Market research

Market research is undertaken for descriptive, explanatory, predictive and exploratory reasons

Descriptive reasons

Th collection and analysis o data allows organisations to identify a number of important pieces of information. Such examples include…

• has the firm achieved its target sales figure?
• are sales rising or falling?
• is the trend stable or unpredictable?
• how are the firms sales performing relative to that of its competitor?

Explanatory reasons

Market research can help to explain why certain things occur, such as:

• what external factors affect demand?
• what are the main reasons why customers buy the product
• why was a promotional campaign unsuccessful

Predictive reasons

Information can be used to predict trends and find links between sets of data, this will help the firm to predict what will happen in the future, examples include:

• calculating the extent to which advertising effects sales revenue
• discovering whether introducing a new flavor will affect the sales of existing flavors
• predicting whether a new price will affect sales revenue

Exploratory reasons

For new businesses there is often no data to assist them. conducting market research can help to assess factors such as:

• the probable level of demand
• the most suitable segments to be targeted
• the ideal price level
• the best ways of promoting a product

Market research can either be qualitative or quantitative and be collected first hand for a specific purpose which has not been collected before (primary research) or data that has already been collected for a different purpose.

Benefits of primary research

• up to date
• specific for your purpose
• collects data that no other business will have
• Depending on the type of market research conducted it can also be very quick

However

• can be expensive
• can be difficult to collect
• can be bias, inaccurate or unrepresentative if the sample chosen is not large enough

Secondary research

• information is already available
• cheaper than primary research
• secondary survey’s are often conducted regularly

However

• information maybe dated, so could be misleading
• the data is available to other businesses, so less chance of an  advantage
• relevant data may not be available for the firm, for its purpose
• the data is collected externally, so maybe unreliable

Sampling

The larger the sample size the more representitive of the market segment and reliable the information collected will be more reliable. But having a larger sample would cost more whereas a smaller sample would decrease the costs but be less reliable and therefore less representitive. General problems with sampling includes:

• Samples maybe unrepresentitive
• they maybe bias in the questions asked
• it maybe difficult to locate suitable respondents

Different factors can also influence the choice of sampling method.

• costs and availability of finance: random sampling is cheaper as it does not involve careful planning of the sample before the survey is conducted.
• time: if quick results are needed then a random or quota sample should be used
• the importance of market segments: if buying behaviour is different between different types of customer then use quota or stratified sampling

Different sampling methods:

• Random sampling: a group of respondants in which each member of the target population has an equal chance of being chosen
• quota sample: a group of respondants comprising several different segments, each sharing a common feature. the number of people to be interviewed in each classification is fixed to represent the percentage of the target population but the interviewees are selected non randomly by the interviewer
• stratified sampling: a group of respondants selected according to their particular features, in stratified sampling the sub groups and their sizes are chosen specifically

Definitions for economics

Aggregate demand: The total demand for a country’s goods or services at a given price level and at any given time

Aggregate supply: The total amount that producers in an economy are willing to supply at a given price level in a given time period

allocative efficiency: where consumer satisfaction is maximised

Asymmetric information: Information not equally shared between 2 parties

capital: man made aids to production

Change in demand: where a change in a non-price factor leads to an increase/decrease of demand

choice:the selection of appropriate alternatives

command economy: an economic system where capital  and resources are allocated centrally

complements: goods for which there is joint demand

consumer confidence: how confident consumers are about the future economic prospects

cooperation tax: A tax on firms profits

Cross elasticity of demand (XED): the responsiveness in demand for one product compared to the change in price of another product.

Demand: The quantity of a product that consumers are willing to purchase and are able to purchase at various prices over a period of time

Demand curve: This shows the quantity demanded and the price of the product

Demerit goods: goods where the consumption of them is more harmful to the consumers than they actually realise

direct tax: A tax that cannot be avoided and taxes the people and firms

Disposable income: Income after taxes on income have been deducted and state benefits have been deducted

division of labour:  The specialisation of labour, where labour is broken down into separate tasks

economic efficiency: when the economy is both productively and allocatively efficient

Labour: The quantity and quality of human resources

Enterprise: The willingness to take the risk

Factors of production: The resource inputs that are available in an economy for the production of goods and services

Land: natural resources in an economy

Want: anything you like, regardless of whether you have the resources to purchase it

scarcity: A situation where there are insufficient resources to meet all want

opportunity cost: The cost of the  next best alternative forgone

Factor endowment: The stock of the factors of production

Production: the output of goods and services

Subsidy: A payment by a governing body to increase consumption or production of a particular good or service

production possibility curve: This shows the maximum quantities of different combinations of output of two products, given current resources and the state of technology

trade off: the calculation involved, when deciding to give up one good for another.

Economic growth: Change in the productive potential of an economy

productive potential: is the change in the maximum output that an economy is capable of producing.

Market economy; An economic system whereby resources are allocated according to the market forces of demand and supply

Price system: A method of allocating resources by the free movement of prices

Supply: the quantity of a product that producers are willing and able to provide at different market prices over a period of time

Mixed economy: an economic system where resources are allocated through a mixture of the market and direct public sector involvement

Definitions for a competitive market and how they work

Market: Where buyers or sellers meet to exchange products

Sub-market: A recognised distinguishable part of a market, also known as  a market segment

Notional demand: the desire for product

effective demand: the willingness and ability to buy a product

Consumer surplus: The amount that the consumer is willing to pay, above the price that is actually paid.

Real disposable income: Income after all forms of direct tax have been taken into account. And state benefits have been added to take account the change in price levels

Normal goods: Goods for when income increases, demand increases

Inferior goods: goods for when income increases, demand decreases

substitutes: competing goods

complements: goods for which there are joint demand

change in demand: Where a non-price factor leads to an increase/decrease in demand

producer surplus: the difference between the price the producer is willing to accept and what is actually paid. 

equilibrium quantity: The amount that is wanted and supplied at a given price

Disequilbrium: Any postion in the market where demand and supply are not equal

surplus: an excess of supply over demand

Shortage: an excess of demand over supply

Elasticity: The extent to which buyers and sellers respond to change in market conditions

Price elasticity of demand: the responsiveness of the quantity demanded to a change in the price of the product

Price elastic: where the percentage change in quantity demanded, is sensitive to a change in price

price inelastic: where the percentage change in quantity demand is not that sensitive to a change in price

Income elasticity of demand; The responsiveness of demand to a change in income

Normal goods: Goods witha a positive income elasticity of demand

Income elasticity: goods for which a change in income produces a greater change in demand

income inelastic: goods for which a change in income produces a smaller change in demand.

Cross elasticity of demand (XED): The responsiveness of demand for one product in relation to the change in price of another product

Price elasticity of supply: The responsiveness of the quantity supplied to a change in price of the product

Market failure: Where the free market mechanism fails to achieve economic efficiency

Productive efficiency: where production takes place using the least amount of scarce resources

Economic efficiency: Where both allocative and productive efficiency are being achieved

Inefficiency: where economic efficiency is not achieved

free market mechanism: The system by which the free market forces of demand and supply determine prices and the decisions made by consumers and firms

information failure: A lack of information resulting in consumers and producers making decisions that do not maximise their welfare

Private costs: The costs incurred by those taking a particular action

private benefits: the benefits incurred by those taking the particular action

external costs: the costs that are the consequence of externalities to third parties

External benefits: the benefits that accrue as a consequence of externalities  to third parties

Social costs: The total costs of a particular action

social benefits: the total benefits of a particular action

negative externalities: this exists when the social costs of an activity is greater than the private costs

positive externalities: Where the social benefit is greater than the private benefit

merit goods: goods that have greater benefits than consumers actually realise

De-merit: goods that are more harmful than consumers actually realise

public goods: goods that are collectively consumed and have characteristics of non rival and non excludability

Free rider: someone who directly benefits from the consumption of a public good but who does not contribute towards its provision

non-rivalry: situation where consumption by one person does not affect the consumption for all others

Quasi public goods: Goods that have some but not all characteristics of public goods

Direct tax: one that taxes the income of people and firms and that cannot be avoided

indirect tax: a tax levied on goods and services

Polluter pays principle: any measure, such as a green tax, whereby the pullet pays explicitly for the pollution caused

Tradable permit: A permit that allows the owner to permit a certain amount of pollution. And be sold to another polluter if not used very much.

 

Market value

Market value is the amount for which something can be sold in a given market

 

Setting the right price is important for effective marketing. If we look at the marketing mix (product,price,promotion and place) price is the only one that brings money into the business (revenue)

It is also a variable of the mix that can change very quickly. For example responding to competitors price change.

The price of a product can be seen as the value of the product, for the consumer, the price is the monetary expression of the value to be enjoyed and benefits recieved by purchasing a product, as compared with other variable items.

If We had to draw a equation out of this then….

(percieved) Value=(percieved) Benefits- (percieved) costs

customers motivation to purchase a product comes from a “need” and a “want”. Another perception comes from  the value of the product when it comes to satisfying the need/want that the customer may have. However these perceptions of the value of the product may value depening on the consumer as they each have different wants/needs.

percieved benefits are often largely dependant on personal taste. In order to obtain the maximum possible value from the market, a business may try and segment the market.

A products percieved value can be increased by,

• Increasing the benefits that the product will deliver
• reducing the costs

Obviously cost is important to consumers, therefore businesses need to get the product pricing right.

Factors affecting Demand (within a business)

• price (if there is not perfect competition)
• product research and development
• advertising and sales promotion
• training and organisation of the sales force
• effectiveness of distribution
• quality of after sales-service

factors affecting the demand (outside the business)

• the price of substitute goods and services
• the price of complementary goods and services
• consumers disposable income
• consumers taste and fashions.