5.3.1 Purpose of market research

What market research is for

1. Before it commits money to a product, a price or a new site, a business gathers information so the decision rests on evidence rather than a hunch.
2. Research is aimed at three things: how much demand there is likely to be, who the competition is, and who exactly the target market is.

Finding out likely demand

1. Demand is the quantity of a product customers are willing and able to buy, and research tries to size it before the business spends anything.
2. The business asks how many potential customers there are, how often they would buy and what they would be prepared to pay.
   1. A café owner who counts 1,800 people walking past a proposed site between 7am and 10am has evidence about demand that a hunch could never provide.
3. If the answers show too few customers, the business can change the product, pick a different site or drop the idea altogether while it is still cheap to do so.

Understanding the competition

1. Research also looks outwards at rivals: how many there are, what they sell, what they charge and how customers rate them.
2. That shows whether there is room to enter the market at all, and what the business would have to do differently to win customers away from firms already there.
   1. Aldi checks rivals' shelf prices constantly, which is how it can advertise direct price comparisons against Tesco and Sainsbury's.
3. Rivals' weaknesses are where the market opportunities sit, such as slow service, short opening hours or a part of the range that nobody stocks.
   1. Deliveroo grew out of one such opportunity, that thousands of restaurants had customers who wanted delivery and no way of delivering to them.

Identifying the target market

1. Research shows which customers actually want the product, so the business can aim at them rather than at everybody and hope.
2. Knowing the target market then sets the whole marketing mix, because the product, the price, the promotion and the place all follow from who the customer is.
   1. Monzo found that younger customers wanted instant notifications and simple budgeting on a phone, so it built an app-only bank instead of a branch network.

Reducing risk

1. Every business decision carries risk, the chance that the money, time and reputation put into it are lost.
2. Research reduces that risk by finding out what customers want first, so the business is far less likely to launch something nobody wants.
   1. The cost of a few hundred questionnaires is tiny next to the cost of fitting out a shop that then stands empty.
3. Research reduces risk without ever removing it, because a sample may not represent everyone, people do not always do what they say they will, and tastes can move after the research is finished.

5.3.2 Primary and secondary research methods

Primary research and its methods

1. The business either gathers the data itself or pays a market research agency to gather it, and because it is collected for one purpose it is up to date and matched to the decision being made.
2. Questionnaires: a set list of written questions, on paper or online, put to a large number of people, like the short feedback form Nando's prints on its receipts. Hundreds of replies can be collected cheaply and counted, but most customers ignore them, and a tick box cannot ask why a customer answered as they did.
3. Surveys: the process of putting those questions to a sample of customers face to face, by phone or online, so the answers can be added up and compared; the questionnaire is the document, the survey is the exercise. A large sample gives figures the business can act on, though customers do not always do at the till what they said they would do.
4. Interviews: a one-to-one conversation in which the researcher can ask follow-up questions and push for the reason behind an answer, giving depth no tick box can. Each interview takes up an hour of staff time, so only a handful of customers are ever reached and the sample stays small.
5. Focus groups: a small group of customers brought together to discuss a product or an idea, which uncovers opinions and objections the business never thought to ask about. Someone has to be paid to run the session, and one confident voice can pull the group towards a view none of them arrived with.

Benefits and drawbacks of primary research

1. Specific to the business: the questions are written to answer exactly what this business needs to know, about its own customers and its own product.
2. Up to date and private: the data describes customers as they are now, and no competitor has a copy of it.
3. Costly: printing, staff time, incentives for participants and agency fees all cost money that a start-up may not have.
4. Slow: writing the questions, reaching a sample and analysing the replies takes weeks, so it is no help for a decision needed this week.
5. Only as good as the sample: asking twenty friends, or asking shoppers only on a Tuesday morning, produces answers that do not represent the target market.

Secondary research and its sources

1. Internet research: competitors' websites and price lists, customer reviews and published market reports can be searched in minutes and are mostly free. Anyone can publish online, so a figure with no named source behind it may be wrong or out of date.
2. Printed press: newspapers, magazines and trade publications report on markets, new competitors and changing tastes, and a trade title is written by people who follow that industry closely. The articles are written for readers in general, so they may say nothing about this business's own customers.
3. Government reports: population, income and spending figures published by the Office for National Statistics show how many people live in an area and what they earn, free of charge. The data is collected for the whole population rather than for this business, so it describes an area without telling you anything about your own customers or your own product, and it can be a year or more out of date by the time it is published.
4. Industry reports: research firms and trade bodies publish reports on whole markets, giving sales figures and market shares that a single business could never collect for itself. Full reports are expensive, often costing hundreds of pounds, and every competitor can buy the same report, so it gives no advantage that rivals do not also have.

Benefits and drawbacks of secondary research

1. Quick and cheap: the data already exists, so it can be gathered in an afternoon and much of it costs nothing at all.
2. Broad: it covers whole markets and long periods, which is how a business finds the size of the market it is thinking of entering.
3. Not specific to this business: it was collected to answer somebody else's question, so it may say nothing about this firm's customers or its particular product.
4. No control over how it was gathered: the business cannot see how large the sample was or how the questions were worded, and it cannot go back and ask a follow-up, so it has to decide how far to trust a figure it did not produce.

Choosing the best method for a given business

1. Budget: a sole trader can afford a clipboard and an afternoon, while Tesco can commission an agency to run focus groups in six cities.
2. Time: a decision needed before the weekend rules out fieldwork that would take a month to design and analyse.
3. What it needs to know: numbers on how many customers would buy come from questionnaires and surveys, while the reasons customers stopped buying come from interviews and focus groups.
4. Most businesses use both, starting with cheap secondary research to size the market and study rivals, then spending on targeted primary research to answer the questions the existing data leaves open.

5.3.2b Qualitative and quantitative research

The difference between the two

1. The two answer different questions: quantitative research tells a business what is happening and how much of it, while qualitative research tells it why.
2. One piece of research can produce both, because a questionnaire can count ticked boxes and still leave space for a written comment.

Quantitative research

1. It comes from closed questions with fixed answers, such as tick boxes and ratings out of five, and from counting things like footfall, website visits and till receipts.
2. Large samples are possible because each answer takes seconds to give and seconds to add up, so a survey can cover thousands of customers.
3. The results can be turned into percentages, charts and comparisons over time, which makes a pattern easy to see and easy to present to a bank or an investor.
   1. A Greggs survey finding that 68% of morning customers buy a hot drink with their food is a quantitative result the business can act on immediately.
4. The limit is that numbers describe behaviour without explaining it, so a business can see that sales of a range fell without knowing what put customers off.

Qualitative research

1. It comes from focus groups, one-to-one interviews, open questions on a questionnaire and the wording customers use in online reviews.
2. The value is depth, because customers explain their reasons, describe what annoyed them and raise problems the business never thought to ask about.
   1. A focus group told a sandwich maker that the bread went soggy by lunchtime, which no rating out of five would ever have revealed.
3. The limits are that samples are small, opinions cannot be added up or compared cleanly, and two managers can read the same comments differently.

How the two work together

1. The strongest research uses both, because the numbers show the size of a pattern and the comments explain what is causing it.
   1. If sales of a sandwich range are down and customers say the bread is soggy, the business knows both how serious the problem is and exactly what to fix.
2. Which type matters more depends on the decision, since ordering stock needs quantitative evidence of how much will sell, while redesigning packaging needs qualitative feedback on what customers dislike about it.

5.3.3 Use of market research

Using findings to make decisions

1. Research only earns its cost if it changes a decision, so findings are organised into tables and charts, read for a pattern, then acted on.
2. The findings feed straight into the marketing mix: what to sell, what to charge for it, how to promote it and where to sell it.
3. Quantitative findings show the size of a pattern and qualitative findings explain what is causing it, and a business normally wants both before committing money.
4. How far the business can act on the findings depends on its type, because a sole trader can change a menu on Monday morning while Tesco has to trial a change in a few stores before rolling it out to hundreds.

Market size and market share

1. Market size is measured either by value, the total £ spent, or by volume, the number of units sold, so the same market can be described as worth £40m a year or as selling 2 million units a year.
2. Market size tells a business whether a market is big enough to be worth entering, and whether it is growing or shrinking.
3. Market share tells it how it is performing against rivals, which its own sales figures alone cannot, because sales can rise while competitors grow faster still.

Calculating and interpreting market share

1. The formula is not supplied in the exam, so learn it and write it out before you substitute anything.

1. A bakery chain sells £3.5m of bread in a regional market worth £25m in total, and the year before it sold £2.4m in a market worth £20m.

1. A 14% share means £14 of every £100 spent on bread in that market goes to this bakery and £86 goes to its rivals, so it is a serious player but a long way from dominating.
2. The rise from 12% to 14% tells the owner that sales grew faster than the market as a whole, because the chain's own sales rose from £2.4m to £3.5m while the market grew only from £20m to £25m, so it has won customers from rivals rather than simply riding a growing market.

Reading data from tables and charts

1. Read the title, the row and column headings, the units and the time period before you look at a single figure.
2. Tables give exact figures, which is what you need for a calculation or a precise comparison between two years.
3. Bar charts compare quantities across categories, so read each bar against the scale rather than judging heights by eye.
   1. If one rival's bar reaches £60,000 and another's reaches £30,000 the first sells twice as much, but only if the vertical axis starts at zero.
4. Line graphs show a trend over time, so describe the direction and the speed of the change and look for a pattern that repeats each year.
5. Pie charts show proportions of a whole, which makes them the natural way to present market share.

Drawing a conclusion from the figures

1. A café owner's sales table shows takings of £41,000 in quarter 1, £46,000 in quarter 2, £58,000 in quarter 3 and £39,000 in quarter 4.
2. The pattern is a summer peak and a winter dip rather than a business in decline, because quarter 4 is still close to quarter 1.
3. Measure the change rather than describing it, rounding the percentage to one decimal place.

1. A fall of almost a third from quarter 3 to quarter 4 is big enough to plan for, so the owner should cut winter staffing hours and promote hot food from October rather than conclude that the café is failing.
2. Sense-check the data before spending on the strength of it, because a striking figure taken from 20 responses or from a single week is a weak basis for a decision.