Cambridge IGCSE0450

Market research

Business Studies 0450 Chapter Notes

What this chapter covers

Market research - The role of market research and methods usedMarket research - Presentation and use of market research results
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In this chapter

  1. 1Why Businesses Need Market Research
  2. 2Primary Research: Gathering New Data
  3. 3Secondary Research: Using Existing Data
  4. 4Sampling in Market Research
  5. 5Quantitative and Qualitative Data
  6. 6From Data to Decisions

1. Why Businesses Need Market Research

Market research is the process of gathering, analysing, and interpreting information about a market, its customers, and competitors. For a business, this isn't just about curiosity; it's a vital tool for survival and success. By understanding what customers want, how much they'll pay, and what the competition is doing, a business can reduce the risk of making costly mistakes. A business that conducts research before developing a product is known as 'market-oriented'. It puts customer needs at the heart of its decisions, leading to products that are more likely to sell and marketing campaigns that are more effective.

Key term

Market-oriented: A business approach that prioritises identifying and meeting the stated or latent needs and wants of customers through market research.

Examiner insight

Examiners reward students who can clearly link market research to specific business decisions and the reduction of risk.

Worked example 14 marks

Explain two reasons why a new coffee shop should conduct market research before opening.

  1. 1

    Reason 1: To understand customer preferences. The research could identify the types of coffee, snacks, and atmosphere (e.g., quiet for working, or social) that local potential customers want. This reduces the risk of offering products that nobody will buy.

  2. 2

    Reason 2: To analyse the competition. The research can find out how many other coffee shops are nearby, what prices they charge, and what their strengths and weaknesses are. This allows the new coffee shop to find a 'gap in the market' or a way to be different and attract customers.

Recap

  • Market research helps a business understand its customers and competitors.
  • The main purpose is to reduce the risk of business failure.
  • A market-oriented business bases its decisions on market research findings.
  • Research helps identify gaps in the market and informs the marketing mix.
  • It provides data to make informed decisions about products, pricing, promotion, and place.

Quick check

  1. Define the term 'market research' in your own words.2 marks

2. Primary Research: Gathering New Data

Primary research, also known as field research, involves collecting brand new data directly from the source. This data is gathered for a specific purpose and has not been collected before. Because it's tailored to the business's exact needs, it can be incredibly valuable. Common methods include surveys, interviews, focus groups, and observation.

  • Surveys/Questionnaires: A list of questions asked to a number of people (the 'sample'). Can be done online, by post, or face-to-face.
  • Interviews: One-on-one conversations that allow for detailed, in-depth answers.
  • Focus Groups: A small group of people brought together to discuss a product or topic, moderated by a researcher. This reveals group opinions and attitudes.
  • Observation: Watching how people behave in a certain situation, for example, tracking how shoppers move around a supermarket.

Key term

Primary research: The collection of new, first-hand data for a specific purpose, which has not been collected before; also known as field research.

Common pitfall

Confusing primary research (collecting new data) with the primary sector of industry (extracting raw materials). They are completely unrelated.

Fun fact

The first known focus groups were used during World War II by sociologist Robert Merton to study the effectiveness of propaganda.

Worked example 14 marks

A toy company wants to launch a new electronic learning toy for 5-7 year olds. Explain one advantage and one disadvantage of using focus groups as a method of primary research.

  1. 1

    Advantage: Focus groups would provide detailed, qualitative feedback. The researcher could see the children interacting with the toy and hear their direct opinions and their parents' views on price and educational value. This provides rich insights that a simple survey couldn't.

  2. 2

    Disadvantage: Focus groups can be expensive and time-consuming to organise. The business would need to recruit suitable parents and children, hire a venue, and pay a trained moderator. The opinions of a small group may also not be representative of the entire market.

Recap

  • Primary research is the collection of new, first-hand data.
  • Common methods include surveys, interviews, focus groups, and observation.
  • The main advantage is that the data is specific, relevant, and up-to-date.
  • The main disadvantages are that it can be expensive, time-consuming, and may require specialist skills.

Quick check

  1. State two methods of conducting primary research.2 marks

3. Secondary Research: Using Existing Data

Secondary research, also called desk research, involves using information that has already been collected by someone else for a different purpose. This data is often quicker and cheaper to access than primary data. There are two main sources:

  • Internal Sources: Information from within the business. This includes past sales data, customer records and complaints, loyalty card data, and previous market research reports.
  • External Sources: Information from outside the business. This includes government publications (e.g., census data), reports from market research agencies, articles in newspapers and trade magazines, and competitors' websites and annual reports.

Key term

Secondary research: The use of existing data that has been collected by another person or organization for a different purpose; also known as desk research.

Worked example 14 marks

A clothing retailer is considering opening a new store in a different town. Identify two sources of secondary data it could use and explain why each would be useful.

  1. 1

    Source 1: Government census data. This would be useful because it provides detailed statistics about the population in the new town, including age, gender, and average income levels. This helps the retailer assess if the local demographics match its target market.

  2. 2

    Source 2: Competitors' websites and local news articles. This would be useful to identify existing clothing retailers in the town, what they sell, and their price points. It helps the business understand the level of competition it would face.

Worked example 24 marks

Explain two disadvantages of using secondary research.

  1. 1

    Disadvantage 1: The data may be outdated. Information from a government report published five years ago might not accurately reflect the current market conditions, making it less reliable for decision-making.

  2. 2

    Disadvantage 2: The data was not collected for the business's specific needs. A general report on the clothing market won't tell a business what customers think of its specific brand or a potential new product design. It may be too general to be fully useful.

Recap

  • Secondary research uses data that already exists.
  • Internal sources are from within the business, like sales records.
  • External sources are from outside the business, like government reports.
  • It is usually cheaper and faster to obtain than primary research.
  • Key drawbacks are that data can be outdated, not specific enough, or available to competitors.

Quick check

  1. State one internal and one external source of secondary data.2 marks

4. Sampling in Market Research

It's usually impossible to survey every single person in a target market (the 'population'). Instead, businesses select a smaller group, known as a sample, who are intended to be representative of the larger population. The accuracy of the research depends heavily on how well the sample represents the target market. Key methods include:

  • Random Sampling: Every member of the target population has an equal chance of being selected. This is fair but can be difficult to achieve and might, by chance, result in an unrepresentative group.
  • Quota Sampling: The researcher is given a quota to fill for different subgroups (e.g., 'Find and interview 20 women aged 18-25 and 15 men aged 26-40'). This ensures the sample reflects the proportions of the population on certain characteristics, but can lead to bias as the researcher chooses who to ask within the quotas.

Key term

Sampling bias: A situation where the chosen sample is not representative of the target population, leading to inaccurate and misleading results.

Common pitfall

Believing that a large sample is automatically a good sample. A large but biased sample (e.g., only asking people in one wealthy area) is still inaccurate.

Worked example 15 marks

A company has developed a new luxury skincare product for women over 40. Which sampling method, random or quota, would be more appropriate? Justify your answer.

  1. 1

    Appropriate method: Quota sampling.

  2. 2

    Justification 1: The target market is very specific (women over 40). Random sampling the general population would be inefficient as many interviews would be with people outside the target market (men, younger women).

  3. 3

    Justification 2: Quota sampling allows the researcher to specifically seek out people who fit the target profile. The business could set further quotas based on income level or location to ensure the sample accurately reflects the potential customers for a luxury product, leading to more relevant and accurate findings.

Recap

  • Sampling involves selecting a representative group from a larger population.
  • It is used because interviewing the entire population is impractical.
  • Random sampling gives everyone an equal chance of being selected.
  • Quota sampling involves selecting people who fit pre-set characteristics.
  • Sampling bias occurs when the sample does not accurately reflect the target population, leading to flawed results.

Quick check

  1. What is the main difference between random sampling and quota sampling?2 marks

5. Quantitative and Qualitative Data

Market research data comes in two main flavours: quantitative and qualitative. Businesses often need both to get a complete picture.

  • Quantitative Data: This is information that can be measured and written down with numbers. It deals with statistics, quantities, and numerical values. It answers questions like 'how many?', 'how much?', and 'how often?'. For example, '45% of customers are female' or 'Average spend is £25.50'. It is often presented in charts and graphs.
  • Qualitative Data: This is descriptive information that deals with opinions, feelings, and motivations. It answers the 'why?' question. It is gathered from open-ended questions in interviews or focus groups. For example, 'Why do you prefer our brand?' or 'What do you think of our new packaging?'. The answers are in words, not numbers.

Key term

Qualitative data: Non-numerical, descriptive information that provides insights into people's opinions, attitudes, judgements, and motivations.

Examiner insight

Students who can explain how quantitative and qualitative data complement each other to give a full picture will achieve higher marks.

Worked example 15 marks

A fast-food chain's research shows that 70% of customers visit at lunchtime (quantitative data). However, sales are falling. Explain how collecting qualitative data could help the business understand this problem.

  1. 1

    The quantitative data tells them 'what' is happening (most customers come at lunch) but not 'why' sales are falling. The business needs qualitative data to understand the reasons behind the numbers.

  2. 2

    They could use focus groups or in-depth interviews to ask customers questions like 'What do you think of our menu quality?', 'How could we improve our service speed?', or 'Why might you choose a competitor over us?'.

  3. 3

    The answers would provide insights into problems like poor food quality, slow service, or high prices, which the quantitative data alone cannot reveal. This 'why' information is essential for finding a solution.

Recap

  • Quantitative data is numerical and can be measured.
  • Qualitative data is non-numerical and explores opinions and reasons.
  • Quantitative data tells you 'what' is happening.
  • Qualitative data tells you 'why' it is happening.
  • A business needs a mix of both types of data for effective decision-making.

Quick check

  1. Is the answer to 'What do you like about this product?' quantitative or qualitative data?1 mark
  2. Is 'the number of products sold per week' quantitative or qualitative data?1 mark

6. From Data to Decisions

Collecting market research data is only half the battle. The data is useless until it is analysed, interpreted, and used to make decisions. The final stage of the research process involves turning raw data into actionable insights.

  1. Analysis and Presentation: Data is organised and presented in a way that is easy to understand. This often involves using tables, bar charts, pie charts, and line graphs to show trends, proportions, and comparisons clearly.
  2. Drawing Conclusions: The researcher looks at the presented data and draws conclusions. For example, a bar chart might show that a competitor's price is significantly lower, or a table of survey results might show that customers want a product in a different colour.
  3. Making Recommendations: Based on the conclusions, the business can make informed decisions. The research might lead to changes in the marketing mix: changing the Product design, adjusting the Price, choosing a new Place to sell, or creating a new Promotion campaign.

Key term

Marketing Mix: The combination of elements (often called the 4 Ps: Product, Price, Place, Promotion) that a business uses to market its products to a target audience.

Common pitfall

Simply stating the data (e.g., '50 people wanted a better battery') without interpreting it or suggesting what the business should do as a result.

Worked example 14 marks

A survey asked 100 people what feature they most wanted in a new mobile phone. The results were: Better Battery (50), Better Camera (30), More Storage (15), Other (5). Based on this data, draw one conclusion and recommend one action for the phone company.

  1. 1

    Conclusion: The most important feature for the majority of potential customers is a better battery life. This is significantly more important than the camera or storage, with half of all respondents choosing it.

  2. 2

    Recommendation: The company should focus its product development and marketing efforts on battery life. The new phone should be designed with a long-lasting battery, and promotional campaigns should highlight 'All-Day Battery' as a key selling point to meet this clear customer demand.

Recap

  • Raw data must be analysed and presented clearly to be useful.
  • Bar charts, pie charts, and graphs are common ways to present data.
  • Analysis involves drawing conclusions from the patterns in the data.
  • The ultimate goal is to use the findings to make better business decisions.
  • Research findings directly influence the marketing mix (Product, Price, Place, Promotion).

Quick check

  1. List two types of chart that can be used to present market research data.2 marks

End-of-chapter exercise

Test yourself on the whole chapter. Work through these before moving on.

  1. Define 'primary research' and 'secondary research'.2 marks
  2. Explain two reasons why a business might prefer to use secondary research instead of primary research.4 marks
  3. A new airline is planning to offer flights between London and New York. Explain two ways it could use market research.4 marks
  4. Analyse the importance of using a representative sample when conducting market research.6 marks
  5. A business that makes sports shoes wants to find out what teenagers think of its latest designs. Recommend and justify one primary research method it could use.5 marks
  6. Explain the difference between quantitative and qualitative data, using an example for each.4 marks
  7. A market research survey for a new chocolate bar produced biased results. Explain two possible reasons for this.4 marks
  8. Analyse the benefits to a business of being market-oriented.6 marks
  9. A local council wants to find out if residents would support a new recycling scheme. It has a very small budget for research. Evaluate the use of an online survey as its main research method.8 marks
  10. ‘Primary research is always more useful than secondary research.’ Discuss this statement.10 marks

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