Value of market research
Biggest cause of business failure - failure to understand market. Shows why market research has potential to be valuable to every business.
When opening business, starting point - discover marketing fundamentals eg market size, future potential + market share of existing competitors.
Market size - value of sales made annually by all firms within a market.
Market share of crucial importance when investigating market as indicate relative strength of firms w/in market.
Value of primary market research
Process of gathering info directly from people w/in target market. Expensive when carried out by market research companies, but firms can do it themselves.
Company that's up + running - regular survey of customer satisfaction important way of measuring quality of customer service.
Investigating new market (small firm, limited budget):
- retailer research: retailers likely to know up-and-coming brands, degree of brand loyalty + importance of price + packaging
- observation - eg if starting up w/ location as importance, invaluable to measure rate of pedestrian flow past potential site compared w/ competitors.
For large company, used extensively in new product development.
Value of secondary research
Internet - Googling -> invaluable info, though online providers of market research info will want to charge for service. Google may identify relevant article that can provide useful info.
Government-produced data - government-funded Office for National Statistics produces valuable reports eg Annual Abstract of Statistics + Labour Market Trends. Provide data on population trends + forecasts.
Value of market research - qualitative
In-depth research into motivations behind attitudes + buying habits of customers. No stats.
Main form - group discussion (focus group). Free-ranging discussions led by psychologists among groups of 6-8 consumers. Group leader will have list of discussion topic, but will be free to follow up any point made by group member.
Advs - may reveal problem/opp company hadn't anticipated
- reveal consumer psychology, eg importance of image + pressure
Value of market research - quantitative
Pre-set questions of large enough sample to provide statistically valid data eg questionnaires. Can answer factual q's.
- samping - ensuring research results are generalisable. Important factor - response rate.
- writing questionnaire that's unbiased + meets research objectives
- assessing validity of results
Value of market research - market mapping
Carried out in 2 stages:
1) identify key features that characterise consumers w/in a market
2) place every brand on grid. Will reveal where competition is concentraded + may highlight gaps in market.
Could help identify a product/market nice that hasn't been filled.
Eg - Aldi. With Asda, Lidl + Iceland as direct competitors, Aldi seen sales boom as result of persuading middle-Britain that shopping at Aldi sensible rather than cheapskate.
Value of sampling
2 main concerns in sampling:
- sampling method
- sample size
Sampling more about accuracy than size, but size still important
Interpreting marketing data - correlation
Positive - as one increases, so does the other.
Negative - as one increases, the other declines
Researcher looking for cause + effect - correlation by itself does not indicate this. Strong correlation evidence that cause + effect may be present.
Negative - eg as price increase, sales will decrease
Interpreting marketing data - confidence intervals
When market researchers present findings from quantitative research, like to state level of confidence they can have in the sample finding - how often data is correct eg 95% of the time.
How confident can someone be that the result reflects the views of the whole target market? - Confidence interval - how wide the possible range might be from the actual result.
Net effect simply to point out the results of quantitative market research shiuld be treated with care. The smaller the sample size, the wider the confidence intervals + therefore the lower the level of confidence one can have in the accuracy of the findings.
Interpreting market data - extrapolation
Projecting a trend forward to make a forecast of what will happen in the future. Often done unconsciously.
Simplest way of predicting future to assume it will be same as the past. For immediate future - may be realistic. Process of predicting based on what has happened before - extrapolation. Usually done by drawing line by eye to extend graph.
Main use - sales forecasting. Crucial b/c it's at the heart of marketing planning + key areas eg supply purchasing, production scheduling + staff recruitment + planning.
Other uses - companies regularly get caught out when believing own hype. Purchase made by RBS of ABN AMRO bank partly because of success RBS had w/ purchase of NatWest bank. Management assumed thereafter that 'we're good at takeover bids'.
Value of tech in data for decision making
July 2014 - Center Parcs new location, Woburn Forest near London. Key to recovering capital spent through clever pricing to replicate achievement of 97% occupancy rate throughout Center Parcs UK. Done through detailed computer system - checks constantly on correlation between customer bookings and other factors eg time of year (regression analysis). Breaks down all variables affecting data + allocated numerical importance to each one. Means high prices during school holidays, but Center Parcs sells 97% of their space.
Google Adwords allows company to bid for word/phrase. Helps advertisers address problem of wasted money.
If tech eg Google Glass takes off, may be that data gathering becomes more widespread, w/ companies being able to know where + how we window shop - learn more about products we apire to.
Price elasticity of demand
Price elasticity measure the % effect on demand of each 1% change in price.
PED - degree of product differentiation
Extent to which customers view product as being distinctive from rivals.
Higher the product differentiation, lower the price elasticity
PED - availability of substitutes
Eg Sprite + 7 Up. When in supermarket, consmer may buy cheaper of 2.
At cinema or train station, only sprite may be available - have no option but to buy Sprite even though it's the more expensive fo the two. (Coca-Cola brand, more widely available). When Sprite has no direct competition, price elasticity much lower - brand owner (Coke) can push price up w/o losing too many customers.
PED - branding + brand loyalty
Products w/ low price elasticity - those that consumers buy w/o thinking about price tag eg Coca-Cola.
Strong brand names w/ strong brand images create customers who buy out of loyalty.
Value of PED to decision-makers
Data on product's price elasticity can be used for 2 purposes:
Sales forecasting: firm considering price will want to know effect price change is likely to have on demand. Producing forecast will make possible accurate production, personnel + purchasing decisions.
Eg Sept 2013, Nintendo cut price of Wii U in US from $350 - $299 (15%). Oct-Nov, sales rose by 150%. Could use the knowledge of the price elasticity to predict the likely impact of future price changes.
Pricing strategy: the price the firm decides to charge w/in its control + can be crucial factor to determining demand + profitability. Price elasticity info can be used in conjunction w/ internal cost data to forecast the impact of a price change on revenue.
Classifying PED - price-elastic products
One w/ price elasticity of above 1. Means % change in demand greater than % change in price.
The higher the price elasticity figure, the more price elastic the product. Cutting price on price-elastic product boosts total revenue as extra revenue gained from increased sales volume offsets the revenue lost from price cut.
Price increase on price-elastic product -> fall in revenue.
Classifying PED - price-inelastic products
Have price elasticities below 1. Means % change in demand less than % change in price. Price changes have little effect on demand, possibly b/c consumers feel they must have the product/brand eg iPhone - expensive, but lots of people still buy it.
Firms w/ price-inelastic products will feel tempted to push prices up - will boost revenue (only small fall in sales volume, covered by added revenue). Means majority of consumers will continue to purchase brand but at higher price that boosts revenue.
Household income affects demand for many products. People with higher incomes buy more of most goods.
3 categories a product can be put into:
- 'normal good', positive income elasticity + YED between 0.1 + 1.5.
- 'luxury good', very positive income elasticity more than 1.5
- 'inferior good', negative income elasticity
Knowing income elasticity of product vital in order to develop well-balanced product portfolio. Inferior goods sell well during recessions, therefore helpful for company to have both inferior + luxury goods to cover all economic situations.
As UK economy tends to grow at around 2.5% per year, in long term, normal + luxury goods most important.