Theme 1

Topic 1.2

Topic 1.2: Spotting a business opportunity

1.2.1 Customer needs

Identifying and understanding customer needs

Every customer has varying needs, preferences and attitudes. An entrepreneur must think about these needs when planning their product, price, promotion and where they sell their product. If they successfully meet their customer needs then they will be more likely to increase their revenue and as a result profits. successfully meeting customer needs can also assist a business in gaining customer loyalty, which can helps secure revenue in the longer term. Not meeting customer needs can lead to low demand for your product, poor sales levels, poor reputation and loss of revenue, market share and profit. There are four main customer needs that a business must consider:

  • price; customers will be influenced by price, especially low prices. The price that customers will be willing to pay will depend on the value that they place on the product. The price they are wiling to pay may also vary dependent upon the situation, for example a customer may be willing to pay a much higher price for a fan when there is a hot spell in summer than in the winter.

  • quality; this covers the actual product but also the quality of the customer experience or customer service. Quality in relation to the product refers to whether the product is fit for purpose.

  • choice; this refers to a varying product range or options that a customer can choose to better suit their needs.

  • convenience; this can cover the accessibility of the location, the delivery methods and any other way that makes purchasing the product easier for customers.

Meeting the above needs helps ensure you are successful. If customers are happy with the price and the quality then they are likely to become a loyal customer making repeat purchases. This increases sales and also, satisfied customers are more likely to make recommendations to other people. In order to successfully meet these needs, the business must be able to identify the needs. The way in which they can do this is through market research.


Why is meeting customer needs so important?

You could launch an excellent product or service but it is likely to fail if the business has not fully understood its customers and provided for their needs. People won’t buy a product that does not meet their needs.

Customers base decisions on family needs, their financial needs, emotional needs and on brand loyalty.

If prices are above what its intended market can afford to pay then it will not generate enough sales to survive. If you stop selling a certain brand then customers loyal to it may go elsewhere where they can buy that particular brand.

1.2.2

The purpose of market research

Market research is the process of gathering information about the market, customer needs and competitors in order to help decision making. The market research will help the business determine if the product will be viable. There p[urpose of market ersearch is to:

  • To identify and understand customer needs

  • To identify gaps in the market

  • To reduce risk

  • To inform business decisions

There are two main types of market research; primary and secondary.

Primary research is new research carried out specifically for the business to help make decisions. Primary research methods include the following:

  • Focus groups: a group of people who discuss their views on a product, service, advertisement, or idea, either face-face or online. As it's small it doesn’t always reflect the market but it does allow you to get more in depth feedback.

  • Questionnaires/surveys: a set of questions with a choice of answers. You can do this by post but the response is usually very poor. Doing it as a survey is better as you can stop people and ask, either door-to-door or in the town centre, but is it representative? Often people are trained to make sure they ask the right questions of the right people. This can be time consuming and people may need an incentive to actually respond.

  • Interviews: can be online, face-face or on the phone and generally involve more open ended questions, leading to long detailed responses.

  • Observations: watching customers react, discuss, judge time taken, or how they interact with a product ca be useful in helping to identify trends or make improvements. It can be carried out in person, or technology such as webcams or CCTV.

Key advantage of primary market research:

  • Can be adapted specifically for the business, as such it may be more likely to gather relevant mark research.

Key disadvantage of primary market research:

  • Can be time consuming and a s result expensive, either if you have to conduct it yourself or you pay others to do it for you. This is especially problematic for start ups, which is why many may use secondary research instead as it already exists.

Secondary research is information and data that already exists. Often referred to as desk research. Secondary research methods include the following:

  • Internet research: using the internet to look at competitor websites and social media for example to look at customer data.

  • Government reports: various government departments produce reports that can often help businesses.. This could include information about areas and household income which business might use to determine where they might sell their products for example. The Office of National Statistics (ONS) is a huge organisation that produces data on social trends and regional trends in the UK. For example they produce a report every month on weekly wages in the UK.

  • Trade Associations/industry/market reports: These are reports and documents produced by organisations that represent a specific industry or type of business.. For example the British Hospitality Association produce an annual report with a large amount of information about travel patterns which travel based businesses could use to help identify their target market and their needs.

  • Newspapers/magazines/print media: This can be from anything to employment figures to information about competitors. Print media can be accessed online too.

Key advantages of secondary market research:

  • Much quicker and cheaper than primary research as it is already available.

  • can cover much larger portions of the population due to the large resources the industry associations and government have access to.

Key disadvantages of secondary market research:

  • What already exists has been done by someone else and it may not be exactly what you want. You might want information on only one area in London but it only gives all of London which may not be relevant to your business.

  • The secondary data could also be out of date as some markets change rapidly.

The use of data in market research:

Market research is based on data analysis. This is obtained via various market research methods. It is then used to identify patterns, come to conclusions or provide insights into the businesses customer needs, markets or competitors. There are two different types of data that can be used; qualitative and quantitative data.

Quantitative data is expressed numerically, using statistics or percentages for example. It is often collected via questionnaires of large numbers of people. It is usually obtained by asking closed ended questions, with yes or no answers or offering a range of answers to select one or two options. Quantitative data can be useful when comparing different types of customers and their interests and preferences. If the data is gathered regularly and in a consistent way then it can also be useful to compare how customers attitudes and preferences are changing over time.


Qualitative data is expressed through opinion and attitudes and feelings. Open questions are needed so they can say WHY they like or do not like a product or service. Focus groups or face to face questions are useful here. Useful for new products or a new marketing campaign, so you can understand customer reactions. The advantages to using qualitative data is that the business can gain a detailed picture of why customers behave in a certain way, and can listen to what customers are saying. The disadvantage of this type of data is that small groups of people can be biased, answers may be based on one persons opinions and so the information can be quite subjective. Results can also depend on how interviewer ask the questions.


Using social media to collect market research:

  • Businesses can set up a FACEBOOK page to communicate with its target audience and monitor the feedback of both customers and potential customers. They can also monitor competitors via their facebook pages.

  • TRENDS can be monitored as they set up automated searches relating to brands and get notifications whenever their brand name is mentioned. This can enable them to deepen their understanding of the market.

  • Businesses can monitor how customers TALK to one another about its products or services and then use the same language in its marketing. By joining customer conversations on social media the business gets an insight that normal Market Research will not provide. This can be key in improving products and marketing activities.

  • Social media SAVES TIME as results can be gathered in minutes and through social media there can be large samples gathered as anyone can contribute and communicate and also provides insight into global markets much quicker and cheaper than other methods.

The reliability of market research data:

The validity of data depends on how good the design and methods of research were and whether the findings can be trusted. Any research where there are leading questions asked may not be valid as you are forcing the customer into an answer and the answers will not reflect the true feelings of the customers.

Reliability depends on how representative the sample are of the whole population or group you are targeting. If you want results to be used for the whole British population, asking those in one ethnic group only will not be representative of the British population and as such the research is not reliable.

The impact of research that is invalid or unreliable can cause business to spend on marketing activities that will prove ineffective which will be costly. It can also cause the business to adapt products and services which will not meet their customer needs. This again can be costly.

1.2.3 Market segmentation

Market segmentation is the process of dividing a market into smaller categories by grouping together customers with particular needs or interests. Identifying the correct market segment is a vital part of any marketing strategy. You need to know who your intended customers are so you can aim your products at those target customers.

MARKET SEGMENTS can be divided according to

  • Location – or geography. Could be by a region, i.e. north east, or by an estate or area. Post codes can be used to target higher average incomes for example.

  • Demographics – could split by sex or family type, so may aim items at females or families. Family life cycle could be used so you aim some products at young singles, or couples without children (more disposable incomes to spend), families with young children, then teenage children, then older couples with no family at home and then retired couples. This can show how peoples buying habits and choices change as they progress through life and their priorities change.

  • Behaviour – people can be monitored by their behaviour, are they impulse buyers where they maybe buy something they do not necessarily need. This may be to take advantage of a sale or to cheer themselves us by gaining satisfaction from something. Loyalty cards can influence consumer behaviour. Behaviour segmentation can also be used in response to how people behave at certain times of the year eg Valentines day or Christmas. A greetings card business may target people at certain times in response to exam results day for example.

  • Lifestyle – how people live their lives may be used to help a business connect with its customers. Golfers for example may be targeted according to their lifestyle as the businesses will attempt to convince golfers they need their products as its part of a golfers lifestyle.

  • Income – segmenting by income, so differing cars sold to different income groups. Low income earners may buy a hatchback, families will purchase a people carrier and high earners are more likely to buy fast or luxury cars. A business will therefore not advertise expensive cars to a segment that cannot afford them. This segmentation allows you to choose how and where to advertise.

  • Age – needs and wants change as we get older so a product bought by people in 20’s is of little appeal to those in their 60’s. Over 60’s is an increasing global market so businesses may target this segment. The 'grey pound' refers to the wealthy over 50's who have high levels of disposable income.

Market mapping

A market map is a diagram that identifies all products in a market and maps them against two of their features, i.e. low-high price and low-high quality. A market map is used to identify a gap in the market, see all the products and services in a market and identify its competitors. A market map for chocolate bars is pictured below.

However, just because a gap exists does not mean it is a viable position to enter. There may be a reason that there is no demand for a product or service in a particular area of a market. Eg a low quality high priced chocolate bar is unlikely to sell, and therefore there are few competitors in this segment.

Use of market maps must be carried out with caution as often quality or other categories used are subjective and can be different for different consumers and so may not in fact be a gap at all.

1.2.4 The competitive environment

Understanding the competitive environment

It is very important to understand your competition particularly their strengths and weaknesses if a business wants to succeed in the market.

There can be both Direct and Indirect competitors. Direct are those selling the same type of product or service whilst Indirect competitors are those not selling the same items but are still in competition with each other. Differing methods of travel – ferry, flight, train, coach are in competition to someone going to Paris whilst watching SKY TV or going to the cinema or a shopping centre are all in competition with each other for a Saturday afternoon.

Competition is strongest when there are lots of competitors and little difference between the products. This is where customers can shop around for the best deals which means businesses may have less influence over price levels. On the other hand, where there are fewer competitors businesses have a lot more influence over price because customers do not have many alternatives to choose from.

How competitive an industry is depends on the barriers to entry, these can reduce competition, so where costs of starting up are high due to research and development costs for example then few businesses will be able to enter the market. This means those in the market are able to charge higher prices.

Strengths and weakness need to be known of each competitor. If your price of sandwiches is lower than a competitor then this is your strength. Knowledge of your competitors can help your business to improve its own performance and outperform competitors which will enable them to gain market share.

If competitor has lower quality sandwiches with low quality bread then this is a weakness of your competitor. Location, if you are in the market square where many people pass through then this is a strength compared to a stall on the edge of town. If your competitor makes a greater range of sandwiches then this is their strength. If your service is quick and your staff are very friendly then this is a strength over competitors.

A SWOT analysis can be carried out where you look at your Strengths, Weaknesses, Opportunities you may be able to take advantage of and Threats that you may face in the future. You can also do a SWOT on your key competitors. A SWOT on a competitor may allow you to take decisions like update your own marketing or start developing a new product or change your pricing.

Impact of competition on a business’s decision-making

Competitors may make you more likely to innovate or think of new product ideas to help keep ahead of the competition. If an industry is highly competitive you may have to think carefully about your pricing. If prices are competitive it may force a business to ensure its costs are kept low in order to maintain profit levels for example.