Definition of Marketing Research
Marketing Research is the function that links the consumer, customer, and public to the marketer through information--information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process.
Marketing research specifies the information required to address these issues, designs the method for collecting information, manages and implements the data collection process, analyzes the results, and communicates the findings and their implications.
What is Market Research?
Market research is a systematic, objective collection and analysis of data about your target market, competition, and/or environment with the goal being increased understanding. Through the market research process, you can take data-a variety of related or non-related facts-and create useful information to guide your business decisions. Market research is not an activity conducted only once; it is an ongoing study.
Benefits of Market Research
Information gained through marketing research isn't just "nice to know." It's solid information that can guide your most important strategic business decisions. Market research is effective when the findings or conclusions you reach have a value that exceeds the cost of the research itself. For example, if you spend $500 on market research activities that yields information leading to a revenue increase of $5,000, the research was well worth it! Suppose you spend $500 on a customer survey that uncovers an unmet customer need. You'll have the opportunity to offer a new product or service (or alter your existing product or service) to meet the need and gain new revenues.
Market research guides your communication with current and potential customers.
Once you have good research, you should be able to formulate more effective and targeted marketing campaigns that speak directly to the people you're trying to reach in a way that interests them. For example, some retail stores ask customers for their zip codes at the point of purchase. This information, which pinpoints where their customers live, will help the store's managers plan suitable direct mail campaigns.
Market research helps you identify opportunities in the marketplace.
For example, if you are planning to open a retail outlet in a particular geographic location and have discovered that no such retail outlet currently exists, you have identified an opportunity. The opportunity for success increases if the location is in a highly populated area with residents who match your target market characteristics. The same might be true of a service you plan to offer in a specific geographic area or even globally, via the Internet.
Market research minimizes the risk of doing business.
Instead of identifying opportunities, the results of some market research may indicate that you should not pursue a planned course of action. For example, marketing information may indicate that a marketplace is saturated with the type of service you plan to offer. This may cause you to alter your product offering or choose another location.
Market research uncovers and identifies potential problems.
Suppose your new retail outlet is thriving at its location on the main road through town. Through research you learn that in two years, the city is planning a by-pass, or alternate route, to ease traffic congestion through town. You've identified a potential problem!
Market research creates benchmarks and helps you track your progress.
It's important to know, for later comparisons, the position of your business at particular moments in time. Ongoing market research allows you to make comparisons against your benchmark measurements as well as chart your progress between research intervals (such as successive annual surveys).
For example, you might establish a benchmark measurement of your target market demographics and learn that 65 percent of your customers are women between the ages of 35 and 50. One year later you again survey your customers and learn that this age group now represents 75 percent of your customer base. You're tracking a trend in your customer demographics.
Market research helps you evaluate your success.
Information gathered through market research helps you to determine if you're reaching your goals. In the above example, if your product's target market is women between the ages of 35 and 50, then you're making progress toward your goal. (If not, this information can indicate a needed change in marketing strategy!)
What Market Research Can Tell You
Market segmentation studies provide information about the characteristics shared by your customers. This data provides answers to questions such as: Who are my customers? What is the size of their population? What percentage is female? What are their ages, races, income and education levels? What are their occupations, skills, interests and hobbies? How many children do they have? Do they have pets? Where do they live and work?
Purchasing power and buying habits information uncovers the financial strength and economic attributes shared by your target market. Some questions to be answered include: What is the average dollar amount spent on purchases or products or services similar to mine? What are the financing needs of my target market? What is their current usage of my services? When do they purchase? Where do they shop? Why do they decide to buy? How often do they buy? How much do they buy at a time? Do they own or rent their homes? What types of cars do they drive? How often do they eat out? How do they typically spend their disposable income? What methods of payment do they use? How strong is their credit?
Psychological aspects of the market is information regarding the perceived opinions and values held and shared by consumers in your market. Questions to be answered: What is the reaction of the market to my programs or services? How does the market compare my company to other businesses? What qualities and characteristics do my customers deem important? Who makes the decisions to buy in the family or company? What are the deciding factors in making a purchase? Do they only want the best for their family? Are they looking for convenience and time-saving devices? Are they concerned with how they're perceived by others? What are their unmet needs? Do they demand intensive customer service? Are they only concerned with the lowest price? What media (magazines, radio, TV, newspapers, Internet providers, etc.) are they exposed to? What confuses my customers and prospects?
Marketplace competition is information about the other companies within your area of business. Research answers these questions: Who are my primary competitors in the market? How do they compete with me? In what ways do they not compete with me? What are their strengths and weaknesses? Are there profitable opportunities based upon their weaknesses? What is their market niche? What makes my business unique from the others? How do my competitors position themselves? How do they communicate their services to the market? Who are their customers? How are they perceived by the market? Who are the industry leaders? What is their sales volume? Where are they located? Are they profitable?
Environmental factors information uncovers, economical and political circumstances that can influence your productivity and operations. Questions to be answered include: What are the current and future population trends? What are the current and future socio-economic trends? What effects do economic and political policies have on the target market or my industry? What are the growth expectations for my market? What outside factors influence the industry's performance? What are the trends for this market and for the economy? Is the industry growing, at a plateau, or declining?
Market Research - Types, Methods & Techniques
Secondary Research
Usually the easiest and least expensive, secondary research is information that already exists somewhere. It may be a study, a group of articles on a topic, or demographic or statistical data gathered by someone else. For example, the demographic data about car owners in your county available from your Chamber of Commerce may be just the information you need-and it's already gathered!
Secondary Research Activities
Review and analyze the existing data on your target markets available from magazines, books, published research studies, government publications, etc.
Evaluate the competition.
Assess environmental factors such as social, economic, political, etc.
Secondary Research Methods
Because secondary research already exists, no specific scientific method or technique is needed to collect information. Instead, your efforts are spent locating and gathering market information from reliable sources. Don't forget the Internet. Many of the resources listed below, such as magazines, trade associations and government resources, now have materials available online. See Researching on the Internet for guidance on how to browse the Web for information.
Primary Research
Sometimes, the information you need doesn't exist-anywhere! You've searched the Internet, you scoured the library, journals and databases all to no avail. That's when you may need to conduct primary research, or research conducted for a specific purpose. FYI, the secondary research you may have used was probably someone's primary data once.
Primary Research Activities
Conducting surveys to create market data or using other research instruments such as questionnaires, focus groups, interviews, etc.
Noting first-hand observations
Conducting experiments
Primary Research Methods
Each methodology uses "sampling" which allows the researcher to reach conclusions about a population within a certain degree of accuracy without having to survey everyone. It is not necessary to have a large sample size. Samples as few as one percent of a target market can often provide reliable results, under the direction of experienced researchers.
Primary research can be either qualitative or quantitative.
Qualitative research provides definitive market information regarding the opinions and behaviors of the subjects in the market research study. research are listed below. Qualitative research is used to achieve a variety of objectives.
Obtain helpful background information on a market segment
Explore concepts and positioning of a business or product
Identify attitudes, opinions and behavior shared by a target market
Prioritize variables for further study
Fully define problems
Provide direction for the development of questionnaires
Personal interviews and focus groups are the most common qualitative research techniques.
Personal Interviews
Conducted on a one-on-one basis
Uses an unstructured survey
Uses open-ended questions
Extensive probing questions
Usually recorded on audio tape
Interview typically lasts one hour
Usually no more than 50 persons are interviewed
Focus Groups
Groups of 8-12 people
Led by a moderator who follows a script
Groups are audio or video recorded
Meetings last from 1-2 hours
Minimum of two groups scheduled per target market
Group dynamics factor in data collection
Quantitative research creates statistically valid market information. Some common uses for quantitative research include:
Substantiate a hypothesis or prove a theory
Minimize risk
Obtain reliable samples for projecting trends
Personal, telephone and mail surveys are the most common quantitative techniques.
Personal Surveys
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Telephone Surveys
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Mail Surveys
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Market Research - The Process
Step One: Define Marketing Problems and Opportunities
Step Two: Set Objectives, Budget and Timetables
Step Three: Select Research Types, Methods and Techniques
Step Four: Design Research Instruments
Step Five: Collect the Data
Step Six: Organize and Analyze the Data
Step Seven: Present and Use Market Research Findings
Market research, like other components of marketing such as advertising, can be quite simple or very complex. You might conduct simple market research such as including a questionnaire in your customer bills to gather demographic information about your customers. On the more complex side, you might engage a professional market research firm to conduct primary research to aid you in developing a marketing strategy to launch a new product.
Regardless of the simplicity or complexity of your marketing research project, you'll benefit by reviewing the following seven steps in the market research process.
Step One: Define Marketing Problems and Opportunities
The market research process begins with identifying and defining the problems and opportunities that exist for your business, such as:
Launching a new product or service.
Low awareness of your company and its products or services.
Low utilization of your company's products or services. (The market is familiar with your company, but still is not doing business with you.)
A poor company image and reputation.
Problems with distribution, your goods and services are not reaching the buying public in a timely manner.
Step Two: Set Objectives, Budget and Timetables
Objective: With a marketing problem or opportunity defined, the next step is to set objectives for your market research operations. Your objective might be to explore the nature of a problem so you may further define it. Or perhaps it is to determine how many people will buy your product packaged in a certain way and offered at a certain price. Your objective might even be to test possible cause and effect relationships. For example, if you lower your price by 10 percent, what increased sales volume should you expect? What impact will this strategy have on your profit?
Budget: How much money are you willing to invest in your market research? How much can you afford? Your market research budget is a portion of your overall marketing budget. A method popular with small business owners to establish a marketing budget is to allocate a small percentage of gross sales for the most recent year. This usually amounts to about two percent for an existing business. However, if you are planning on launching a new product or business, you may want to increase your budget figure, to as much as 10 percent of your expected gross sales. Other methods used by small businesses include analyzing and estimating the competition's budget, and calculating your cost of marketing per sale.
Timetables: Prepare a detailed, realistic time frame to complete all steps of the market research process. If your business operates in cycles, establish target dates that will allow the best accessibility to your market. For example, a holiday greeting card business may want to conduct research before or around the holiday season buying period, when their customers are most likely to be thinking about their purchases.
Step Three: Select Research Types, Methods and Techniques
There are two types of research: primary research or original information gathered for a specific purpose and secondary research or information that already exists somewhere. Both types of research have a number of activities and methods of conducting associated with them.
Secondary research is usually faster and less expensive to obtain that primary research. Gathering secondary research may be as simple as making a trip to your local library or business information center or browsing the Internet
See Market Research Types, Methods and Techniques for more details about the activities and methods for primary and secondary research.
Step Four: Design Research Instruments
The most common research instrument is the questionnaire. Keep these tips in mind when designing your market research questionnaire.
Keep it simple.
Include instructions for answering all questions included on the survey.
Begin the survey with general questions and move towards more specific questions.
Keep each question brief.
If the questionnaire is completed by the respondent and not by an interviewer or survey staff member, remember to design a questionnaire that is graphically pleasing and easy to read.
Remember to pre-test the questionnaire. Before taking the survey to the printer, ask a few people-such as regular customers, colleagues, friends or employees-to complete the survey. Ask them for feedback on the survey's style, simplicity and their perception of its purpose.
Mix the form of the questions. Use scales, rankings, open-ended questions and closed-ended questions for different sections of the questionnaire. The "form" or way a question is asked may influence the answer given. Basically, there are two question forms: closed-end questions and open-end questions.
Close-end questions - Respondents choose from possible answers included on the questionnaire. Types of close-end questions include:
Multiple choice questions which offer respondents the ability to answer "yes" or "no" or choose from a list of several answer choices.
Scales refer to questions that ask respondents to rank their answers or measure their answer at a particular point on a scale. For example, a respondent may have the choice to rank their feelings towards a particular statement. The scale may range from "Strongly Disagree", "Disagree" and "Indifferent" to "Agree" and "Strongly Agree."
Open-end questions - Respondents answer questions in their own words. Completely unstructured questions allow respondents to answer any way they choose. Types of open-end questions include:
Word association questions ask respondents to state the first word that comes to mind when a particular word is mentioned.
Sentence, story or picture completion questions ask respondents to complete partial sentences, stories or pictures in their own words. For example, a question for commuters might read: "My daily commute between home and office is _____ miles and takes me an average of ______ minutes. I use the following mode of transportation: _______."
Step Five: Collect Data
To help you obtain clear, unbiased and reliable results, collect the data under the direction of experienced researchers. Before beginning the collection of data, it is important to train, educate and supervise your research staff. An untrained staff person conducting primary research will lead to interviewer bias.
Stick to the objectives and rules associated with the methods and techniques you have set in Step Two and Step Three. Try to be as scientific as possible in gathering your information.
Step Six: Organize and Analyze Data
Once your data has been collected, it needs to be "cleaned." Cleaning research data involves editing, coding and the tabulating results. To make this step easier, start with a simply designed research instrument or questionnaire.
Some helpful tips for organizing and analyzing your data are listed below.
Look for relevant data that focuses on your immediate market needs.
Rely on subjective information only as support for more general findings of objective research.
Analyze for consistency; compare the results of different methods of your data collection. For example, are the market demographics provided to you from the local media outlet consistent with your survey results?
Quantify your results; look for common opinions that may be counted together.
Read between the lines. For example, combine U.S. Census Bureau statistics on median income levels for a given location and the number of homeowners vs. renters in the area.
Step Seven: Present and Use Marketing Research Findings
Once marketing information about your target market, competition and environment is collected and analyzed, present it in an organized manner to the decision makers of the business. For example, you may want to report your findings in the market analysis section of your business plan. Also, you may want to familiarize your sales and marketing departments with the data or conduct a company-wide informational training seminar using the information. In summary, the resulting data was created to help guide your business decisions, so it needs to be readily accessible to the decision makers.