product orientation

The business develops products based on what it is good at making, rather than what a customer wants

The tools of product orientation

• Product research

• Product testing

• Product focus

Benefits of product orientation

• High quality products

• Brand reputation - lead to strong customer loyalty

Limitations of product orientation

• Ignores customer needs

• Risk of outdated products

• Less flexible - business may struggle to adapt quickly to changes in consumer preferences to competition

Market orientation

A business reacts to what customers want and designs products that meet customer needs

Tools of market orientation

• Market research

• Market testing

• Customer focus

Benefits of market orientation

• Meets customer needs

• Higher sales - producing products that people want to buy/need

• Reduced risk of failure

Limitations of market orientation

• Expensive and time-consuming - market research costs money and slows down decision making

• Less innovation - may focus too much on current needs

Purpose of market research

• Reduces risk when launching new products or entering new markets

• Anticipate the future needs and wants of consumers

• Understand consumer behaviour

• Identify potential consumer demand

• Identify how much consumers are prepared to pay for a product/service

• Identify competitors and gauge their potential strengths and weaknesses

Quantitive data

Numerical data

Qualitative data

Data based on thoughts and opinions

Primary research

The process of gathering information that is new and does not already exist, directly from consumers in the target market using field research methods

Examples of primary research methods

• Surveys - asking a series of questions to a certain number of respondents, results are extrapolated to be true for the wider population, also online survey tools such as Survey Monkey to reach a wider ranger of respondents

• Observation - hiring someone to stand in an appropriate location and study consumer behaviour, packaging, placement

• Interviews - similar to a survey, interviewer asks questions, allows interviewee to ask follow-up questions, but takes longer

• Test marketing - free samples are provided for a limited period to the target market to gauge their response to the product

• Focus groups - free-range discussions led by a marketing specialist collect detailed feedback from a group of people in the target market, usually 12-15 people for a couple of hours

Advantages of primary market research

• Information not available to its rivals

• Business can get in-depth information from respondents, that is entirely relevant to them

• More up-to-date research

Disadvantages of primary market research

• The sample size may be too small and unrepresentative of all customers

• Bias may mean that researchers can guide respondents to answer questions in a particular way

• A business may need to hire a specialist market research agency to help, expensive and time-consuming

Secondary research

The collection, compilation and analysis of data that already exists.

Examples of secondary market research

• Government sources - websites, ONS (office national statistical census)

• Trade publications - real estate magazine, the economist, Harvard business review

• Market reports - stock movements, companies house, minted

• Internet sources - websites

• Newspapers/magazines/TV/radio - national papers, daily mail, the sun, local paper, hello, vogue, ITV, channel 4

Advantages of secondary market research

• Quicker to collect, already available

• Information is often free, or cheap to collect

• Suitable for small businesses lacking large budget

Disadvantages of secondary market research

• May lack relevance as its been collected for a different purpose

• May note be factually correct

• Can be expensive to purchase

• Information may be out of date

Sampling

The gathering of data from a sample of respondents, the results of which should be representative of the population as a whole

Bias

When research findings cannot be trusted because of the way the research has been carried out

ICT

Information and communications technology

Ways in which ICT can support market research

• Company websites - allows businesses to collect primary data cheaply, tracking consumer searches and analysing customer reviews

• Databases - used to store large amounts of customer information, Tesco loyalty cards, collating customer email addresses

• Social networking - gathering information about consumers via online social channels (Twitter, Facebook), also useful for running quick polls and surveys or tracking opinions about brands

Advantages of using social media for market research

• Broad reach - reach millions

• Ability to target

• Free or low cost

• Personal - communication on a personal basis with individual customers and groups

• Fast

• Easy - no high levels of IT skills and complex equipment needed

Market segmentation

When a single market is divided into submarkets or segments, where each segment represents a slightly different set of consumer characteristics

The different types of segmentation

• Geographic segmentation - markets can be segmented based on where people live (city, town, village)

• Demographic segmentation - splits people up into different groups according to different characteristics such as age, gender, religion, lifestyle

• Psychographic segmentation - groups customers according to their social class, lifestyle, interest and personality

• Behavioural segmentation - groups of customers based on the buying behaviour of the consumer rather than their characteristics

Advantages of market segmentation

• To increase market share - reach new customers and have a better understanding of the market

• To assist new product development - gaps in market segments can be used to introduce new products

• To extent products into new markets

• To identify ways of promoting a product

Disadvantages of market segmentation

• Not everyone within a segment will behave the same way

• It may be difficult to identify a segment and consumers can belong to multiple at the same time

• Segmentation requires more detailed market research

• Recognising changes in the segments

• Failure to meet customers not included in your chosen segment