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4.

4 Market research

IB Business Management
4.4 Market research
By the end of this chapter, you should be able to:
Explain why and how organisations carry out market research
Analyse the primary market research methods
Comment on the secondary market research methods
Discuss the ethical considerations of market research
Distinguish between qualitative and quantitative research
Explain the various sampling methods
Interpret results from given data
Market research
Process of collecting, analyzing, and reporting objective data
about a market, consumers, and competitors.
Businesses use market research information to make decisions.
Essential in creating a successful product and in marketing it
effectively.
Crucial in working out the market size, the growth rates, the
market share held by rival businesses, and the needs of
consumers.
Importance of market research
Decisions focused on the customers needs.
Stay in touch with the market and with what customers want.
Anticipate future needs or trends.
Be the first to react to a profitable new opportunity.
Importance of market research
Four main reasons can be identified:
To describe who the business customers and competitors
are and what is happening in its market.
To explain why trends occur.
To predict what might happen next.
To explore how consumers might react to new ideas and
use this knowledge to make key marketing decisions.
Market research
Benefits Drawbacks
Helps to identify the wants and Without clear objectives,
needs of customers. research may produce irrelevant
information or leave important
Allows the business to design questions unanswered.
and vary its marketing mix.
The sample may be
Enables a swifter response to unrepresentative of the total
changes in customer needs, population due to a small
allowing the business to stay a sample size, bias in the method
step ahead of its competitors. of choosing respondents or
poorly constructed questions.
Research into existing
competition allows a business Even with a carefully
constructed sample, the results
to spot a gap in the market.
cannot provide 100 per cent
A new product can be developed accuracy.
and launched with greater Respondents may provide
confidence in its future success. answers they think the
The wasted expense of failed interviewer wants to hear rather
products or promotions can be than their true views.
reduced or eliminated.
Primary market research
First-hand research.
Also known as field research.
Data collected directly from consumers.
Large businesses often employ market research companies but it
can be very expensive.
Can be carried out through surveys, interviews, focus groups, and
observation.
Surveys
Questionnaires can be used to ask pre-set questions of a large
number of people.
The questionnaire may contain different types of questions
(yes/no, multiple choice, open-ended, etc.).
Used by an organization to ensure that their marketing mix is
correct.
May be face-to-face, by telephone, by mail, or online.
A sample is chosen to be questioned.
The more people who are asked, the greater the degree of
confidence the business can have in the accuracy of the results.
Surveys
Advantages Disadvantages
They enable researchers to Surveys that are poorly
collect a large amount of data in constructed and administrated
a relatively short period of time. can undermine otherwise well-
If designed well, surveys can be intended research.
administered and completed The answers provided by
easily by the respondents. respondents may not be an
Surveys can be used to collect accurate reflection of how they
information on wide range of truly feel, with some results also
aspects including attitudes, being biased.
preferences, and opinions. As large samples are usually
used, surveys can prove to be
costly and use up a lot of time in
their construction and
administration.
Interviews
A conversation during which the interviewer asks the interviewee
questions in order to get information.
To gain more detailed, qualitative information from a smaller
group of people.
The interviewer spends longer with each respondent, asking them
a wide range of questions and exploring their responses more
deeply.
Are often led by the customers comments and will not necessarily
follow set questions.
The interviewer must be well trained and the information gained
must be properly recorded and analyzed.
When carried out professionally, this method may generate
information that explains and explores issues far more effectively
than any other market research method.
Interviews
Advantages Disadvantages
They can provide detailed The whole process can be very
information about the time-consuming as it involves
perceptions and opinions of setting up the interview, carrying
consumers through in-depth it out, analysing responses,
questioning. gathering feedback, and
They usually achieve a high reporting.
response rate because of the Some interviewers may be
one-on-one attention provided. biased, therefore influencing
interviewees responses.
Focus groups
Small number of people brought together to discuss a specific
product or idea.
The group comprises individuals who are representative of the
customers of the business or of a specific segment of customers.
Crucial stage in the development and launch of a new product.
Assesses the reaction of potential consumers.
Vital to test and experiment with new products ideas.
Manufacturing companies may build a prototype for testing and
showing to prospective customers.
Consumer panels are groups of consumers who are asked to give
their opinions on ideas or products over a period of time.
Focus groups
Advantages Disadvantages
As focus groups consist of a The business may seek
small group of individuals, using information about the entire
them is a cheap and easy way of market or segment and it could
gathering market research. be that the opinions of a small
They can be used to measure the number of individuals do not
reaction of customers to a firms reflect it.
new product or to the firms There is the possibility that
strategies. some members of the group
They help identify key product may not express their honest
requirements as well as other and personal opinions on the
needs not addressed by the discussion topic.
business and its competitors. Focus groups are more costly to
They provide insights on the carry out than surveys as each
current position of the firms participant usually has to be
competitors in the mind of the compensated in cash or in kind.
customer.
Observation
Involves watching consumers as they shop, measuring pedestrian
flows in a town center or looking at how rival products are
packaged and displayed.
Conclusions about shoppers from observing their behavior, such
as where they go when they enter a store, or how long they spend
selecting a product from the shelves.
Information can be used to improve store and shelf layout or
point-of-sale promotions.
Observation of consumer behavior cannot answer questions
about why customers act in certain ways.
Observation
Advantages Disadvantages
It is a direct method of Complete answers to any
collecting data or information problems or issue cannot be
when studying actual human obtained by observation alone,
behaviour, as the researcher so market researchers need to
can see exactly how people combine this with other
behave in a given situation. methods such as issuing
A large number of individuals questionnaires.
can be surveyed in a short Observation cannot be used to
space of time. study attitudes or opinions of
Observation is usually a cost- individuals because this usually
effective way of gathering data. requires a verbal response from
the participant.
Activity
What methods of primary research would you use to collect
information about the following products or services?
A new alcopop drink
A handheld computer
A bank
Breakfast cereals
Portable MP3 players
A new restaurant
Tennis shoes
Secondary market research
Second-hand research.
Also known as desk research.
Based on data that has already been collected.
Significantly cheaper than primary market research.
Useful in providing a good background picture.

Drawbacks
The data is likely to be general. Secondary research will not be
targeted specifically to a particular companys needs.
The data may not be current. Reports age very quickly in fast-
moving markets.
Secondary market research
Academic journals
Media articles
Government publications
Market analyses (Commercial data)
Sales records
Customer information
Survey data
Information about competitors
Local libraries
Business links
Academic journals
Publications of scholarly articles written by experts.
The articles should be well referenced to provide the exact source
of the information given.
The experts will usually include professors, graduate students, or
others with first-hand experience in a particular subject.
Academic journals are written for the sole purpose of providing
and distributing knowledge and not as a money-making
opportunity.
Academic journals
Advantages Disadvantages
Academic journals undergo a Since they contain information
peer-review process where they of very specific academic
are checked by academics and interest, they may not be the
other experts. This increases best source for general-interest
the reliability of the information. topics.
Most academic journals include The peer-review process can be
reports, reviews of current time-consuming, which may also
research, and topic-specific affect the provision of the latest
information. They are therefore or current event information.
good sources when a firm is in
need of original research on a
topic.
They take less time to publish
than books.
Media articles
These includes newspapers and magazines.
A newspaper is a printed publication containing news, feature
articles, advertisements, and correspondence.
Once viewed as the dominant means of communicating world
events, newspapers have declined in readership since the rice of
television and the Internet.
Media articles
Advantages Disadvantages
Communicating via a It is difficult to communicate
newspaper is cheaper than events in real-time. As the process
communicating via television. of producing content, printing,
and distributing the finished
Most serious newspaper articles
paper is time-consuming, articles
have been well researched,
that were written may be out of
written with reliable sources, date by the time they are
and edited for accuracy, which delivered to the customer.
is not the case for some internet
Newspapers can be biased,
resources.
depending on the type of
They are widely available and organization that owns them.
can be found in many retail The process of producing
stores. newspapers could be considered
a waste of paper and energy
resources.
Government publications
These are articles produced by the government on a wide variety
of topics.
They could provide businesses with useful information on the
population census in a country, statistics on social trends, or even
surveys on consumer expenditure patterns.
Market analyses
These include commercial publications or market intelligence
reports that gather data about particular markets.
The highly detailed reports are usually carried out by specialist
market research agents.
They can be sourced at various local business libraries, but they
are quite costly.
Example Average mans
gross earnings by
age (per week)
Men Are So Average Age ($)

Percentage of men in employment 80% 16-24 274

Average mans weekly gross pay $452 25-34 416

Number of hours the average man works 44 per week 35-44 492
Average mans lunch Sandwich
45-54 505
Average mans holiday entitlement 24 days per year
55-64 437
Top reasons why average man is looking Unsatisfactory pay; wants shorter hours;
for new work unsatisfactory commute to work; threat of 65+ 408
redundancy
Source: Mens Health
magazine survey,
March 2002

If a company were to use this information, would it be classified as primary or


secondary data?
Calculate the annual gross pay of average man (ignore age).
Calculate the hourly wage rate of average man (ignore age).
Explain the problems with using averaged data such as this.
Why might a firm choose to use secondary rather than primary research?
Market research
Businesses that use market research effectively are likely to use a
combination of primary and secondary research.
This can minimize the cost, while maximizing the quality of
information gathered.
Spending time and money on the research can save far more in
the long run if it results in the correct decisions on the
organizations marketing activity.
Qualitative and quantitative research
Qualitative research is collecting, analysing and interpreting data
by observing what people do and say.
Qualitative research refers to the meanings, definitions,
characteristics, and descriptions of things.
Common methods used in collecting qualitative data include the
use of focus groups and in-depth interviews.
Quantitative research refers to counts and measures of things.
Surveys and government publications are methods usually used
to collect quantitative data.
Quantitative research may seek answers to the question: How
many customers bought the companys sports shoes in the month
of May 2013?
Qualitative research may seek answers to the question: Why do
customers like the companys sports shoes?
Qualitative and quantitative research
Qualitative research Quantitative research

This involves the collection of data about This involves the collection of numerical data or
opinions, attitudes or beliefs. data that can be measured.
Information is open to a high degree of Information is open to less interpretation.
interpretation.
It is subjective. It is objective.

Key research questions would include Why? Key research questions would include How
many?
The researcher is part of the process. The researcher is separate.

It provides multiple realities, i.e. the focus is It provides one reality, i.e. the focus is concise
complex and broad. and narrow.
Sampling methods
In reality there is simply not enough time, energy, money, labour,
or equipment to carry out a survey of the whole population.
The population comprises all potential consumers in a market.
However, in an effort to gather adequate primary research and
still have a clear idea of consumers views, taking a sample of the
population is required.
A sample is a small group of people selected to represent the
population or target market under research.
For example, a small group of consumers could be selected out of
a large number of potential buyers of a product.
Sampling is simply the process of selecting the appropriate
sample.
Sampling methods
Quota sampling
Random sampling
Stratified sampling
Cluster sampling
Snowballing
Convenience sampling
Quota sampling
Involves segmenting a given population into a number of groups
that share certain characteristics (mutually exclusive sub-groups)
such as age or gender.
Targets are then set for the number of people who must be
interviewed in each segment.
For example, in a school of 500 students offering the IB diploma
programme, a researcher may target 15 males and 20 females to
interview regarding their perception of the programme.
Quota sampling
Advantages Disadvantages
This is a quick and cost-effective Results obtained are not always
sampling method, especially statistically representative of
where the proportions of the the population as random
different groups in the sampling is not done; this also
population are known. leads to statistical errors.
Findings obtained are usually The interviewer may be biased
more reliable than those of in the selection of interviewees
random sampling. and choose those who will
cooperate most in the process.
Random sampling
Every member in the population has an equal chance of being
selected as part of the sample.
The sample of respondents is selected randomly.
With technology, a list of random numbers can be generated from
a target population by the use of a computer.
An example of selecting a random sample may be choosing any
50 people from a telephone directory containing the names of
1,000 people.
Random sampling
Advantages Disadvantages
Random sampling reduces bias The sample chosen may be too
as everyone has an equal small and/or it may not consist
chance of being chosen. of the target population: a
It is a relatively easy way of larger, more representative
obtaining a sample. sample may have to be
selected.
Stratified sampling
The target population is made up of many different groups who
are subdivided into segments or strata that share similar
characteristics.
Members are then chosen from each stratum to form a
representative sample.
For example, a secondary school may be deciding to introduce a
new school uniform. It may divide the school population based on
the different forms, from Form I to Form 5. A random sample is
then chosen from each of these forms, ensuring that the same
proportions of the sample in each category is maintained.
Stratified sampling
Advantages Disadvantages
The sample selected is more It is not easy to select relevant
representative of a particular strata from a population of very
target population. similar characteristics.
Cluster sampling
Appropriate method to use when the population is geographically
dispersed.
Involve selecting a group from each region (cluster) and then
taking a random sample from the clusters.
For example, a multinational wishing to set up a plant in a certain
town may carry out research on just a few geographical areas
around the location and the opinions of the clusters selected will
be assumed to represent the whole population.
Cluster sampling
Advantages Disadvantages
It is a quick and cheap method Results obtained may not be
of carrying out research from representative of the whole
widely geographically dispersed population and may be biased,
populations. especially if the cluster sample
is obtained from areas where
people share similar
characteristics.
Snowballing
Process of sampling that involves surveying the first group or
individual who then suggests other groups or individuals who
could participate, and so on.
Members of the initial group use their contacts to refer to other
people that they know, hence the snowball effect.
It may be used when conducting quite sensitive research, for
example a survey done on the use of ARVs among HIV-positive
individuals.
It is also used when researching
expensive sophisticated products
where the range of potential
customers is limited.
Snowballing
Advantages Disadvantages
It is a cost-effective method of There is potential for getting a
obtaining information through biased sample, since friends
referrals. sharing similar lifestyles may
refer each other and be part of
the same sample.
Convenience sampling
Groups are selected based on their easy access and proximity to
the researcher.
For example, a teacher doing research on the school canteen
could conduct a study by being physically present and directly
interviewing students purchasing items from the canteen at break
time or lunch time.
Another example would be when conducting research in a
hospital, when the researcher may use the first ten names in the
patient list to select a sample.
Convenience sampling
Advantages Disadvantages
It is a fast, easy and cheap The sample may be biased and
method of sampling because not be representative of the
the research groups are readily entire population.
available.
Results of data collection
Businesses are interested in the range of results they get from
carrying out research.
It is of prime importance that they ensure that their data
collection methods are appropriate and offer a high degree of
accuracy.
A combination of qualitative and
quantitative data is essential to
maintain integrity in the research
process.
Selecting the appropriate data
collection instruments and providing
clear instructions for their correct use
reduces the likelihood of sampling
errors occurring.
Results of data collection
Benefits of properly collected data include:
The ability of research to answer accurately the research
questions posed.
The ability of repeat and validate a particular study where needed.
Increased accuracy of findings resulting in efficient use of
resources.
Good opportunity for other researchers to pursue areas needing
further investigation.
Results of data collection
The heart of research is gathering reliable information about an
issue or intervention and analysing it to determine the
significance of the sample results.
Collecting and analysing quantitative data can help highlight
connections (correlations) among variables and also address
other factors the researcher may not have considered.
Collecting and analysing qualitative
data con provide insight into the varying
participant experiences, including what
they need to be improved or changed.
On gaining the required knowledge from
the research information provided, a
researcher should continue evaluating
the whole process in an effort to obtain
even better results in the next research.
Sources
Stimpson, P., Smith, A. (2015) Business Management for the IB
Diploma. Cambridge
Lomin, L., Muchena, M., and Pierce, R. (2014) Business
Management. Oxford
Clark, P. and Golden, P. (2009) Business and management
Course Companion
Gutteridge, L. (2009) Business and Management for the IB
Diploma
Thompson, R. and Machin, D. (2003) AS Business Studies