3.9 - The Purposes of Market Research
The definition and scope of market research
Market research involves gathering and analysing information about customers, competitors, and market conditions to inform business decisions. It covers a wide range of activities that help businesses understand buyer behaviour and preferences.
Areas covered by market research
Market research examines customer profiles, including who buys products and the reasons behind their choices. It also looks at reactions to changes in products, such as new designs, pricing strategies, promotional methods, packaging options, or online sales channels.
This process supports most aspects of business planning by providing data-driven insights.
The main purposes of market research
Market research serves several key functions that help businesses make informed choices, from entering new markets to improving existing products.
Identifying key market characteristics
Market research helps businesses evaluate:
- Market size - Assessing the total value or volume of sales to decide if entry is viable.
- Market growth - Determining if sales are increasing or decreasing over time.
- Competition levels - Analysing the number of rivals and their influence in the market.
Reducing risks in new product development
Introducing new products can be costly and uncertain. Market research minimises these risks by gauging potential customer interest before full launch and testing product ideas to predict success rates, which is often the primary goal of research.
Market research in the new product development process
Market research is integrated at each stage of creating new products.
| Stage | Market research activities |
|---|---|
| Identifying consumer needs | Using primary and secondary methods to explore customer preferences and competitor offerings. |
| Designing product and packaging | Gathering feedback from consumer panels on prototypes. |
| Positioning the brand and testing ads | Evaluating product image and promotional materials before release. |
| Launching and monitoring the product | Tracking sales performance and customer opinions post-launch. |
Establishing customer profiles
Market research identifies who the likely buyers are, including their age groups, income brackets, and social backgrounds. This information allows businesses to focus on suitable market segments and tailor offerings to meet specific needs.
Analysing sales patterns and market trends
For established products, market research explains reasons for sales fluctuations, such as a drop in demand despite overall industry expansion. It also identifies ways to address issues, like creating targeted campaigns to boost performance.
Forecasting future demand
Market research predicts shifts in customer needs by examining factors like changes in society or income levels, and potential over- or under-production risks without accurate forecasts. For example, a clothing firm might study lifestyle trends to estimate future sales of casual wear.
Evaluating product features and marketing elements
Market research tests consumer reactions to various designs, styles, and packaging options, as well as different promotional approaches. Feedback from these tests shapes the final product to better align with customer preferences.
Developments in market research methods
Advances in technology have transformed how businesses collect and analyse market data, making it faster and more insightful.
Electronic data collection
- Surveys are now distributed and completed using digital devices like tablets and smartphones.
- Businesses can access large datasets quickly through online databases.
Loyalty card programmes
- Stores track buying habits, visit frequency, and customer details.
- This data supports personalised marketing, such as custom discounts on frequently bought items.
- It reduces costs by directing promotions only to interested customers.
Social media analysis
- Tools process data from platforms, messaging apps, and user behaviour.
- Software interprets emotions and opinions from text, images, videos, and audio.
- This enables deeper insights into customer attitudes and feelings.
Surveys via mobile phones
- Low-cost projects with ready-made questionnaires deliver rapid results.
- Response rates are higher due to ease of access.
- Analysis is automated for quicker insights.
The cost-effectiveness of market research
While market research requires investment, it has become more affordable and valuable for businesses of varying sizes.
Benefits of cost-effective research
- New methods, like mobile surveys, lower expenses and broaden access.
- Effective research generates returns through improved sales and profits.
- Global expenditure on market research rose by over 5% to US$82 billion, reflecting its growing importance.