Market Research (HSC SSCE Business Studies): Revision Notes
Market Research
Market research is a fundamental component of effective marketing strategy. Understanding what customers need, want and how they behave helps businesses make informed decisions that reduce risk and increase the likelihood of success.
What is market research?
Market research is the systematic process of collecting, recording and analysing information about a specific marketing problem. It provides businesses with the intelligence they need to develop marketing strategies that work.
Think of market research like preparing for an important exam. Just as you would research and study to achieve good results, marketing managers must research their market to achieve business success. The research might involve reading reports, conducting surveys, accessing databases, running experiments or speaking with customers.
Why is market research important?
Launching a new product or entering a new market involves significant risk. Market research helps minimise this risk by ensuring marketing decisions are based on accurate, current and detailed information rather than guesswork.
When businesses are well-informed about:
- Customer buying behaviour
- Market trends
- Competitor activities
- Customer needs and wants
They are in a much stronger position to succeed. Marketing strategies perform best when they are based on solid research rather than assumptions.
The consequences of inadequate research
Without proper market research, businesses expose themselves to costly mistakes and market failures. Research from the Australian Centre for Business Growth (2018) identified insufficient market research as the second most common reason for small and medium-sized business failures in Australia, ranking just below poor leadership and planning.
Case Study: IKEA Learns from Experience
IKEA's expansion into the United States initially struggled due to lack of market research. This experience taught the company a valuable lesson. Now, market research sits at the heart of IKEA's international expansion strategy, particularly when entering countries with cultures very different from their Swedish origins.
IKEA founder Ingvar Kamprad believed strongly in conducting primary research rather than relying solely on existing market studies. The company discovered that traditional surveys don't always reveal accurate information because:
- People respond in ways they think they should
- People answer to make themselves look better
- People aren't always aware of their actual behaviour
To overcome these limitations, IKEA developed innovative research methods:
- Home visits where researchers observe customers directly
- Video recording of daily routines (with permission)
- Follow-up sessions where customers watch and discuss the footage
This approach revealed genuine insights about customer behaviour that surveys alone would have missed.
Real-world application: IKEA's research revealed that people across different cities find choosing their daily outfit stressful. This led to the creation of the Knapper mirror, which has a rack on the back for assembling outfits the night before. Research also showed increasing urban living in smaller spaces, prompting the development of multifunctional products like wireless chargers that blend into home décor.
The three steps of market research
Effective market research follows a systematic three-step process. This structured approach ensures the information gathered is relevant, accurate and useful for decision-making.
Step 1: Determining information needs
The first step is crucial — you must clearly define the problem or issue you're investigating. This determines what information needs to be measured and gathered.
The information collected must be relevant to the marketing problem. To determine relevance, constantly ask: "How will this information be used?" Information is useful if it:
- Helps develop marketing strategies that meet target market needs
- Assists the business in achieving marketing objectives
- Can be used to increase sales and profits
Marketing managers should treat information like any other business resource, weighing the costs of collection against the benefits it will provide.
Step 2: Collecting data from primary and secondary sources
Marketing data refers to the facts and figures relevant to the marketing problem being investigated. Researchers typically use a combination of two types of data: primary and secondary.
Primary data
Primary data consists of facts and figures collected from original sources specifically for your research problem. While collecting primary data can be time-consuming and expensive, its main advantage is that it directly addresses your specific marketing issue. Primary data reveals exactly what customers are thinking.
There are three main methods for gathering primary data:
1. The survey method
A survey involves gathering data by asking or interviewing people. Surveys can be conducted through:
- Personal interviews: Face-to-face interviews in public places
- Focus groups: Small groups of people meeting with researchers for in-depth discussion
- Electronic methods: Telephone, mail or internet surveys
- Questionnaires: Specific questions requiring written responses
Surveys provide first-hand information about customer opinions. However, response rates are declining, making it harder to gather sufficient data. To address this, many companies now use electronic methods to collect information about consumer behaviour.
Online surveys have become increasingly popular because they are faster, cheaper and easier for both participants and researchers.
2. The observation method
Observation involves recording customer behaviour without conducting interviews or making direct contact. Researchers systematically watch and record customer actions.
Information may be gathered through:
- Personal observation: A researcher poses as a customer in a store
- Electronic observation: Using cameras or counting machines
Modern technology has made electronic observation highly popular. For example:
- Checkout scanners record sales data and customer purchase patterns
- Loyalty programs track customer spending habits
- Smart cards and barcoding link customer databases with purchasing behaviour
Case Study: Shopping Centre Wi-Fi Tracking
Shopping centres like Westfield offer free wi-fi to gather data on shoppers. When customers access the service, the company tracks their shopping behaviour, internet use, social media activity, time spent in stores, and websites browsed while shopping. This data helps send targeted marketing messages and provides feedback to retailers on attracting and retaining customers.
Observation methods can be highly accurate, but they have limitations — they explain what happens but not why it happens. These methods can also raise ethical concerns about privacy.
3. The experiment method
Experiments involve gathering data by altering factors under tightly controlled conditions to evaluate cause and effect. Researchers test whether changing one factor (cause) will alter the behaviour being studied (effect). When experiments are conducted in real market conditions, they're called test marketing.
Case Study: Coles and Woolworths Data Collection
These two supermarket giants, controlling 80% of the Australian grocery market, have invested heavily in data analytics and artificial intelligence to gain competitive advantage. Their loyalty programs (Woolworths Rewards and Coles Fly Buys) collect enormous amounts of customer data.
When customers sign up, the companies gather demographic data such as:
- Age
- Gender
- Address
Each time a loyalty card is scanned, the transaction is recorded, building a profile over time that includes:
- Customer preferences
- Shopping habits
- Purchase frequency
- Location of purchases
- Timing of purchases
This information enables highly targeted marketing. For example, customers receive emails when products they previously purchased go on sale. Artificial intelligence analyses promotional success, allowing the businesses to continuously improve their marketing strategies.
Secondary data
Secondary data comprises information already collected by another person or organisation for a different purpose. With modern computer databases, abundant secondary data is available to market researchers.
There are two types of secondary data:
1. Internal data
Information already collected from sources within the business, such as:
- Customer feedback
- Sales reports
- Management reports
- Previous research reports
2. External data
Published information from sources outside the business, including:
- Magazines and journals
- Industry association newsletters
- Internet sources
- Private data collection agencies
- Australian Bureau of Statistics (ABS) reports
The Australian Bureau of Statistics is Australia's official statistical organisation. It provides businesses with extensive resources including:
- Industry data
- Community profiles
- Social and economic climate information
- Market research assistance
- Customer profiling tools
Private research companies like the Roy Morgan Research Centre monitor targeted customer groups, tracking what they read, watch on television, buy, where they shop, and their opinions about products.
Step 3: Data analysis and interpretation
Once data is gathered, it must be analysed and interpreted to draw meaningful conclusions. Raw data alone provides little value until it has been properly examined.
Statistical interpretation analysis is the process of examining data to identify averages, typical patterns, or deviations from normal patterns.
The analysis process involves:
1. Tabulation: Displaying information in table format using spreadsheet software
2. Cross-tabulation: Making comparisons between categories. For example:
- Shopping habits of men versus women
- Purchasing behaviour of high-income versus low-income earners
- Age group preferences
3. Interpretation: This relies heavily on the marketing manager's judgement, experience and intuition. To gain wider perspective and avoid personal bias, multiple people should be involved in interpreting data.
Exam Insight: When answering questions about data analysis, remember that statistics must be processed to identify trends or patterns that inform business decisions. Raw numbers alone don't provide solutions — interpretation is key.
Case Study: The 3D TV Failure
When the film Avatar launched, LG and Sony invested millions developing 3D TVs. Focus groups showed some enthusiasm, and the companies assumed demand would follow Avatar's success. However, they failed to conduct comprehensive market research. The technology failed because:
- Special glasses were inconvenient
- Many viewers experienced motion sickness
- Producers were reluctant to invest in creating 3D content
Both companies eventually ceased production. Extensive market research could have saved millions of dollars by identifying these issues before production.
Key Points to Remember:
- Market research systematically collects, records and analyses information about specific marketing problems, reducing risk and improving decision-making
- The three-step process provides a structured approach: (1) determine information needs, (2) collect data from primary and secondary sources, (3) analyse and interpret data
- Primary data comes from original sources (surveys, observations, experiments) and addresses specific research problems directly
- Secondary data has already been collected by others (internal records, ABS reports, industry publications) and is readily available but may not perfectly match your needs
- Data analysis requires interpretation to identify patterns and trends that inform marketing strategies — raw data alone doesn't provide solutions