How Market Research Works
Introduction to Market Research
Market Research begins with the need to reach out to existing customers and often potential customers to find out their opinions. There are many variations of data collection on a company’s customers, which we will further elaborate in Research Methodologies. The information, or analysis, that is derived from asking calculated questions will help a business understand their consumer’s better. The customers that are contacted on behalf of the client company are called respondents. In other words, the respondents are the ones giving their opinions to help the client company predict if their product will be a big success or not. Upon further inspection, it often becomes evident that there is more than one solution to the problem.
Companies depend on the accuracy and quality of the data to make multi-million dollar marketing decisions and business strategies. This is an important aspect of the research community to appreciate, because if the data is not collected with precision, the client company’s reputation and image could be ruined. This is why many companies enact anti-falsification policies, which essentially prevents and establishes guidelines for best practices of marketing research procedures.There are two standpoints of looking at the market research processes. From the client company stance, market research is an important process of getting respondent’s opinions, before investing a company’s time or resources of creating a new product, service, or marketing campaign. On the other hand there is the consumer’s point of view, where people (like you and me) can benefit in participating in the market research processes. Consumers can sometimes benefit from making a little money by taking part in paid focus groups and compensated surveys. The advantages of being an active participant in market research extend far beyond the personal monetary rewards. The data that is gathered from valued consumers will have the opportunity to benefit from improved products and services.
To better understand the magnitude and value of market research, envision you or somebody you know in the following three situations:
Scenario #1: As an individual you may find yourself in this situation, “I have a good idea about a new product (and/or service), would it be a good idea to invest $50,000 to make my idea a reality?” The familiar question that should follow is “Will my idea work? And if so, will I make a return on my investment (ROI)?” As an entrepreneur or employee at a company, there are financial risks and legal implications. For instance, to start a business you will need to end your employment at your job to make time for your idea. Secondly, you will need to have some start-up capital to get your product manufactured and then figure out product distribution. Without the ability to hire a independent research company to determine who your customers are, it will be impossible to clearly understand what your potential customers want.
Scenario #2: As a small business, your company is making a profit and running effectively. The company has a new product or service. As the business owner or the person responsible for making business decisions, you may ask yourself the same questions in Scenario #1. In addition, should you risk your profits and reputation launching a new idea that might flop? Is it entirely worth it to invest the profit in this new idea? Should you keep company profits in a bank account while waiting until a better idea comes along? Is the idea big enough to invest money in market or marketing research services to have a calculated analysis of the success of this new idea?
Scenario #3: Your company has a product or service that had success, but is now losing sales and profit for some unknown reason. The company has assigned you to discover why the product or service is losing sales.
Given any of the previous three scenarios or any combination of the situations, there is a need to reach out to your customers and potential customers to discover what they are thinking. This is where market research comes into play. You need to ask carefully worded questions to receive solid responses. Who needs the product or service you are offering? At what prices are people willing to pay for what you have to offer, and why? How can your product or service be diversified to determine what three or four variations of the offering to make the greatest profits? How many people need what you have to offer? Which features are of value to these consumers and which can be left out?
Market Action Research has prepared an article, which will give you the opportunity to learn from our experience in the market research process from a perspective of a business and consumer.
Thinking back at the three scenarios listed under “Introduction to Market Research”, there are a few situations that you must discover about an idea, product, or service. For the sake of conversation, let’s assume the product is anything. Let’s pretend you are a coffee maker. You already know that your customers like your coffee anywhere from eight to twelve percent sweet. The solution to this may seem simple, with a background in market research or taste testing.
Standard research procedures would usually point you to make a coffee with a one or fraction of percent variation of sweetness in the coffee from eight to twelve percent. Then have your customers test all the variations of the customers and let them tell you which one is the best. Ideally you would like to find that one coffee has the highest amount of people liking it, and the data would create a nice bell curve. Although most research professionals wish this was always this case, this is often not what appears. Rather, most research professionals will often find that the data is all over the place. When looking at this data all over the graph, the next question is “What does all this data mean?”
In the next section we will elaborate on interpreting research data. In answering your questions about at what level sweetness of coffee do your consumers like the best, is first collecting the data. Depending on the complexity and expectancy of responses to be received there are different research methodologies to examine. Let’s look at the direct ways first. To find out what people think and feel about your product you will have to ask. You are probably familiar with some of the ways, such as:
- Talk on the phone
- Meet people in person
- Send an E-mail
- Contact them through social media (Facebook, Twitter, LinkedIn)
- Send a personal letter (snail mail)
- Assemble a group of people to talk to them
- Conduct a paper survey
- Hold a focus group
- Launch a web survey
- Product Evaluation
- Mail questionnaires
Regardless of what technique you utilize for market research purposes, the ultimate goal is to ask a series of questions and gain cooperation. Many research studies will uncover new things that you never thought about by talking to your customers. For example, you might mind that most people say they love whole dark hearty coffee, but the taste test reveals they like sweet weak coffee. We are sure that you can now realize, market research can make great revelations. Not only will market research save you money and time, but it will save you the wasted effort in advertising to the wrong crowd and demographics.
An indirect approach will help you learn about the current marketplace, but it will not deliver results as accurate as a direct approach. You can indirectly yield results by looking into the marketplace. Although this approach is most often already reviewed in drafting a marketplace analysis in a business plan, you may consider asking, if you haven’t already, “what are my competitors?” “What are their products like” “How are our products different” “Do they cater to a niche, statewide, national, or global niche?”
Luckily for you, if there is competition that means that there are customers in the marketplace. An indirect way to look at the market research these companies had conducted is by looking at the products or services. Have the products changed at all recently or in the past? If so, what changes have been made? This is usually a tale-tale sign that they hired a research company to conduct research to enhance their offerings.
Interpreting Research Data
Using the coffee example we used in the “Research Methodologies” section we discussed about doing a taste test with customers. The purpose was to determine what sweetness of coffee will appeal to your consumers. After conducting the research through one or multiple research methodologies, you will have compiled many research variables. For instance, depending on the questions being asked you the array of responses will differ. You can draw many conclusions from the quantitative data through multivariate frequency distribution of statistical variables or open-ended questions that yield qualitative results.
In an ideal world, the data would look very similar to a bell curve, where the peaks of the curve indicates a customer’s preference, while the low end of the curve exhibits customers with a low preference to your product. As in the graph below, you could determine that the people within the standard deviation of the mean would be the client company’s average consumer.
In a perfect world, all market research projects would look just like this bell curve chart. Unfortunately due to the volatile nature of research, where people’s answers can greatly vary dependent upon individual variables, such as demographics. This bell curve chart is not nearly the case in most research projects. The data can become a lot more spread, especially when determining consumer preference. Going back on our example of the determining the sweetness of coffee, you might find that there was no “sweet spot” like the median of the bell curve listed above. However, it is much more likely that you will find a few “sweet spots” and the result would be maybe three or four sweet coffees.
Inadvertently, the data could reveal other information that was never previously looked at. For instance, you could discover that there is a large cluster of customers prefer a coffee that is not sweet, yet bitter. Based on the volume of this market, your company may decide they want to launch a bitter coffee to meet the needs of those consumers.
Whether you are a business or consumer, at this point you can see all the applications for market research to assist in finding a place for your product or service in the marketplace.
Market Action Research would like to thank you for reading our article on an Introduction to Market Research. Should you have any questions about marketing research, take action! Give us a call or shoot as an e-mail to firstname.lastname@example.org. We will be glad to answers any of your research questions.
Keywords of Market Research
In market research this is an important aspect. Accuracy means that the answers being collected are of the quality of being true and exact.
Falsification is the act of entering in answers that are not true. A policy prevents the act of making up answers to maintain accuracy and quality. An act of deviation away from this policy often results in immediate termination.
Is a result of Gaussian Function. The graph of a Gaussian function equates to a symmetric “bell curve” shape that quickly falls off towards plus or minus infinity. The parameter a is the height of the curve’s peak, while the position of the center of the peak is b, and c stands for the width of the bell.
The company that hires a research firm or agency, such as Market Action Research www.marketactionresearch.com , to conduct a market analysis based upon research data that is collected from respondents.
Is a reward of money, check, gift card for the act completing a research survey or focus group.
Is on average a group of 8 to 10 respondents who will evaluate and openly discuss a product or service. In these discussions respondents share their opinions around the topic.
Is an arrangement of values that one, but often in research more variables are taken in the sample data. Each entry into this statistical chart will contain the frequency, or count, of the occurrences of defined values within a particular group or interval.
In research this refers to the environment in which a market operates or the ‘real work’ where customers are using the products or services provided by a client company.
Is a controlled scientific study of human behavior, decisions, preferences, demographics, psychographic, and more. This is a very important step in any business’s strategy. Many companies hire a research company, because they wish to gain a competitive edge in their industry and marketplace.
A question that allows the respondent to give a free form answer through spoken or written testimony, instead of choosing an answer from a predetermined list. For instance, “What do you like most about this product?”
Is the difference between the price to purchase versus the cost of bringing a product or service to the marketplace.
In a research study, the purpose is the ultimate goal of why the research is being conducted.
A research methodology is guideline for solving a specific problem. Depending on the need of a client company, the methodology decided on for a research project will vary. Complexity, deep of information to be mined, and price of a project also influence the decision of which research methodology will be best.
A person who is contacted on behalf of a client company who answers carefully worded research questions.
Return on Investment (ROI)
This is a way of considering if an investment was profitable. Marketing not only influences net profits, but can also affect investment levels too. New plants and equipment, inventories, and accounts receivable are three of the main categories of investment that can be affected by marketing decisions (MASB) http://www.themasb.org/. In a survey conducted with nearly 200 senior marketing managers, 77 percent indicated that they found the “Return on Investment” (ROI) metric to be very useful. Return on investment (%) = Net profit ($) / Investment ($) x 100%
A list of potential respondents to contact. This list of compiled data sometimes contains some aspects about them, such as the respondent’s name, phone number, addresses, e-mail, gender, and sometimes other information. The sample is sometimes provided through the client company, while others are supplied from Market Action Research’s database based on specific demographic needs.
Shows the how much of a variation (dispersion) exists from the expected average. A low standard deviation indicates that the respondent’s answers are close to the mean, whereas a high standard deviation exhibits greater dispersion.
Refers to attributes or aspects of some characteristic that can be measured, which is a systematic empirical investigation of social variables in a statistical format. The object of this type of research is to develop and employ mathematical theories pertaining to social variables.
In research this refers to the in-depth answers, which assist in the understanding of human behavior and the reasons that govern them. These questions reveal the why’s and the how’s of respondent’s decision making process.