Market research is the process of systematic gathering, recording, and analyzing of data about customers, competitors, and the market. Market research can help create a business plan, launch a new product or service, fine tune existing products and services, expand into new markets, and so forth. It can be used to determine which portion of the population will purchase the product or service based on variables such as age, gender, location, and income level. Market research can identify the characteristics of a target market, allowing companies to learn more about current and potential customers. In the ideal, market research provides the foundation for the most efficient and satisfying production and availability of goods and services appropriate to public demand.
Market research before the 1900s was not codified into a clearly defined field. Prior to that time, most companies would keep track of their own sales figures and accounting figures, but were not always aware of their competitors' place in the market. Classical economists Jeremy Bentham and David Ricardo advocated that markets were perfectly efficient when every participant had information on their competitors, which compelled businesses to begin engaging in market research.
The early 1900s saw the development of modern marketing techniques as information from economics—domestic and international markets were brought together to begin informing corporate consumers. This led to the realization of a number of tangible statistics and pieces of information from the market useful for promotion of one's company, including sales figures, market share, and so forth. In the 1920s, viable theories were developed in order to maximize a company's presence in any one of these areas. In the 1960s and 1970s, market research took the form of reappraising one's own company as managerial consulting become more popular. Outside analysts were brought in to evaluate a company's efficiency in relation to others in its market, allowing them to present a better face to the public and investors.
The purpose of market research is to help companies make better business decisions about the development and marketing of new products. Market research represents the voice of the consumer in a company. There are a number of questions that can be answered through market research:
Market research allows companies to confirm demand for their possible idea. This enables them to launch products with more success and also to establish a market position. Surveying the existing market gives companies the ability to best market their products to their appropriate audiences.
Market information involves making the prices of the different commodities known in the market, the supply, and the demand. Information about the markets can be obtained in several different varieties and formats. The most basic form of market information is the best quotation and last sale data, including the number of shares, with respect to a particular security at a given time. Market information includes data on who customers are, where they are located, what quantities are demanded, when is the best time to sell, and what is the expected production.
Market segmentation is the process of dividing a market into distinct subsets (segments) that behave in the same way or have similar needs. Because each segment is fairly homogeneous in their needs and attitudes, they are likely to respond similarly to a given marketing strategy. That is, they are likely to have similar feeling and ideas about a marketing mix comprised of a given product or service, sold at a given price, distributed in a certain way, and promoted in a certain way. Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private sector. Small segments are often termed "niche" markets or specialty markets. However, all segments fall into either consumer or industrial markets.
A market may display upward or downward movements during a particular period of time. Such movements can be referred to as the market trend. Market research firms and industry experts publish much of their information on websites and in trade and business magazines. Reference sites index these magazines, many offer the texts online and if not the libraries stock them. Trade associations publish many listings and statistics on their websites as well as in hard copy publications. The availability of this information makes assessing market trends possible.
The steps involved in the market research process include:
Market researchers formulate the problem and establish how to solve it. Research objectives, related to and determined by the problem formulation, are set so that when achieved they provide the necessary information to solve the problem.
An example of this step can be seen in the automobile industry. Auto manufacturers are sometimes criticized for creating expensive vehicles with unwanted features and technologies that do not meet the needs of the target market. To avoid this trap, the engineering team turned to market research to evaluate how changes in performance and fuel economy would affect sales volume and customer satisfaction. It turned out that customers were willing to pay more for greater performance if the car also offered simultaneous increases in fuel economy.
The problem description, the research question, sub-questions, and the research objectives are part of an overall document problem description. After describing and formulating the problem and the objectives, researchers then prepare a detailed and realistic time frame to complete all steps of the market research process. Researchers often plan this process around business cycles or holiday seasons.
Selecting and establishing research design consists of three main steps:
There are three types of research design—exploratory research design, descriptive research, and causal research. Exploratory research is defined as collecting information in an unstructured and informal way. For example, the owners of a new restaurant may eat out at competitors' restaurants in order to gather general information about menu selections, prices, and service quality.
Descriptive research refers to a set of methods and procedures that describe marketing variables. Descriptive studies portray these variables by answering who, what, why, and how questions. These types of research studies may describe such things as consumers’ attitudes, intentions, and behaviors, or the number of competitors and their strategies.
Causal research design is conducted by controlling various factors to determine which factor is causing the problem. By changing one factor, say price, its effects on a key consequence such as sales can be monitored. Although causal research can provide a high level of understanding of the variable under study, the designs often require experiments that are complex and expensive.
There are two types of information available to a market researcher—primary data and secondary data. Primary data is original information gathered for a specific purpose. Secondary data refers to information that already exists somewhere and has been collected for some other purpose. 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 than primary research.
There are two basic methods to collect information—by asking questions or by observing. The most common research instrument is the questionnaire. Structured questionnaires include multiple choice questions which offer respondents the ability to answer "yes" or "no" or choose from a list of several answer choices, as well as other close-end questions that ask respondents to rank their answers at a particular point on a scale. Unstructured questionnaires have open-ended questions which respondents can answer in their own words. Other methods of data collection include focus groups or interviews.
Data collection is usually done by trained interviewers who are employed by field data collection companies to collect primary data, which must then be tabulated into readable format and analyzed.
Qualitative data can also be obtained through focus groups and individual interviews. Focus groups are generally comprised of a small selection of the target audience. The participants are then queried and the discussions are guided by a moderator. The discussions are recorded and/or viewed by the marketing team or others via a two-way mirror or closed circuit system.
After analyzing the data, researchers develop and present their conclusions to their clients. Once the findings about the target market, competition and environment are finished, present it in an organized manner to the decision makers of the business. Following presentations, businesses have the option of implementing any or all of the suggestions made by the market researchers in order to maximize their market share, increase profits, improve public relations, or any other number of goals.
Market research serves a valuable purpose for business corporations, allowing them to understand where they stand in the eyes of consumers and in terms of their competitors. In turn, this allows for the formulation and implementation of strategies designed for any number of purposes including maximizing profits or increasing share of the market.
Market research can be viewed differently by economists. Some argue that market research leads to more information, and therefore more perfect markets, leading to greater competition and benefiting all in society. Other economists would argue that the information gathered affords corporation monopoly power, permitting them to engage in un-competitive behavior as they have an informational advantage over consumers and are therefore able to charge more for their goods and services than would clear a competitive market.
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