The purpose and methods of market research

Welcome to Market Research!

Ever wondered why some new snacks become massive hits while others disappear from the shelves after a week? It’s usually because of market research. Think of market research as a business "doing its homework" before it spends any money.

In this chapter, we are going to look at why businesses need research, the different ways they collect it, and how they use all that information to make smart decisions. Don't worry if it seems like a lot of terms—we will break it down step-by-step!

1. Why do Businesses Conduct Market Research?

The main purpose of market research is to reduce risk. If a business knows what people want, they are less likely to waste money on a product that nobody buys.

According to your syllabus, businesses collect information about three main things:

1. Demand: How many people actually want to buy the product? Example: A surfboard shop needs to know if there are enough surfers in the local area to stay in business.
2. Competition: Who else is selling something similar? What are their prices like? Example: A new burger van needs to know if there is a McDonald's right around the corner.
3. Target Market: Who are the specific people most likely to buy the product? (This links back to age, gender, and income).

Quick Review: The "Big Three"

Always remember that market research helps identify market opportunities (gaps in the market) and gives insight into what customers and competitors are doing.

Key Takeaway: Market research helps a business understand its customers and competitors so it can avoid costly mistakes and stay competitive.

2. Primary vs. Secondary Research

There are two main ways to gather information. A great way to remember the difference is:
Primary = Personal (you do it yourself).
Secondary = Second-hand (someone else already did it).

Primary Research (Field Research)

This is new information gathered for a specific purpose. It didn’t exist until the business went out and collected it.

• Questionnaires & Surveys: Asking people a list of questions (online, via post, or in the street).
• Interviews: One-on-one conversations to get detailed answers.
• Focus Groups: A small group of people sit down together to discuss a product. Example: A group of gamers testing a new console and sharing their thoughts.

Benefits: The information is up-to-date and specific to your business.
Drawbacks: It can be very expensive and takes a long time to organize.

Secondary Research (Desk Research)

This is using information that already exists. Someone else has already done the hard work of collecting it!

• Internet Research: Looking at competitor websites or government statistics.
• Printed Press: Using newspapers, magazines, or trade journals.

Benefits: It is usually free (or cheap) and very quick to find.
Drawbacks: It might be out-of-date or not exactly what you need. Example: Using a 2018 report on toy trends to design a toy for 2025.

Key Takeaway: Primary is specific but expensive; Secondary is quick but might be out-of-date.

3. Quantitative vs. Qualitative Data

This is a common area where students get mixed up. Here is a simple trick to remember them:

Quantitative (think of the 't' for Tally): This is about numbers and facts. Example: "70% of people liked the blue packaging."
Qualilative (think of the 'l' for Like/Love): This is about opinions and feelings. Example: "I liked the blue packaging because it made me feel calm."

Did you know?

Businesses often use Quantitative data to see what is happening (e.g., sales are dropping) and Qualitative data to find out why it is happening (e.g., customers think the price is too high).

Key Takeaway: Quantitative = Numbers. Qualitative = Opinions.

4. Using Market Research to Make Decisions

Collecting data is only half the battle. A business must interpret the findings (look at the charts and tables) to make decisions. Two key things they look for are:

Market Size

The total value or volume of sales in the whole market. Example: The total amount of money spent on chocolate in the UK last year.

Market Share

The percentage of the total market that one specific business owns. You can calculate it using this formula:

\( \text{Market Share} = \frac{\text{Sales of one business}}{\text{Total sales in the entire market}} \times 100 \)

Common Mistake to Avoid:

Don't confuse market size with market share. Market size is the "whole pizza" (everyone's sales), while market share is "one slice" (your business's sales).

Key Takeaway: Businesses use data to spot trends, calculate their share of the market, and decide which products to launch or change.

Quick Summary for Revision

• Purpose: To understand demand, competition, and the target market.
• Primary Research: New, specific, but slow/expensive (Interviews, Focus Groups).
• Secondary Research: Existing, fast, but might be out-of-date (Internet, Newspapers).
• Quantitative: Data shown in numbers/charts.
• Qualitative: Data based on opinions/reasons.
• Market Share: Your business's percentage of the total market sales.

Keep practicing with some past paper charts and tables! You'll be a market research pro in no time!