15
Market research
Activity 15.1 (page 265): We know who our customers are
1
Explain four benefits to IKEA’s managers of having detailed research information
about their customers. [12]
•
•
•
•
IKEA will be able to predict the impact of demographic changes in society on
its sales. For example, as IKEA knows that its core customers are aged between
25 and 50 years old, it can analyse demographic projections to see if this core
group is increasing or decreasing in size. Such knowledge will contribute to
decisions about the marketing mix.
Understanding customers will help IKEA design products and store layouts
to appeal to them. Research will also guide decisions about other elements
of the marketing mix. For example, IKEA can identify the importance of
designing products for children, as the majority of customers have children. The
importance of value to customers is also understood from the research. This
knowledge will help reduce the risks associated with new product launches.
As the nature of customers in the 24 countries in which IKEA currently
operates is known, this will help in making decisions about entering new
geographical markets. IKEA may focus expansion on countries with similar
groups of customers to its current customers.
Understanding customers will help identify remedial action that can be taken to
support products that have declined in popularity. Alternatively, it will contribute
to decisions to divest where it is felt that a product no longer has a viable future.
Activity 15.2 − research activity.
Activity 15.3 − answer provided on Student’s CD-ROM.
Activity 15.4 (page 274)
1
How effective do you think this questionnaire is? Give reasons for your answer.
Include comments on the suitability of each question and the use of a self-completed
questionnaire. [10]
1 – Customers may not wish to give their name.
2 – Customers may be reluctant to give their address. It may be more useful to ask
respondents to identify in which region/area they live.
4 – What is ‘often’? Different respondents will interpret the meaning of ‘often’ in
different ways. Some form of scale would be useful.
5 – Not everybody is married. The question as phrased is only applicable to male
respondents.
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6 – No time frame is indicated. Options would be useful for quantity purchased per
week or month.
7 – The answer is quite likely to be no. Frequency of purchase from Metro would be
more useful.
8 – List of suppliers should be provided. It may be more useful to know from which
petrol supplier a motorist most frequently purchases and why.
9 – This question would be better if options affecting choice were provided and
respondents were asked to rate importance of each option. Questions about
aspects of Metro’s service would be more useful for marketing purposes.
10 – This is badly phrased and makes little sense.
Overall the questionnaire will provide little useful information about motorists’
petrol-buying habits. The questions are not sufficiently focused and do not provide
the respondent with a suitable range of answer options.
The use of a self-completed questionnaire at Metro petrol stations is satisfactory.
However, response rates are likely to be low as customers are not encouraged
to complete it on the spot. It is unlikely that many motorists will return the
questionnaire on their next visit to a Metro petrol station.
2
Assume that you have been asked by Metro to prepare an improved questionnaire.
a
Ask 8–10 questions that you believe will give the type of data that Metro are
looking for. [8]
1
Please identify the zip-code area you live in.
2
Gender
Male
Female
3
Age
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46–55
26–35
56–65
36–45
Over 65
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4
5
6
7
On average how often do you buy petrol?
More than once a week
Every three weeks
Once a week
Every four weeks
Once a fortnight
Less than once a month
Please rate the following aspects of Metro on a scale of 1 to 5.
Customer service:
5 = Excellent
1 = Poor
5 4 3 2 1
Opening hours:
5
4
3
2
1
Shop:
5
4
3
2
1
Price:
5
4
3
2
1
Which petrol-station brand do you prefer?
Metro
Shell
Esso
Jet
Mobil
Other
BP
No preference
If you have a preference, which of the following factors has most influenced
your preferred petrol-station brand?
Price
Promotional offers
Customer service
Convenience of location
Advertising
8
Other
Are there any improvements you would like to see to Metro petrol stations?
b Briefly justify why you have asked each question in the form you have. [4]
1 – Zip codes provide a simple way of identifying the area within which
respondents live.
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2 – Tick boxes allow respondents to quickly answer questions.
3 and 4 – Tick boxes allow quick response and for 4, avoid the respondent having
to interpret what is meant by ‘often’.
5 – The use of a Likert scale enables a more meaningful analysis of customer
opinion than using Yes/No responses.
6 – By offering a choice of likely responses, it will be easier to present and analyse
the data once they have been collected.
7 – Tick boxes allow easy analysis of collected data and focus on key marketing
issues for Metro; more likely to get a response than using an open question.
8 – Allows respondents freedom to answer question as they wish; this may provide
more detailed feedback. However, there is a risk that there will be very few
responses to the question as it is open.
Overall the questionnaire uses mostly closed questions to encourage respondents to
give relevant answers. It will be easy to input the data on to a spreadsheet for analysis.
c Advise Metro on how the questionnaire should be distributed and collected. [4]
Ideally, Metro requires a representative sample so that it can draw valid conclusions
from the data collected. A random sample would provide a reliable estimate about
both the whole target market and about the chances of error occurring. However,
a random sample requires that Metro has information about the target population.
It is often expensive and time consuming for firms to draw up a list of the whole
population and then contact and interview the sample taken.
A relatively cheap method of collecting data would be to use a postal survey and
to encourage response by including a stamped addressed envelope and some sort
of incentive for returning the questionnaire. A postal survey could reach a wide
geographical spread of households, and, although response rates are typically low, it
is a cheap method of collecting data.
If Metro has knowledge about the target market from secondary research, it may
be possible to use a quota sample, but this will require face-to-face interviews with
respondents to ensure that the right number of each group within the population is
represented. This will be a more expensive process than completing a simple postal
survey.
Activity 15.5 (page 279): Presenting data at ACM Ltd
1
Explain possible reasons why the directors did not want the data left in table
format. [4]
•
•
Data left in table format are typically more difficult to interpret; it is not as
easy to see trends and key relationships within the data. It is important for
shareholders to be able to quickly interpret what the data show without having
to do a series of calculations.
Graphs offer a more visual way of representing data and will show more clearly
e.g. the sharp decline in share price in May. Another example of the visual
impact of graphs is their ability to show the greater regional variation in sales of
product A relative to the other products.
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2
Select appropriate graphs or charts and present these data neatly. State the reasons for
your choice of presentation in each case. [10]
Share price
A line graph is the most appropriate format for illustrating the change in the share price
over time. This would allow shareholders to identify the trend in the share price. The
graph below clearly shows that the share price trend is upwards. A line of best fit could
be added to make this even more apparent.
Share price $
3.5
3
Price $
2.5
2
1.5
1
0.5
0
Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec
2009 sales
A range of graphs could be used to show the data regarding sales. Some of these are
shown below.
A pie chart is useful for showing total product sales as it clearly indicates the
proportions of the total sales accounted for by each of the three products. This allows
easy comparison of the relative importance of each product in generating sales revenue.
Sales by product $m
Product C
Product A
Product B
Pie charts could also be used to represent data for the regional sales of each product.
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Bar charts could be used to show product sales in each region. The bar chart below
shows the variation in sales of Product A in each region. The data are easy to interpret
and precise figures for sales can be identified.
Product A
450
400
Sales $m
350
300
250
200
150
100
50
0
South-east South-west
North
East
West
In the bar chart below, product sales in each region are shown for all three products,
allowing easy comparisons of sales to be made. It is clearly visible which products are
most popular in each of the regions.
Sales $m
Product sales by region (1)
450
400
350
300
250
200
150
100
50
0
Product A
Product B
Product C
Southeast
Southwest
North
East
West
Another bar chart is shown below that illustrates the contribution of each product to
total sales in each of the regions. This is effective in showing the relative popularity of
each product regionally, but it is not easy to identify the exact sales of each product by
region. However, it is more useful than a series of pie charts as total sales are shown for
each region. A disadvantage of pie charts is that they do not clearly illustrate differences
in total sales in each region.
Sales $m
Product sales by region (2)
1000
900
800
700
600
500
400
300
200
100
0
Product C
Product B
Product A
Southeast
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North
East
West
6
Activity 15.6 (page 281)
Prove to yourself that the median for ‘This year’ data is 8. Explain why this is the
median. [4]
An approximation of the median value is:
number of values
2
Thus the median = 20 ÷ 2 = 10th result.
This year 0, 2, 3, 3, 4, 5, 6, 7, 8, 8, 10, 11, 12, 12, 12, 14, 15, 18, 20, 22
The tenth result is 8.
Activity 15.7 (page 284): Analysing research results
1 a What was the mean number of visits made by the respondents to the survey? [3]
The mean is the arithmetic average.
mean = total visits/respondents
= 110/20
= 5.5
Answer: 5.5 visits per month
b What was the modal number of visits? [3]
The modal value is the most common value.
Both these numbers occur three times.
The modal number of visits is 4 and 7.
c Calculate the median of these data. [4]
First sort data from smallest to largest.
1 1 2 2
[1 mark]
3
3
4
4
4
5
6
7
7
7
8
7
7
8 8
8
9
9
10
10
(n + 1)
2
= 21/2 = 10.5th value
Median value is:
median value
1
1
2
2
3
3
4
4
4
5
6
7
9
9
10
10
Thus the median value is 5.5 visits per month.
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d
Discuss the usefulness of each of these average measures to the oil company. [8]
The mean may be distorted by extreme values, particularly in such a small sample.
Thus, if one of the respondents makes a high number of visits, this will push the
mean upwards.
The modal value is of less use with regard to the proposed promotional campaign
as it is just the most common number of visits and, therefore, does not take
account of all the data. In this case, there is also more than one modal value, which
could cause confusion.
The median is the middle value in a range of ordered data. This is most useful
when a typical value is required. It is also more representative than the mean when
there are a few significantly high or low results. That is not the case in this survey as
there is a fairly even spread of results from one to ten visits per month.
As the oil company wishes to assess the possible future costs of a promotion based
on the number of visits made to a petrol station, it is important to take account of
all data and, therefore, the mean would be the most appropriate average.
e Calculate the range and the inter-quartile range. [6]
The range measures the dispersion of the data.
Range
= 10 – 1
= 9 visits
The inter-quartile range measures the middle 50% of the data.
IQR = upper quartile − lower quartile
UQ = ¾ (n + 1)
= 15.75th value
= 8 visits
LQ = ¼ (n + 1)
= 5.25th value
= 3 visits
This means that 50% of respondents visit between three and eight times a month.
Therefore, the IQR = 8 – 3
= 5 visits
f Which of these would be likely to be more useful to the oil company? [4]
As the promotion will be related to the number of visits made to a station, the
mean would be useful as it would give an idea of the overall cost of the promotion
and it includes all data in the calculation.
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2 a Calculate the mean number of litres purchased on each visit. [4]
Midpoint
(x)
[1 mark for
identifying
midpoints]
Litres
1 ≤ 10
Number of
customers
(f)
5.5
Frequency x midpoint
f × x
2
11
10 ≤ 20
15
5
75
20 ≤ 30
25
10
250
30 ≤ 40
35
2
70
Totals
∑ f = 19
∑ fx = 406
An estimate of the mean number of litres purchased on each visit is:
∑fx
∑f
406
=
19
= 21.4 litres
b What is the modal group? [2]
Most common.
20 to less than 30 litres.
c Estimate the median result. [4]
(n + 1)
2
20
=
2
= 10th result
Median =
This will be in the 20 to less than 30 litres class.
Approximately 23 litres.
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Cumulative frequency
This can be confirmed from a graph of the data shown below:
20
18
16
14
12
10
8
6
4
2
0
0
10
20
30
40
50
Litres
d Explain how these results could assist the oil company when planning a promotion
campaign based on petrol purchases. [9]
The data could be interpreted in a number of different ways.
These results could help make key decisions about the promotional campaign.
For example, it might be concluded that to target the promotion at motorists
purchasing more than 10 litres was undesirable as this would not significantly
encourage a higher level of fuel purchase as almost all motorists already purchase
10 litres or more. In contrast, as the modal value of fuel purchase is 23 litres, the
promotion could be targeted at encouraging motorists to purchase 30 or more
litres. Thus, the campaign could have a significant impact on increasing the amount
of fuel purchased by motorists.
Revision case study 1 − research activity.
Revision case study 2 (page 287): Low market share at Cosmos
1
What evidence is there in the case that this business has used secondary research
methods? [6]
Definition of secondary research.
The firm has knowledge of the market:
• low market share
• Cosmos’s sales low compared to other brands
• proportion of the population under 18 expected to increase in the next ten years
• sports participation rates of most age groups increasing.
2
List four sources of secondary data that Cosmos could use if the business was based in
your own country. [4]
•
•
•
•
•
•
•
market intelligence reports such as Key Note or Mintel (don’t have to be named)
(population) census
other government data, e.g. on the economy
trade magazine or association
data from other soft drinks firms, e.g. published accounts
newspaper articles
Cosmos’s own sales records.
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3
Analyse two possible reasons why the results of the telephone survey were so
disappointing. [8]
•
•
•
4
There were insufficient phone calls. One hundred is not enough to gain a
meaningful sample. If the sample size is too small, then the results are unlikely
to be representative.
Names were picked at random from the telephone directory. Cosmos did not
sample the target population; younger consumers are less likely to be listed in
the phone book – hence too many older respondents included in the sample.
Telephone surveys will typically have a high rejection rate. Thus, a
representative sample is less likely. People prepared to complete the survey may
tend to have similar characteristics, e.g. not working. A survey conducted face
to face may have been more useful.
Suggest and justify an alternative primary research technique that Cosmos could have
used to achieve more useful results. [10]
Answers may consider a number of options including:
• A face-to-face questionnaire survey using judgement sampling − the interviewer
would choose appropriate respondents, e.g. young/sporty people. This would
enable Cosmos to find out whether the image of its drinks was youthful in the
eyes of the target population. Using a questionnaire would enable quantitative
data to be collected. The sample would need to be large enough to give Cosmos
some confidence in the results. However, unless a probability sample is used,
it is not possible to identify the degree of confidence you have in the results.
Conducting a random sample may be difficult as Cosmos would need a
database of the target population from which to draw respondents.
• A focus group of young people − this would allow Cosmos to collect more
qualitative data about its drinks and the competition. In a focus group, more
in-depth information is collected that could indicate why advertising was not
being more successful, whether the taste of the drink was right, the quality
of the packaging and whether the image was positive. However, running a
focus group successfully requires a skilled market researcher who is able to
pursue relevant lines of questioning and avoid unduly influencing the group.
This makes focus groups relatively expensive and the information collected is
unlikely to be representative as the sample is so small.
• In-depth interviewing − this would also collect qualitative data as it is less
structured than using a simple questionnaire. This is time consuming and
labour intensive, therefore it is relatively expensive. However, the data collected
should reveal much about consumers’ impressions of Cosmos’s products and
help explain why Cosmos is being less successful.
Answers might consider postal surveys, observation and test marketing.
Evaluation may consider:
Evaluation should justify which primary research technique is suitable. Justification
may relate to:
• relative cost and ease of implementing the technique
• likelihood of gaining representative data
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•
•
the merits of qualitative versus quantitative data
timescale for collecting the data.
Revision case study 3 (page 287): Market research dilemma at
GCB Ltd
1
Examine the likely reasons why the directors considered it to be important to enter a
new market segment. [6]
•
•
•
•
2
It was important to diversify the product range to reduce reliance on current
market segment.
They needed to reduce risk by being in more market segments. Currently their
research indicates that 90% of sales are to private households.
The commercial market is large and, therefore, potentially offers significant
growth in sales for GCB Ltd.
The market they compete in is highly competitive, so it will be hard to increase
sales.
Using appropriate methods of presentation, chart the data in Tables 1 and 2. Give
reasons for your choice of presentation method. [14]
Sales 2009 (units)
9%
Rotor mower
27%
18%
Hover mower
Strimmer mower
Motor mower
46%
Reason: A pie chart is a good method of illustrating the relative importance of sales to
the firm. The chart clearly shows which products contribute the highest sales volumes.
Sales 2009 (units)
6000
Sales units
5000
4000
3000
2000
1000
0
Rotor mower
Hover mower Strimmer mower Motor mower
A bar chart is effective for showing sales volumes as it is easy to identify the actual
level of sales and compare relative sales.
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Sales revenue 2009
350000
Revenue ($)
300000
250000
200000
150000
100000
50000
0
Rotor mower
Hover mower Strimmer mower Motor mower
Relative number of consumers
A bar chart effectively shows sales revenue in both absolute and relative terms.
2000
1800
1600
1400
1200
1000
800
600
400
200
0
0
50
100
150 200 250 300 350
Garden size (sq. metres)
400 450
A histogram could be used as the data in Table 2 are grouped data and the class
intervals are not constant. A histogram shows the relative frequency of the result in
the class interval. The height of the bars in histograms is adjusted according to the
width of each class interval.
Number of customers; Garden size (sq. metres)
201 – 400
10 – 100
1,000
1,500
101 – 200
2,000
A pie chart effectively shows the relative proportion of sales according to garden size.
Any reasonable answer.
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3
If there had been time, recommend ways in which GCB Ltd could have researched the
market for Robomow before starting to produce it. Was it wise to launch this type of
product without detailed market research? [12]
Research methods could have included:
Secondary research − this should be done before primary research as it will help
identify trends and the scope of the necessary primary research.
• Trade association/magazines − if GCB Ltd is a member of a trade association,
it will have access to information from the association. This is likely to include
data on sales in the market segment that GCB is considering.
• Market intelligence reports − these can be expensive but are the product of
professional market research. Organisations, such as Mintel, will publish
reports into consumer and industrial markets, including the gardening sector.
Such a report will provide detailed background information on market size and
growth.
• Government data – GCB may be interested in data on the economy and
predictions for future economic growth.
Primary research − this is typically more expensive and time consuming to collect,
but is specific to the needs of GCB. GCB’s primary research will be constrained by
the size of its marketing budget and the time available to conduct the research. It
would be important to get a representative sample of the market it intends to enter.
Identifying and sampling potential customers should be relatively easy, as it is
private business and government organisations that GCB is interested in.
• A survey could be conducted by contacting potential customers by telephone
or by post. By using a questionnaire, quantitative data could be collected. This
would enable GCB to evaluate the demand for the product and the key elements
of the marketing mix, such as price.
• A random sample should be used if possible to ensure that results are
representative.
• In-depth interviews with potential clients would be useful for gathering
qualitative information. However, this is more expensive and depends on
whether businesses are willing to participate.
Evaluation may consider:
Evaluation may consider the cost and time implications of the research in relation to the
resources available to GCB Ltd.
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Essay
1 a Explain the essential differences between primary and secondary market research. [7]
Primary research
Secondary research
• Primary research is the collection of
• Secondary research is the collection
•
•
•
first-hand data – original information
gathered by the firm or on behalf of
the firm. For example, a supermarket
carrying out a survey to establish
customer needs.
The data collected have never been
published in any form.
The data will be directly related to
a firm’s specific needs. A consumer
survey will be designed to discover
specific aspects of consumer needs
relevant to the firm.
Primary research is typically
expensive to collect. This is because
it requires significant labour input
and expertise if the results are to be
trusted.
•
•
•
of data from second-hand sources,
e.g. a supermarket using government
statistics on the demographic profile
of a particular region.
These are pre-existing data that have
already been published in some
form. Data may, for example, be
found on the internet, in libraries or
sourced from the government. Trade
magazines such as Appliance Retail
Magazine in Australia would be used
by retailers of consumer electronics
as a source of information.
Usually the data have not been
collected to meet the specific research
needs of the firm – they were
collected for some other purpose.
Secondary research is relatively
cheap to collect. For example, a
market intelligence report from an
organisation such as Mintel will cost
less than $2,000. Many secondary
data are available for free.
b Examine why some new products fail even if they have been subject to extensive
market research. [18]
Answers may include some of the following:
Definition of market research
• This is the collection, collation and analysis of data relating to the marketing
and consumption of goods. Research may be primary and/or secondary
research.
• Market research is considered to be essential to the success of new product
development and critical to reducing risk.
Examples of products that have failed, despite thorough market research include:
‘New Coke’ − Coca-Cola launched a new-formula Coke after extensive research
suggested that it would be popular. The product was quickly withdrawn as
consumers did not respond favourably to the changed formula.
• Toshiba HD players − this format was withdrawn toward the end of 2008.
• Nestlé Boosted Smoothies were withdrawn after just four months on the market
in 2008.
• In contrast to the above examples, Sony ignored consumer research which
indicated that there was no requirement for Walkmans!
•
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Product failure following extensive market research is likely to be the result of one
of two factors:
• flawed market research
• external influences.
Flawed market research − this can be the consequence of the following factors:
Primary market research may have been inappropriately carried out. Factors that
can reduce its reliability include:
• Sample size for surveys must not be too small. A small survey has an increased
risk of being unrepresentative of the wider population.
• The sample must be representative of the target population. If non-probability
samples are used, there is an increased chance that the results will be
unrepresentative of the target population. Non-random sampling introduces
statistical bias into the results. However, it may be difficult to conduct
probability samples due to constraints of time, money and information about
the target population.
• Questionnaires must be carefully constructed to avoid problems of introducing
question bias.
• The individuals responsible for collecting information may introduce bias to the
results. The behaviour of an interviewer will affect the outcome of an interview.
• Consumers may not be honest when responding to questions.
Secondary research is problematic because:
• It is often out-of-date. In fast-moving consumer markets, data quickly become
outdated as the external environment changes.
• It was undertaken for another purpose.
External factors − these may cause the failure of some products because:
• Technological change may mean that the product is quickly out-of-date.
• Competitors may launch products at the same time which more closely meet
the needs of consumers. The failure of Toshiba’s HD player was a result of the
film studios deciding to adopt Sony’s Blu-ray technology.
• The economic environment may undermine sales. As developing new products
may take a number of years, by the time the product is launched a downturn in
economic activity could lead to a loss of sales.
• Products are not supported by a suitable marketing mix:
– insufficient promotional support
– failure to secure appropriate distribution − therefore, the product is not
available to the consumer.
Top tip
Evaluation may consider:
Evaluation may note that the reliability of market research information cannot be
guaranteed and that the firm has no control over changes in the external environment.
When considering how market research should be
conducted, it is important to consider the resources
available to the firm.
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Further reading
The Times 100 series of case studies has many useful examples of the role of market
research including:
Using market research to relaunch a brand. This looks at the relaunch of First Direct, the
internet-banking subsidiary of HSBC.
How market research helps Portakabin to remain at the cutting edge. Portakabin has
produced modular buildings for over 45 years.
These case studies can be accessed by clicking on the following link:: http://www.
thetimes100.co.uk/index.php
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