4.4. The role of Market Research

4.4. The role of Market Research

Why and how organizations carry out market research

Market Research

Market research is the process of gathering, recording, analysing and reporting data and information relating to the company’s market, customers and competitors.

Typically, market research is used to determine the characteristics of markets, suggest opportunities for products and selling approaches and to suggest segments.

The research can relate to:

a) Existing products and services

b) New products and services

The results of market research can have a great impact on decisions made in all areas of the marketing process:

1. To reduce the risks associated with new product launches

By investigating potential demand for a new product or service the business should increase the likely chances of a new product achieving satisfactory sales.

Although market research cannot guarantee success, market research is still a key part of new product development (NPD).

2. To predict future demand changes

A travel firm may wish to investigate social and other changes to see how these might affect the demand for holidays in the future. For instance, the growth in the number of single-person households may suggest that there could be a rising demand for ‘singles’ holidays.

3. To explain patterns in sales of existing products and market trends

Market research is not just undertaken for new or planned products, it needs to be conducted for existing products too. Sales at the fashion retailer Gap had, by the end of 2008, fallen in 28 of the last 31 months. Unless Gap managers were prepared to find out why this happened, they would not be able to take remedial action.

4. To assess the most favoured designs, flavours, styles, promotions and packages for a product

Consumer tests of different versions of a product or of the proposed adverts to promote it will enable a business to focus on the aspects of design and performance that consumer’s rate most highly. These can then be incorporated into the final product.

MARKET RESEARCH CAN, THEREFORE, BE USED TO DISCOVER INFORMATION ABOUT:

· Market size and consumer tastes and trends

· The product and its perceived strengths and weaknesses

· The promotion used and its effectiveness

· Competitors and their claimed unique selling propositions

· Distribution methods most preferred by consumers

· Consumers’ preferences for packaging the product.

The following methods/techniques of primary market research: surveys, interviews, focus groups and observations

Primary data may be collected from sources internal or external to the organization and may be quantitative or qualitative in nature. Primary data is collected for a specific research purpose.

Primary data may come from:

· Questionnaires

· Experiment – the researcher may set up artificial surroundings or may test a product in real surroundings

· Observation – people can be observed using product

· Unstructured interviews – there is no structure to what is effectively a conversation but the interviewer may have a checklist of topics to be covered

· Depth interviews – the aim is to explore attitudes and motives for behaviour that may not be conscious

· Projective techniques – researchers have borrowed methods from psychologists and seek to uncover unconscious motives

· Focus groups – focus groups usually consist of 8 to 10 respondents and an interviewer taking the role of group moderator. The group moderator introduces topics for discussion and intervenes as necessary to encourage respondents or to direct discussions if they threaten to wander too fare off the point.

Task 1: Complete the table template on types of primary research methods

Advantages of focus groups

1. Focus groups usually provide immediate ideas for the improvement of particular products or concepts
2. Focus groups allow for in-depth questions to be asked, replies considered. The researcher/moderator can then pose follow-up questions or ask questions that probe more deeply
3. The researcher can get information from non-verbal responses such as facial expression or body language
4. information is provided more quickly than if people are interviewed separately.

Disadvantages of focus groups

1. As only a small number of consumers are involved they may not be fully representative of the target market, and therefore the results may be unreliable. The selection of the participant is very important as they should be the target market.
2. There is the possibility that the members may not express their honest and personal opinions about the topic at hand. They may be hesitant to express their thoughts especially when their thoughts oppose the views of another participant.
3. Compared with surveys, focus groups are more expensive to execute
4. Moderators can greatly impact the outcome of a focus group discussion. They may intentionally or inadvertently inject their personal biases into the participants' exchange of ideas.

Advantages of Primary Market Research

1) Targeted Issues are addressed. The organization asking for the research has the complete control on the process and the research is streamlines as far as its objectives and scope is concerned. Researching company can be asked to concentrate their efforts to find data regarding specific market rather than concentration on mass market.

2) Data interpretation is better. The collected data can be examined and interpreted by the marketers depending on their needs rather than relying on the interpretation made by collectors of secondary data.

3) Recency of Data. Usually secondary data is not so recent and it may not be specific to the place or situation marketer is targeting. The researcher can use the irrelevant seeming information for knowing trends or may be able to find some relation with the current scenario. Thus primary data becomes a more accurate tool since we can use data which is useful for us.

4) Proprietary Issues. Collector of primary data is the owner of that information and he need not share it with other companies and competitors. This gives an edge over competitors replying on secondary data.

Disadvantages of Primary Market Research

1) High Cost. Collecting data using primary research is a costly proposition as marketer has to be involved throughout and has to design everything.

2) Time Consuming. Because of exhaustive nature of the exercise, the time required to do research accurately is very long as compared to secondary data, which can be collected in much lesser time duration.

3) Inaccurate Feed-backs. In case the research involves taking feedbacks from the targeted audience, there are high chances that feedback given is not correct. Feedbacks by their basic nature are usually biased or given just for the sake of it.

4) More number of resources are required. Leaving aside cost and time, other resources like human resources and materials too are needed in larger quantity to do surveys and data collection.

The following methods/techniques of secondary market research: market analyses, academic journals, government publications & media articles

Secondary data

Secondary data may be generated by sources internal or external to the organization. It is terms secondary because its intended use is not the specific research the organization is using for it. Secondary data is usually gathered before primary data as it is often cheaper to collect and is used to guide the primary research. It is not normally sufficient for research purposes by itself.

Secondary data may come from:

· From existing information systems

· Accounting data

· Customer databases

· Data produced by other departments

· Published statistics from government, professional, trade bodies

· Review of journals

· Research collected by market research agencies that can be purchased

Market Analyses

A market analysis studies the attractiveness and the dynamics of a special market within a special industry. It is part of the industry analysis and thus in turn of the global environmental analysis. Through all of these analyses the strengths, weaknesses, opportunities and threats (SWOT) of a company can be identified. Finally, with the help of a SWOT analysis, adequate business strategies of a company will be defined.^[1] The market analysis is also known as a documented investigation of a market that is used to inform a firm's planning activities, particularly around decisions of inventory, purchase, work force expansion/contraction, facility expansion, purchases of capital equipment, promotional activities, and many other aspects of a company.

Other secondary sources

Secondary research uses outside information assembled by government agencies, industry and trade associations, labour unions, media sources, chambers of commerce, and so on. It's usually published in pamphlets, newsletters, trade publications, magazines, and newspapers. Secondary sources include the following:

• Public sources. These are usually free, often offer a lot of good information, and include government departments, business departments of public libraries, and so on.
• Commercial sources. These are valuable, but usually involve cost factors such as subscription and association fees. Commercial sources include research and trade associations, such as Dun & Bradstreet and Robert Morris & Associates, banks and other financial institutions, and publicly traded corporations.
• Educational institutions. These are frequently overlooked as valuable information sources even though more research is conducted in colleges, universities, and technical institutes than virtually any sector of the business community.

Task 4: Market research ethics - example. Watch the first video and ascertain how many of the principles of market research were violated by Facebook in this 'experiment'

The difference between qualitative and quantitative research

Qualitative research involves the collection of primary and/or secondary market research data and information based on the the attitudes, opinions and beliefs of customers. It is finding out what they think and why the think it. The research is subjective and so open to a high level of interpretation. Such research often involves the use of focus groups and face-to-face interviews. It is often used to test reactions and get feedback in order to refine an organization’s strategy.

Quantitative research involves the collection of primary and/or secondary market research data and information that are numerical and measureable. It is used to quantify the attitudes, opinions and beliefs of customers, and to generate statistically valid market research findings.

1. More reliable and objective

2. Can use statistics to generalize a finding

3. Often reduces and restructures a complex problem to a limited number of variables

4. Looks at relationships between variables and can establish cause and effect in highly controlled circumstances

5. Tests theories or hypotheses

6. Assumes sample is representative of the population

7. Subjectivity of researcher in methodology is recognized less

8. Less detailed than qualitative data and may miss a desired response from the participant

The following methods of sampling: quota, random, stratified, cluster, snowballing & convenience

Sampling

Market research involves the collection of data to obtain insight and knowledge into the needs and wants of customers and the structure and dynamics of a market. In nearly all cases, it would be very costly and time-consuming to collect data from the entire population of a market. Accordingly, in market research, extensive use is made of sampling from which, through careful design and analysis, Marketers can draw information about the market.

Sample Design

Sample design covers the method of selection, the sample structure and plans for analysing and interpreting the results. Sample designs can vary from simple to complex and depend on the type of information required and the way the sample is selected.

Sample design affects the size of the sample and the way in which analysis is carried out. In simple terms the more precision the market researcher requires, the more complex will be the design and the larger the sample size.

The sample design may make use of the characteristics of the overall market population, but it does not have to be proportionally representative. It may be necessary to draw a larger sample than would be expected from some parts of the population; for example, to select more from a minority grouping to ensure that sufficient data is obtained for analysis on such groups.

Many sample designs are built around the concept of random selection. This permits justifiable inference from the sample to the population, at quantified levels of precision. Random selection also helps guard against sample bias in a way that selecting by judgement or convenience cannot.

Defining the Population

The first step in good sample design is to ensure that the specification of the target population is as clear and complete as possible to ensure that all elements within the population are represented. The target population is sampled using a sampling frame. Often the units in the population can be identified by existing information; for example, pay-rolls, company lists, government registers etc. A sampling frame could also be geographical; for example postcodes have become a well-used means of selecting a sample.

Sample Size

For any sample design deciding upon the appropriate sample size will depend on several key factors

(1) No estimate taken from a sample is expected to be exact: Any assumptions about the overall population based on the results of a sample will have an attached margin of error.

(2) To lower the margin of error usually requires a larger sample size. The amount of variability in the population (i.e. the range of values or opinions) will also affect accuracy and therefore the size of sample.

(3) The confidence level is the likelihood that the results obtained from the sample lie within a required precision. The higher the confidence level that is the more certain you wish to be that the results are not atypical. Statisticians often use a 95 per cent confidence level to provide strong conclusions.

(4) Population size does not normally affect sample size. In fact the larger the population size the lower the proportion of that population that needs to be sampled to be representative. It is only when the proposed sample size is more than 5 per cent of the population that the population size becomes part of the formulae to calculate the sample size.

Results from data collection: See http://ctb.ku.edu/en/table-of-contents/evaluate/evaluate-community-interventions/collect-analyze-data/main

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