The global revenue of the market research industry exceeded 73.4 billion U.S. dollars in 2019,
so why do businesses invest so much time and money into market research.
This video explores the 4 key purposes of market research and is supported with real
life examples of businesses who have conducted market research effectively or have faced the
consequences of not using enough market research to support their decision-making process.
Market Research is a process used by businesses to gain a deeper understanding of who their audience
is, what their wants and needs are, and what influences their purchase decisions and behaviour.
It is used in a vast range of scenarios, right from collecting the initial thoughts
of the target market about potential products, through to analysing the
competition and the market in general. The amount of time invested, or budget
allocated to market research activities varies between businesses, for example,
some businesses may allocate zero budget, whilst others may invest millions of pounds each year.
Rather than just acting out of instinct, entrepreneurs and managers will undertake
market research to: identify customer needs, identify gaps in the market,
reduce risk, and ultimately make better decisions. Let’s have a look at these core purposes of market
research in more detail with some examples of how famous businesses such as Apple, Lego,
and Gymshark have used market research effectively to increase sales and grow into new markets.
Identifying customer needs Identifying the needs and wants of customers is
potentially the core purpose of market research. When conducting market research with their target
market, a business is likely to focus on factors such as: price, quality, choice, and convenience
with the aim of collecting data and feedback which will support the business to provide
their customers with the products they need or want at a price that they are willing to pay.
If a business did not conduct market research it could potentially result in
them investing hundreds, thousands, or even millions into product development
which the market does not want or need. LG and Sony are prime examples of businesses
who failed to truly identify the wants and needs of customers through market research. After the
highly successful 2009 release of Avatar 3D in cinemas, both LG and Sony launched their own 3D
televisions to take capitalise on the trend. However, they did not conduct sufficient
market research before making this investment and although the 3D film was a big hit in the cinemas,
it turned out that customer did not have the want or need to view their TV content in 3D
in their homes. This resulted in
both businesses eventually discontinuing the manufacture of their 3D TV range.
In comparison, Apple are a prime example of a business who conduct extensive market
research every single year through their Customer Pulse programme.
Infact, Apple spent a record $18.75 billion on research and development in 2020.
This helps Apple to clearly identify the wants and needs of customers effectively
and even resulted in them diversifying their iPhone product range in 2013
with the release of the iPhone 5c for customers who wanted an Apple iPhone
but did not particularly need the highest spec or want to pay a premium price.
Market research is also very useful to help a business to identify any gaps in the market.
A gap in the market is essentially where there is a potential demand for a product
or service which is not currently being met. Whilst it can be risky for businesses to exploit
these gaps, it can also be very lucrative if a business can firmly place themselves
as the market leader in this gap. A very famous example of a business which failed
to conduct sufficient market research and take advantage of a gap in the market is Blockbuster
who were once offered the chance to buy Netflix for $50 million and
adapt its business model to the online streaming service one we know and use today.
This resulted in Blockbuster eventually failing as a business and Netflix taking advantage of
this gap in the market, with a market value higher than Disney at a reported $194 billion,
who by the way, have now launched their own online streaming service Disney+.
Another example of a business conducting market research to successfully identify
a gap in the market is Gymshark. Co-founder Ben Francis suggested
in a recent interview that he remembers looking around and not being able to find
any clothing he wanted to wear for the gym, and he believed there was a clear gap in the market.
So, with the help of his brother, and a group of friends, Ben bought a sewing machine and
screen printer, and started to make gym vests and t-shirts in his parents' garage.
Gymshark was literally born in 2012 through a gap in the market,
they started to make body builder vests that fitted slim teenagers,
because most on the market were designed for older men who had already built up their muscle bulk.
8 years later, Gymshark is now a global business valued at over $1.3 billion in 2020.
No matter how much market research a business conducts, it cannot eliminate risk entirely.
However, it can reduce the risk by getting market insights and feedback from customers.
Within business, risk comes in many shapes and sizes, there are the monetary risk associated
with investing money into products which may not be need by the market.
Alternatively, businesses face the risk of losing customers or facing public backlash
through negative press coverage or even pressure groups if they fail to truly
understand the market they operate within. A classic example of a business acting without
conducting sufficient market research first is the well know toothpaste brand Colgate.
During the 1980’s, Colgate decided to extend their product range from oral hygiene into frozen foods.
However, they failed to reduce the risk of this brand extension strategy and ultimately
paid heavily as the customers strongly associated Colgate with oral hygiene which unfortunately did
not make their frozen food products appetising. Had Colgate have conducted market research
initially, they would have found this information and either launched the
frozen food range under a different brand name or scrapped the venture entirely.
Either way, they would have saved a lot of time and money.
The final core purpose of market research is to help the business to make better decisions.
Whether this decision be around: launching a new product or service,
making a change to an existing product,
or even investing into a new store location. This could be as simple as a bakery providing
customers with samples of a new potential product whilst instore to gain feedback.
Let’s say the bakery is considering launching a new Vegan pastry.
If the feedback from customers is positive, the bakery may
launch the vegan pastry with confidence. Alternatively, customers may be critical
of the product and provide crucial feedback for the bakery to consider, allowing them to make
changes to the recipe or way it is baked etc. before it launches the vegan pastry.
Alternatively, the bakery may even make the decision to not
go ahead with the vegan pastry product at all. Either way a more informed decision can be made
about the product because of market research. A great example of a business utilising market
research to make better decisions is Lego. For many years, Lego was seen as a ‘boys toy’
and it was reported that only 9% of primary users were girls.
Therefore, Lego conducted extensive market research to see if there was demand in the
market for Lego aimed at girls, in fact they conducted a four-year study which involved
3,500 girls and their mums. The market research included analysing girl’s
playing habits and lots of extensive questioning. This resulted in Lego launching a new product
range named ‘Friends’ aimed at girls in 2012. This product range was based on the foundations
of Lego’s core products but included changes to the colour of Lego bricks to more vibrant colours,
a change to the packaging and the adapting the figures to a bigger size than usual to accommodate
accessories such as hairbrushes and purses. All of these decisions were based on the findings
of the market research and the company said it sold twice as many Lego Friends sets as expected
when the product range launched. However, Lego also faced criticism
from some consumer groups who say it reinforces gender stereotypes.
Having said this, profits rose by 35%, so you could argue that there was clearly
a demand in the market for this type of product as suggest by the market research.
So that is it, the core purposes of market research explained.
Before you leave, it is also important to be aware that there are two main types of market
research that a business can chose from when conducting market research, these are known as
primary and secondary market research methods. Primary market research is conducted or funded
by the business and includes methods such as: questionnaires, focus groups, and interviews.
Whereas secondary market research is information which already exist
and includes methods such as: internet research, government reports, and market data.
Once the market research is complete, the results will be
shown as either quantitative or qualitative data. If you want to find out more about primary and
secondary market research methods, or quantitative and qualitative data just head over to our YouTube
channel and watch our videos where we go into depth and provide examples of these in action.
Thankyou for listening, I hope that has helped you to understand the purpose of market research.
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All the best.