DON HONORIO VENTURA STATE UNIVERSITY COLLEGE OF BUSINESS STUDIES

CHAPTER 2: THE BASICS OF MARKET RESEARCH

Learning Objectives:
In this chapter you will learn about:
1. The role of market research in helping business decisions through the systematic and objective collection
of data;
2. How market research can be used to help organizations grow by finding new markets for their products
or new products for their markets;
3. How to separate out the aims of market research from the research objectives and the research questions;
and
4. How to define a problem that can be solved by market research.

INTRODUCTION:
Goodness knows when market research was “invented”. It would be reasonable to suppose that forever, sensible
people in business have researched their markets. They will have asked their customers what they want and asked
them if they are satisfied with the products and services they supply. They will have done some crude assessment
of the potential for their products. They will have judged the best price to charge by carefully watching the
competition. Customers always have been the most important part of a business. Today, if you do not put the
customer at the center of your business, you will, over time, have no business. In other words, market research
or market intelligence has always been with us.

THE ROLE OF MARKET RESEARCH

Market research is a bit more than the informal assimilation and interpretation of intelligence that is a natural
consequence of keeping eyes and ears open. Market research is structured and purposeful. It is the systematic
and objective collection and interpretation of data to help reduce risk in marketing decisions.

As with all definitions, this one is loaded with meaning. Market researchers do not just poke around in a market
to see what is going on. They have research designs and plans. They are therefore systematic in what they do.
Furthermore, they seek to uncover the truth which may be hidden under a pile of assumptions or bias. It is the
researcher’s task to be objective.

Market researcher’s stock in trade is data. Good market research should not stop with data. Data are the collection
of facts and opinions that are accumulated in the survey process. These needs converting to information so that
it tells us something. More than this it needs to become intelligence so it helps us make smart moves. Market
researchers collect statistics and opinions; they then work out what these data mean, and draw conclusions which
lead to improved business decisions.

What can we find out? What does it mean? What should we do?

Inferences on and Recommendations and

Systematic and objective
interpretation of the options on the courses of
data collection
data actions

Figure 2.1: The Role of Market Research

HOW MARKET INTELLIGENCE HELPS IN BUSINESS DECISION MAKING

All businesses need information to guide decision making. Managers desperately trying to understand increasingly
complex and global markets, need more useable information than ever before. Because of this, the research sector
plays a valuable role in the commercial, social and political world today.

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This information can be likened to that which we need when we are driving. The dials on the dashboard are the
equivalent of the financial barometers that tell us what sales and profits we have achieved while the map on the
front seat is the market research report that shows us the best way forward.

In a world where there are very few technological secrets, it is not surprising that cans, computers and cars all
look the same. Commercial success is dependent more than ever, not on technological superiority, but on a better
understanding of customers’ needs and using this information to guide decision making.

Sometimes research needs are obvious. You are launching a new product and you need to know customers’
reactions. Will they like it? Will they buy it? How much will they pay? How much will they buy? What will trigger
their purchase? Launching a product without this information and basing it on internal hunches and opinion
(usually optimistic) could be a disaster.

It is sometimes easier to look from the outside into a company and recognize their need for research than to arrive
at this realization when on the inside. Managers of companies build a picture of their markets in their head. They
feel that they know what is going on better than any outsider can tell them. There can be significant prejudice and
resistance to research from people who have vested interests in an operation.
Market research is the map by which businesses can navigate. In the same way that maps can be large or small
scale, market research can be high level or detailed. Of course, the map doesn’t guarantee that you will arrive
safely at your destination because you have to successfully avoid collisions and ensure no wrong turnings. In some
cases, the map may lack the detail that is required or even be out of date.

Obviously, market research is concerned with decisions in the marketing function rather than in production or
financial management. Because marketing is so central to any business, the consequences of marketing decisions
spill over and affect other functions. Also, the techniques that are used in market research can be used in some
other areas of the business.

For example, human resources departments frequently use market research to measure the satisfaction of
employees in the company. Market research can provide useable information needed to support management
decisions. It also provides a way for management to keep up a dialogue with customers and shareholders. You
can use market research to find gaps in markets, assess new opportunities, develop new products and services,
assess market potential and diagnose strengths and weaknesses or pros and cons.

There are four important categories of research:

1. Market measurement
2. Customer satisfaction surveys
3. New product development
4. Usage and attitudes surveys

DECISIONS THAT CAN BE GUIDED BY MARKET RESEARCH

There are four directions a company could look to expand its business.
1. It can seek more business from its existing customers by aiming to grow its market share with the products
that are already in its portfolio. Customer satisfaction studies are commonly carried out to identify
opportunities in this box.
2. It can seek expansion by taking its traditional product range into new markets. For example, it can seek
expansion in export markets where it hasn’t previously had any sales. Market research can help here by
providing information on the size of the opportunity, the competition, the best route to market and so
on.
3. It can seek to persuade existing customers that they should buy different products or services – a sort of
product line extension. In this case, market research could explore the needs of customers for the
products that are contemplated for the extended portfolio.
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4. It can explore the possibility of selling new products to a new range of customers. Since this is the most
speculative of options, market research plays a vital role in showing the complete map of people’s needs,
how they are currently being satisfied or not, their likelihood of buying new products or services etc.

These four opportunities for business expansion are identified in Figure 2.2

Market research can show un-met

Market research can show the
needs and provide an
New products likehood of adoption of new
understanding of unfamiliar
products
markets

Market research can measure

Existing customer satisfaction to find Market research can find new
products out how to maintain a territories for products or services
competitive edge
Existing markets New markets

Figure 2.2 A Strategic Framework for Market Research in Business Expansion

“High level” business questions that can be answered by market research

Note: this framework was first promoted by Igor Ansoff as the “product-market matrix” in the Harvard Business
Review in the Sept/Oct edition of 1957. It has become one of the most popular matrices and is used to identify
the basic alternatives strategies which are options for a firm wanting to grow.

All businesses face marketing problems or opportunities. Think of some examples where you believe that
companies should be using market research and probably are not. What are the main areas where you believe
market research has an application? These problems could be located in a framework such as the Ansoff grid or
they may address fairly high-level questions of a type that are frequently asked in the board room. Examples of
such questions are:

1. Financial problem solving

 How can we reverse a fall in sales (or achieve an increase in sales)?
 How can we obtain more profit from the product/service?
 How can we improve the satisfaction of our customers so that loyalty is improved?

2. Meeting opportunities
 How can we improve our offer to customers (the product/service, the delivery, the guarantees,
the service support etc)?
 What is the optimum price we should charge?
 How can we segment the market so that we can better satisfy customers’ needs?
 What is the best route to market?
 How can we persuade people to buy our products when they are being tempted in other
directions?
 How can we increase our sales in other territories?
 Which new products or services could we offer to our customers?

3. Evaluation and diagnosis

 What is the cause of the falloff in sales and/or profitability?
 Why are people rejecting our product in favour of those from other companies?
 What are the triggers that would cause people to buy our products/services (or the barriers that
are stopping them)?

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Detailed questions that can be answered by market research

1. The market and its structure
 The market size (usually broken down by segments)
 The route to market (through the value chain)
 The companies that compete in the market (and their market shares)
 The numbers of consumers (again broken down by segment)
2. Consumer needs and satisfaction
 Factors that trigger the purchase of the product (or service)
 Factors that influence the choice of supplier
 The importance of specific issues on the selection of supplier (such as product quality, availability,
price, brand etc)
 Consumers satisfaction with the product (or service)
3. Product information
 Products that are purchased • Un-met needs (new product opportunities)
 Attitudes to new products (either in concept, as prototypes or in their finished form)
 Packaging of the product
4. Price information
 Prices of the products (list and net)
 Price sensitivity (elasticity) of the product
 Values attached to various aspects or components of the offer
5. Promotion information
 Sources through which consumers and potential consumers acquire their information on products
and services
 Messages that trigger an interest in the products/services
 Attitudes to different adverts including new adverts
 Awareness of advertising
 Effectiveness of different forms of advertising
 Readership of different media
6. Distribution information
 Role of different levels in the value chain
 Price levels and margins in the value chain
 Factors that prompt merchants and distributors to stock products
 Marketing and merchandising within the value chain
 Availability and stocking levels in the value chain
7. Segmentation opportunities
 Demographics of the population in terms of age, gender, income group, location
 Behaviour of the population in terms of how they buy (eg frequency of purchase, place of
purchase, size of purchase etc)
 Needs of the population in terms of what drives their selection of a supplier (eg often referred to
as the drivers behind the decision such as convenience, bargain hunters, safety seekers etc).

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