Unit 8. Market Research

Key words: market research, consumer goods and services, durable goods, non-durable goods, capital goods, fast moving consumer goods (FMCGs), product development, research and development (R&D), patents, target market, quantitative and qualitative data, primary and secondary research, primary and secondary data, internal and external data sources, target population, random sample, sampling, stratified sample, quota sample, systematic sample, face-to-face surveys, telephone survey, postal survey, open-ended interview, consumer panel, electronic monitoring, test marketing

8.1. What is Market Research?

The identification of consumer wants

A business will only be successful if consumers want and can buy what it produces both now and in the future. Market research can reduce the risk of producing products that do not appeal to consumers by helping a firm to discover information about their consumers.

Market research involves the gathering, collation, and analysis of data relating to the consumption and marketing of goods and services. The purpose of such research is to identify whether there is want for a particular product – a gap in the market – or whether a want can be created among consumers by persuasive advertising.

Market research information

In order to identify consumer wants for consumer goods and services and capital goods, firms need to gather information on the following:

Consumer behaviour. For example, how do consumers react to TV advertising or advertising on the radio? Do they like free gifts? How do they react to price changes and new products?

Buying patterns and sales trends. How do buying habits differ between different regions, income groups, age groups, sexes, races? How do buying patterns change over time? Which markets are expanding – i.e. show rising consumer demand and sales? Which markets are contracting – i.e. show falling consumer demand and sales?

Consumer preferences. How do consumers react to different products, styles, colours, tastes, retail outlets, method of payment, promotional devices, etc.?

Activities of rival firms. How do competitors adapt their products, ranges, and prices to meet consumers' wants? How well do their products sell? What is their market share? What marketing strategies and what new products are they developing?

Once a firm has identified the kind of market research information it needs, decisions can be taken on how to get the information, how much to spend on collecting it, and how often to undertake research.

A firm also has to consider what it will do with the information it collects. For example, if research shows sales of CD players are falling while sales of mini-discs are rising, will the firm increase advertising expenditure on CD players or will it shift production towards mini-disc machines? Collecting market research information alone will not make an unsuccessful firm successful. Good decisions have to be taken on the basis of the information collected.

Market research and business decision-making

Market research will provide information to a firm on whether the customer will buy the product, and on the design features, colours, packaging, prices, and kinds of retail outlets that consumers prefer.

Additionally, research will help to identify the kind of consumer who is likely to purchase the product. For example, market research can reveal information on consumers' likely age range, sex, geographical region, favourite leisure pursuits, and lifestyle. This information will assist in the creation of an appropriate marketing mix to attract customers.

Product development

Take a look around your house. The chances are that you will have a television, a video recorder, a telephone, a compact disc player, a microwave, and a number of other household appliances. Few of these products would have been found in a house 50 years ago. Go back 150 years, and there would have been no cars, aircraft, or plastics, and few of the medicines that we take for granted today. All of the products we are able to enjoy today are the result of innovations and technological breakthroughs.

Because fashion, tastes, technology, levels of competition, and the economy are always changing, the market for goods and services is also in a state of continuous change. Change means that firms are increasingly keen to find new products to out-sell their rivals, and new processes to reduce their production costs. This process is called research and development (R&D):

• Research is the investigation and discovery of new ideas

• Development involves putting ideas into practice

R&D is financed and carried out mainly by businesses, government, and higher education institutions. It is defined as ‘creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications’. Sometimes the process can take many years to complete, and success is not always guaranteed. For example, the Concorde supersonic aircraft took around 30 years to develop, yet it has still not covered the cost of its development through fare revenues and sales to other nations.

In 1991, UK organisations spent nearly 12 billion pounds on R&D. Part of this will have been spent on collecting market research information, but by far the most money is spent on product and production process development. Some research may result in simple modifications to existing products and processes - for example, package re-design such as the ring pull can or paper liquid carton. Modifications can help to reduce production costs and may prolong the commercial life of an existing product

Some new products and processes are invented by private individuals and inventors purely by chance. For example, ‘cats eyes’ in roads were the result of the inventor seeing light reflected in broken glass in a road. Inventors can sell their innovations to firms who are willing to produce them for sale. New inventions and ideas can be protected by patents which prevent them being copied by other people and firms.

Occasionally, private inventors and organised R&D can result in technological breakthroughs leading to the discovery of entirely new products or processes. For example, microchip technology has allowed the development of desktop computers capable of doing work once carried out by computers that filled entire rooms. The invention of lasers has opened the way to the development of micro-surgery in medicine, advanced military weapons, and compact disc players.