4.4 Market research

Full video class on YouTube, summary and notes on Instagram, class extracts on TikTok, text below. Have fun!

The main point of this class is to learn why and how organisations do market research.

Market research is the process of gathering and analysing information about the market and customers’ needs and wants in order to determine the marketing strategy. Key words in this definition are information, needs, wants, strategy. Make sure you understand all of them and check out this class if you’d like to review needs and wants and this class if you’d like to review strategy.

In terms of time and regularity, market research can be either systematic (continuous, regular) or ad hoc (only when necessary, irregular). Market research is definitely not something organisations do only once at the start-up stage. Markets are dynamic and external environment is constantly changing, so in order to understand the needs, wants and market situation accurately, businesses have to collect up-to date data.

The objective of this part of class is to learn to discuss why and how organisations carry out market research. We will be able to achieve the first part (why) of this objective in this part of class, but in order to achieve the second part (how) of this objective, you will have to study the entire class.

So, why do organisations carry out market research? There may be plenty of reasons for that and, of course, these reasons are different for different organisations, but let’s try to average them out and summarise. Some of the most common reasons are:

1. It reduces risk. If an organisation knows its customers well or understands its relative position in the industry, it is more prepared to satisfy customers’ needs and wants in the most cost-effective way and there is no need to exercise the “trial and error” method, wasting time and finance on unnecessary actions.

2. It provides up-to-date data. As I mentioned earlier, markets are not static and external environment is constantly changing, so market research data gets outdated really quickly, that is why it is important to conduct market research regularly in order to “keep the hand on the market’s pulse”.

3. Market research assists in setting goals, objectives, strategies and tactics. In order to avoid the situation when decisions are made based on the manager’s gut feeling, market research helps to make informed data-based decisions.

4. For market-oriented businesses, market research helps to identify customers’ needs and wants and help businesses to meet them by providing the desired products. For product-oriented businesses, it helps to identify the “empty” market niche and offer unique innovative products or to collect data with regards to how customers perceive their innovative products. Watch the video below to see Steve Jobs’s thoughts on market research for product-oriented businesses like Apple.

5. Market research assists (and is part of) marketing planning. It helps managers to plan and to set marketing goals, objectives, strategies and tactics.

6. Market research helps to forecast sales by collecting quantitative and qualitative data about customers, market and competitors.

7. Market research helps to make the most important marketing decisions and apply the marketing mix to its products: 4Ps (product, price, promotion, place) for goods and 7Ps (4Ps + people, processes, physical evidence) for services. More about the marketing mix (4Ps and 7Ps) later in Unit 4.

With regards to how organisations carry out market research, you will need to read the remaining four parts of this class and figure out the differences between primary and secondary market research, quantitative and qualitative market research, and different sampling methods. Keep in mind, that the objective is AO3 (evaluation), so, as you read further, pay particular attention to pros and cons of different market research methods in order to make sure you are able not only to discuss and evaluate how organisations carry out market research, but also to suggest the most appropriate market research methods in different situations.

BM IA & EE Tip. Primary research and secondary research refer to methods of data collection. They apply not only to market research, but to any research. Additionally, primary and secondary methods complement each other and compensate for each other’s drawbacks. In your IA, you may use either method of data collection. In EE though, you should rely on secondary research. When you read this chapter, don’t think of it as another BM chapter. Think of it as a way to learn how to collect data for your IA and EE.

Primary research means gathering new first-hand data. Sometimes it is called “field research”. Primary research involves collection of information that does not exist yet. An example of primary research can be a survey among local people about their favourite pizza restaurant in town. If this kind of survey has never been conducted in town, or if its results have never been shared publicly, it is impossible to just look up “people’s favourite pizza restaurant in town” online, because there is no data about it. First of all, someone has to go to the town streets and collect this data by surveying the locals.

On the one hand, primary research allows to collect up-to-date information that is in line with the organisation’s needs. If you use data that is already collected by someone else (secondary research — see the next part of class), then you have to keep in mind that someone else collected that data for their own needs and it might not align with yours. But when you collect data yourself, then you are free to do it however you want. Additionally, primary research allows to collect unique and confidential information, that does not have to be shared with anyone (as long as it does not violate any ethical standards and laws), which gives organisation an advantage over rivals (i.e. you know something that competitors don’t).

However, primary research is expensive and time-consuming. The price that organisation has to pay for all the advantages of primary research is investment into time, people and design of the research. In addition, primary research is subject to bias, because whoever collects data and designs research methods is naturally inclined to conduct research in their own favour and to design it under the assumption that researcher’s hypothesis is correct. For example, if a manager of pizza restaurant ABC wishes to figure out their customer’s perceptions about their pizza, they might ask them questions like “on a scale from 1 to 5, how much do you like ABC pizza?”, which means that it is assumed that the respondent likes ABC pizza, which might not even be true! That is why, removing personal bias from the research design is quite a big challenge.

Now let’s learn a little bit about the four methods of primary research that IB wants you to know: survey, interview, focus group, observation. As always, I am going to keep you busy and will ask you to fill in the table below as you read.

Survey is a type of primary research when respondents are asked to fill in the document that contains a set of questions. This method is suitable for collecting “quick” data about customers’ perceptions and purchasing habits, for example which products they like most/least of all, how often they go shopping for groceries, how often they buy chewing gum at the counter, etc. Survey may include open questions (no options provided, respondents just answer the question, for example: “how do you feel about X product?”) and closed questions (respondents choose one/some of the provided options, for example: “how often do you buy bread? Once a week, 2~5 times a week, more than 5 times a week”). Very often, before going to “the field”, the survey is tested on a small sample in order to find out potential problems before the actual survey happens.

On the one hand, survey allows to collect both hard and soft data, it is easy to analyse them and sum up the results (often automatically using software), and surveys are easy to complete for respondents, so researchers may get a good response rate. However, in order for survey to be reliable, usually a relatively large sample is required. Besides, there is no chance to ask for clarification after the completion of the survey. And, very often, respondents just fill in the survey randomly because they might feel too bad for not taking part it in but also not care enough to invest their time in its completion.

Interview is a face-to-face meeting with the aim of collecting information. Interviews can be structured (there is a fixed set of questions that interviewers go through with all respondents), semi-structured (interviewers go through a fixed set of questions with all respondents but may ask for extra information if needed), and unstructured (interviewers just have an understanding about what they want to find out but they approach different respondents differently). Interview is suitable when an organisation wants to find out the reasons behind purchasing behaviour and preferences, for example, why customers prefer shopping on certain days of week and why most customers prefer shopping in a certain area.

On the one hand, interviews allow to collect in-depth data. They also give interviewers a chance to clarify and verify data by asking follow-up questions. And overall, interviews provide more flexibility, compared to surveys. On the other hand, interview design, trial and interviewing itself are time-consuming. They are also harder to arrange because they require more of respondents’ time, and thus it is hard to get a large sample. And, since interview directly involves human-to-human interaction, it is subject to interviewer’s bias.

Focus group is a small gathering of 6~10 people that is assembled to participate in a discussion about brand/product. Focus groups are suitable for gaining insights into customers’ preferences, purchasing habits, consuming behaviour. Focus group is not like an interview, there is no back-and-forth Q&A, it is more like a natural conversation, and participants of focus groups are thus more relaxed and more inclined to share their real beliefs and ideas. Besides, very often, focus groups are designed with psychologists’ help and they involve unconventional questions, that are not usually asked in an interview. For example, instead of asking an interview-like question “what are the emotions that you experience thinking about product X?”, focus group participants might be prompted to discuss animals that are associated with a certain product or brand.

On the one hand, focus group, in general, is an unconventional way to get conventional data. There is less guidance in a focus group (unlike interview), which leads to lower bias. On the other hand, this research method is subject to observer interference, when respondents give different answers just because they know they are taking part in a research. Additionally, focus groups involve a very small sample size, so they might not be representative.

Observation is a process of monitoring something or someone. It may be controlled (in laboratory conditions) or real-life (not in a lab, in a natural environment). This method is suitable for observing behaviour and identifying patterns, for example, queueing times, shelf space, traffic and peak hours.

On the one hand, observation, as a primary research method, is a convenient way to identify behavioural patters and verify marketing strategies. It is relatively easy to arrange. However, observation does not reveal the reasons for customers’ behaviour and their purchasing habits. It only helps to identify them, but does not go beyond that.

Just a reminder that in Figure 1 at the start of this part of class there was a table with primary market research methods that you should be able to easily fill in if you read all the paragraphs above. Good job!

Secondary research means gathering existing second-hand data. Sometimes it is called “desk research”. Secondary research involves collection of information that already exists and data that was collected by someone else. An example of secondary research can be checking local people’s reviews on a blogging platform or in a map app about their favourite pizza restaurants in town. In this case, managers do not have to go to the “field” and survey local people themselves, they only have to sit down and do some “desk research” by collecting opinions that have already been posted online.

On the one hand, secondary research saves a lot of time, it is already available and access to information is relatively quick, compared to primary research. However, secondary research uses information that is usually available to everyone else, so it does not give managers advantage over their rivals (i.e. managers do not know something that competitors do not know because information is public and available to everyone). Additionally, whoever collected the data, did it for their own reasons and purposes that might not be in line with the needs and objectives of the organisation that is carrying out secondary research. So, for secondary research, you work with whatever is available. For primary research, you are free to collect data however you wish but it takes more time. Two methods complement each other very well and are often used in combination.

Now let’s learn a little bit about the five methods of secondary research that IB wants you to know: market analysis, academic journal, government publication, media article, online content. All five methods actually refer to five different sources of secondary data. Just like in the previous part of class, I am going to keep you busy and will ask you to fill in the table below as you read.

Market analysis is a publication/report about particular markets. Market analyses usually include information about market shares, market growth, market leadership, trends and forecasts. The major consulting agencies (the so-called Big Four: Deloitte, EY, KPMG, PwC) offer market analyses, among other services.

Market analysis is conducted by professionals, it is trustworthy, well-presented, and already available. All you need to do, usually, is pay for it. And the price is really high.

Academic journal is a periodical peer-reviewed publication from educational institutions. Academic journals include theoretical information about different business tools, techniques and theories that are used for analysing data. The most relevant example of an academic journal in the business world would be Harvard Business Review.

On the one hand, publications in academic journals are peer-reviewed, which means that they are critically analysed and bias and mistakes are thus minimised. Additionally, academic journals are regular and reliable sources of information. On the other hand, academic journals exist in the academic world, even if they are business-related. Thus, they are quite theoretical and not always too “real-world”.

Government publication is an official document provided by the government. For example, publications about unemployment rates, demographics, life expectancy and economic growth — all of these are usually provided by different government agencies/offices in most countries.

On the one hand, government publications are reliable and up-to-date. However, governments do not disclose everything, some data is top secret. Additionally, not all government publications are business-focused, so businesses might need to analyse publications and see to what extent the provided data may be applied to the business activity.

Media article is a text that is published in a newspaper or a magazine. The examples of business-related magazines and newspapers are The Economist and McKinsey Quarterly. Media articles are suitable for collecting information about opinions, analytics and different perspectives on business issues.

On the one hand, media articles reflect current trends and are easy to access. On the other hand, they are biased because all of them have their own agenda and style that they adhere to.

Online content is anything that is posted online: videos, blogs, pictures, reviews. It is suitable for gathering direct feedback from customers.

Online content is easy to access, it is usually free, and it provides useful insights into how customers feel about different products and brands. However, it is the most unreliable and biased source and it can be manipulated by different businesses in their own favour, for example when they use bots to write fake reviews.

Just a reminder that in Figure 4 at the start of this part of class there was a table with secondary market research methods that you should be able to fill in if you read all the paragraphs above. Well done!

The differences between quantitative and qualitative market research are easy to understand. Simply speaking, quantitative is about numbers and qualitative is about characteristics. Let’s find out more in-depth differences in this part of class and summarise them in the table below.

Quantitative research refers to collecting measurable numerical data (“hard” data), for example: market share, market growth rate, customer numbers, average cheque, sales, etc. Primary market research methods that are usually quantitative are survey and observation. Since hard data is numerical and is not open to multiple interpretations, it is considered to be objective.

On the one hand, data that is collected using quantitative market research is easy to measure and analyse and it involves minimal bias. On the other hand, hard data may be superficial because it might reveal some trends but it might not reveal the reasons for these trends. Additionally, quantitative market research requires a large
sample in order to be valid and thus it is expensive and time-consuming.

Qualitative research refers to collecting non-numerical data that is hard to measure (“soft” data), for example: opinions, reasons for behaviour, preferences, attitudes, approaches. Primary market research methods that are usually qualitative are focus group and interview. Since soft data is qualitative (non-numerical) and is open to multiple interpretations, it is considered to be subjective.

On the one hand, qualitative market research may provide managers with some insights such as reasons for customers’ behaviour and preferences. Besides, it does not require a large sample (one focus group is usually only 6 to 10 people!). But, on the other hand, qualitative findings are hard to analyse because they might be interpreted differently depending on the perspective. Additionally, qualitative research is often biased because researchers might unintentionally include their personal attitudes into the research design and analysis.

One more thing about market research. It includes two categories: how data is collected (primary or secondary) and what kind of data is collected (quantitative or qualitative). So, any research would be in two categories at the same time. For example, if you wish to find out market share of top pizza restaurants in town by reading an online market analysis, then it would be secondary quantitative research. Very often, market research includes all categories at the same time. They do not conflict each other and they compensate for each other’s benefits.

That is all with regards to quantitative and qualitative market research. Make sure you are able to fill in the table in Figure 6.

Primary market research includes two kinds of people: researchers and respondents. Respondents are usually customers/consumers/users. Most of the time, it is impossible to have all potential customers/consumers/users (population) as respondents, so only a portion (sample) of them is selected. Now let’s wrap it up with some terminology:

• Population — all potential respondents (customers, consumers, users).
• Sample — a small representative part of the population.
• Sampling — the process of selecting the respondents that represent the population using sampling methods.

Once again, sampling is something that applies to primary research only!

Similar to the previous parts of this class, there is a table for you to fill in.

Keep in mind that there are, actually, more than 3 sampling methods. In this class, we are learning only the ones that are included in IB BM syllabus.

Quota sampling is a sampling method whereby population is divided into representative groups and a fixed number of respondents (quota) in each group is then involved in research. In quota sampling, population is usually divided by gender, age, lifestyle, or other characteristics relevant to the business/product.

On the one hand, quota sampling is representative and reliable. On the other hand, it is subject to sampling errors if researchers are not very experienced: sample will not be representative if quotas aren’t well-defined…

Random sampling is a sampling method whereby all members of the population have equal chances to be selected as respondents. It works well for mass markets where products are basically for everyone and there is no need to divide the population into groups with similar characteristics.

On the one hand, random sampling is convenient and it involves minimal bias: since there is no need to think how to divide population, there is a lower possibility of sampling errors. On the other hand, random sampling is not representative of different market segments so it might not work well for targeted niche markets.

Convenience sampling is a sampling method whereby the researcher selects respondents that he/she has the most convenient access to. For example, if Ivan runs a fruit shop in the neighbourhood, he might just interview/survey some of his regular customers. This sampling method works well for smaller businesses that have a small population.

On the one hand, convenience sampling is convenient and quick. On the other hand, it is the least representative of all…

That’s it with regards to the sampling methods. Make sure you are able to fill in the table from Figure 8.

In the first part of this class (Why & How) we actually discussed why organisations carry out market research. With regards to how they carry out market research, please refer to primary & secondary research, quantitative & qualitative research and sampling in parts 2~5 of this class.

Make sure you can define all of these:

1. Market research
2. Ad hoc
3. Primary research
4. Survey
5. Open questions
6. Closed questions
7. Interview
8. Structured interview
9. Semi-structured interview
10. Unstructured interview
11. Focus group
12. Observer interference
13. Observation
14. Secondary research
15. Market analysis
16. The Big Four
17. Academic journal
18. Government publication
19. Media article
20. Online content
21. Quantitative research
22. Hard data
23. Qualitative research
24. Soft data
25. Population
26. Sample
27. Sampling
28. Quota sampling
29. Random sampling
30. Convenience sampling