Definition
Market research refers to the activity of gathering, analyzing, and interpreting information about a market, its consumers, competitors, and potential products or services. This process aids a company in understanding the potential demand, customer behavior, and market trends. It helps businesses make informed decisions about their marketing strategies, product development, and overall growth.
Phonetic
The phonetics of “Market Research” is: /ˈmɑːrkɪt rɪˈsɜːrtʃ/
Key Takeaways
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- Identifies Business Opportunities: Market research can help you identify potential opportunities in the market. It can highlight gaps in the market for new products or services, help identify customer needs and wants, and provide information on market trends and competitors.
- Reduces Business Risks: It provides information about market trends, consumer behavior, and economic shifts among other things. This valuable information can help to mitigate business risks by facilitating informed decision-making.
- Helps to Understand Customer Behavior: Market research helps in understanding the behavior of your customers. It gives insights into what customers want, how they think, how they spend their money, and their decision-making process which aid in forming effective marketing strategies.
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Importance
Market research is crucial in business and finance as it provides comprehensive insights into the dynamics, trends, and characteristics of a particular market. This information assists in informed decision-making, minimizing risks, identifying lucrative opportunities, and understanding competitors’ strategies. It forms the basis of business strategies, including marketing, product development, and customer engagement, ultimately leading to improved sales and profitability. Without market research, businesses could miss potential opportunities or make misguided decisions, resulting in wasted resources and potentially negative implications for their growth and survival.
Explanation
Market Research is a pivotal function in business, aimed at keeping companies aware, informed, and ideally ahead of what their customers and competitors are doing. The principal goal is to identify and analyze the demands and needs of the market. It is considered a highly effective tool to understand customer behavior, buying patterns, market trends, and the competitive landscape. This gathered data can then be used to plan and set business strategies, make informed business decisions, develop new products or services, and even identify new business opportunities.Organizations utilize market research to not only stay competitive but also to lead in the constantly evolving market. It allows a company to reduce business risks by providing critical insights into the market before launching a new product or service, entering a new market, or making any substantial investment. Therefore, market research is not just about collecting data but about translating that data into useful information which can help businesses grow and thrive. This crucial tool can ultimately help businesses maintain customer focus, make data-led decisions, and drive commercial success.
Examples
1. Coca Cola’s ‘New Coke’ Market Research (1985): In the mid-80s, Coca Cola conducted extensive market research and decided to change the taste of their popular soft drink, introducing the ‘New Coke’. Despite the research hinting that customers would welcome the change, it was a disaster, leading to consumer uproar and a quick return to the original formula. This case is a classic example showing that market research does not always guarantee success and reinforces the need for accurate interpretation and application.2. McDonald’s Healthy Menu Introduction: McDonald’s, in response to growing consciousness of consumers towards healthy eating, started introducing salads, fruit, and carrot sticks into their menu. This move was made after conducting thorough market research about changing consumer preferences and behaviors. It showed how market research can help businesses adapt and evolve in their market environment.3. LEGO’s Turnaround Strategy: In the early 2000s, LEGO was facing declining sales and huge financial losses. The company decided to undertake extensive market research and discovered they had ignored their core customers: children who loved the creative play enabled by traditional LEGO sets. Realising their mistake, LEGO refocused on these core products and engaged their audience through interactive experiences and crowdsourcing new product ideas. This market research-driven strategy led to a significant turnaround for the company, showing the incredible impact of effective market research.
Frequently Asked Questions(FAQ)
What is Market Research?
Market Research is a systematic process of collecting, analyzing, and interpreting information about a market, about a product or service to be offered for sale in that market, and about the past, present, and potential customers for the product or service.
Why is Market Research important?
Market research is important because it helps businesses understand the needs and desires of their customers, identify market opportunities, and reduce risk by taking decisions based on facts.
What are types of Market research?
There are two types of market research: primary and secondary. Primary research includes surveys, interviews and observations while secondary research involves data that’s already compiled and organized like reports and studies.
What is the role of Market Research in a business strategy?
Market research provides vital information to identify and analyze the market need, market size and competition. It helps formulate a business strategy that is customer-focused and offers a competitive advantage.
Can small businesses also perform Market Research?
Yes, businesses of all sizes can and should perform market research. For smaller businesses with budget constraints, methods such as online surveys, studying publicly available data or simply asking customers for feedback can be cost-effective ways to gather market insights.
What are the common methods of Market Research?
Common methods include surveys, interviews, focus groups, observations, and field trials. These can either be done in person, over the phone, or via the internet.
What is the outcome of Market Research?
Market research generally results in a comprehensive understanding of consumer behavior, market trends, and the competitive landscape. It provides businesses with valuable data that can influence product development, marketing strategies, sales, and customer service.
How frequently should a company conduct Market Research?
Frequency of market research may depend on the industry, the volatility of the market, and the company’s specific needs. In fast-changing industries, it could be beneficial to conduct research more frequently. However, as a general rule of thumb, annual research is a common choice for many companies.
How much does Market Research typically cost?
The cost of market research depends on the scope and method of the research being performed. It can range from a few hundred to several thousand dollars. However, online tools and technology have made it more accessible and affordable than ever before.
: How accurate is Market Research?
: While the aim of market research is to provide the most accurate information possible, it can be influenced by many factors, such as sample size, response rate, and honesty of respondents. Therefore, while it is a valuable tool, it should always be considered as part of a broader set of information when making strategic decisions.
Related Finance Terms
- Survey Design
- Competitor Analysis
- Qualitative Research
- Quantitative Research
- Customer Segmentation
