Understanding markets and customers

3.3.2- Understanding markets
and customers

What you need to know
 What is meant by marketing research
 How to compare and contrast the value of primary and
secondary marketing research
 The difference between qualitative and quantitative data
 The meaning of market mapping
 How to evaluate the value of sampling
 How to analyse the significance of positive and negative
correlation
 The significance of confidence intervals and extrapolation
 How to analyse the value of technology in gathering and
analysing data for marketing decision making
 How to interoperate price and income elasticity data and
assess the value of these concepts
 How data is used in decision making and planning

Market research
• Identify and define what it is you want to
know
• Decide on how to gather your data
(dependent on factors such as money and
time)
• Gather data
• Analyse
• Interpret Define
problem/
objectives
Develop
research
plan
Implement
plan:
collect
data
Interpret
results and
report
findings

The customer
Market
research
Who buys?
What they are
buying?
When are
they buying?
Why are they
buying?
Who do they
ask for
information
before
buying?
Where are
they buying?
What factors
influence the
buying
decision?

Factors
• Personal
• Economical
• Social
• Technical

Task 10 minutes
• Using the decisions making process write
down what actions you carried out on a recent
purchase that you made.
• Explain what factors had an effect upon your
purchase.

Competiveness
Is marketing selling or selling
marketing?
Marketing provides managers with the
insight into their customers and can be
used to inform their decisions.

Do they know what their on about?-
Its all psychology

How can you inform your decisions
• Secondary research- Data that has already been
collected, cost effective good place to start.
• Primary- First hand, costly, time consuming, can
provide new insight, something new over
competition.
https://www.youtube.com/watch?v=Hatmm84sqm
0
Does it raise issues with invasion of privacy?

Task
• With what you have learnt so far define a
marketing problem/ objectives for the business
you presented on.
• Develop a research plan for that business
explaining why you have chosen that method
Define
problem/
objectives
Develop
research
plan
Implement
plan:
collect
data
Interpret
results and
report
findings

The value of sampling
• What is sampling?
– A sample is a group of people or items selected to
represent the target population.
– Target population= all the items or people that
are relevant to the market research being
undertaken. For example, a business might be
interested in all 16-18 year olds in the UK

Why sample?
• Its unrealistic to get information from the
whole target market.
• Your sample size can change the smaller the
cheaper it will be.
• Reliability is a big question when sampling

How to make effective samples.
• Avoid bias- Males and females will have
differing opinions as well as people from
different areas.
• Think about your questions.- The way a
question is asked can lead people to a wanted
response therefore nullifying any findings.
• The size- The less you ask the more unreliable
it is. Think of testing an airbag once, it works
100% of the time. Would you want to use it?

Quantitative
• This is numerical data e.g 70% of the
population enjoy a cup of tea over a cup of
coffee.
• The data is often gathered through surveys
• Gives a nice overview or what the market
looks like and how its changing.
• However, it doesn’t always tell you why.

Qualitative
• Descriptive data
• Provides information on feeling and emotions
• Gathered through methods such as focus groups
and observations.
• Provides a good insight into why people do things
or what they think.
• Hard to measure and very open ended
• A good start point to primary research then
backed up by quantitative .

Market mapping
• Helps understand the perception of brands in
the market. Is it youthful? Is it seen as
reliable?
• Important to see what problems need to be
addressed/ challenged.
• Often done by asking a group of customers to
rate each brand against each other across two
criteria.

Market Mapping Exercise
High PriceLow Price
Modern
Traditional

Interpreting marketing data
• Correlation
• Extrapolation
• Confidence intervals

Correlation
• Used to see the relationship between different
factors such as price and sales, etc.
• Positive
• Negative

Mobile
phone sales
Temperature

Correlation
• Given as a number
• 0= No correlation
• +1= Perfect positive correlation
• -1= Perfect negative correlation
• 0.8 means a strong positive correlation

Why?
• A marketing manager can forecast using
correlation
• Determine whether sales are like to go up or
down based on an action

Task
• What do you think the correlation will be:
– Income and tobacco
– Consumer age and sales of sun cream
– Sales of wine and sales of cheese
– Consumer income and vegetable sales

What could go wrong
• Market changes will impact upon extrapolated
forecasts.
• Any factors the impact upon your business
may change and therefor impact upon your
extrapolated forecast.

Confidence levels
• When you extrapolate you making an
educated assumption that thinks will continue
the way they are.
• Confidence levels provide a measure to how
likely this is to happen.
• Confidence levels are expressed in %
– I’m 50% sure that Aydin will pass

Confidence intervals
• A confidence interval is the possible range of
outcome for a given confidence level. For
example, you might have a 95% confidence
level that sales will be between £500,000 and
£700,000

Answers
• 1i) approx. interval 600million (8,700 – 8100 =600)
– £8,100 million to £8,700 million (8,400 +300 = 8700)

Answers
• 1ii) approx. interval £2,344 million (£9,476million
- £7,232million)

Answers
• 1iii)
If an interval is wider the people carrying out
the market research can be more confident
(95% confident rather than 50%) that their
forecast will prove correct.
Equally if they provide a narrow interval, they
will have a lower degree of confidence in the
accuracy of their forecasts.

Answers
Q2)
As market research teams project data further into
the future it becomes more difficult to predict
consumer behaviour accurately. Over a longer time
period there are more factors and events that could
influence buying decisions. Tastes and fashions are
more likely to change over longer time periods and
it becomes more challenging to forecast consumer’
real income accurately. As a consequence
confidence intervals are increased to reflect this.

Price elasticity of demand
• Price elasticity of demand = Percentage change in
quantity demanded / percentage change in price
The answer to the price elasticity of demand
equation is usually negative because a price
increase (+)
leads to fall in quantity demanded (−) and vice
versa; this gives a negative answer overall

The size of the price elasticity (i.e. the size of the
number ignoring whether it is negative or positive)
shows how responsive demand is to price changes;
it shows how much the quantity demanded
changes
The bigger the number the more quantity
demanded changes following a price change

If the value of the price elasticity of demand
(that is, the size of the number ignoring the sign)
is less than one this is described as price
inelastic.

Why does it matter
• If demand is price inelastic this means that a
change in price leads to a smaller change in
the quantity demanded. The effect of this is to
lead to an increase in revenue if prices are
raised.

Imagine you are charging £10 and sell 5,000 units. The
revenue from sales will be £10 × 5000 =
£50,000.
If you increase the price to £15 and sales are now 4500
units this is price inelastic. The quantity
demanded has changed −10 per cent following a +50 per
cent increase in price; this means the price
elasticity of demand is −10/+50 = −0.2, that is price
inelastic.
Revenue is now £15 × 4,500 = £67,500. Revenue has
increased because price has increased and there
has been a relatively smaller percentage fall in demand.

By comparison if demand is price elastic then a price increase
leads to a bigger percentage fall in the
quantity demanded and a fall in revenue.
Now imagine you are charging £10 and sell 5,000 units. The
revenue from sales is £10 × 5,000 =
£50,000.
If you increase the price to £15 and sales are now 1,000 units
this is price elastic.
The quantity demanded has changed −80 per cent following a
+50 per cent increase in price; this
means the price elasticity of demand is −80/+50 = −1.6, that is
price elastic.
Revenue is now £15 × 1,000 = £1,500. The price has risen and
the revenue has fallen because sales
have fallen by a relatively greater percentage.

Product A Product B Product C Product D
Original Conditions Quantity Demanded 100 20 80 200
Price $20 $
50
$
30
$
45
Total Revenue $2,000 $1,000 $2,400 $9,000
New Conditions Quantity Demanded 120 10 88 180
Price $19 $
55
$
25
$
60
Total Revenue $2,280 $550 $2,200 $10,800
Calculations Percentage Change in
Quantity Demanded
20% -50% 10% -10%
Percentage Change in
Price
-5% 10% -17% 33%
Price Elasticity of
Demand
-4 -5 -0.6 -0.3
Price Elastic or Price
Inelastic?
Price
Elastic
Price
Elastic
Price
Inelastic
Price
Inelastic
Change in Revenue $280 ($450) ($200) $1,800

Answers
• A) Price elastic, the larger the number the
greater the change in the quantity demanded.
• B) -2 Price elastic
• C) -0.5 Price inelastic
• D) -30% -16%

Influences on price elasticity
• Threat of substitutes
• Brand
• Trademarks
• Patent
• Time – Do you have time to search
• Cost- was cheap anyway
• Who is paying?

Income elasticity of demand
• The income elasticity of demand measures
how responsive demand is to changes in the
income, all other factors constant.
% change in quantity demanded
% change in consumer income

• If the answer is positive this means an
increase in income increases demand.
– +ve = +demand
• If the answer is negative this means that as
income increases the quantity demanded falls.
– -ve = -demand

• Normal product – Increase in income results in
an increase in demand.
• Inferior – Income falls and quantity demanded
increases. Customers switch to an ‘inferior’
product.

• The size of the income elasticity (regardless of the sign)
is how sensitive demand is to consumers income.
If the income elasticity is 2, this means that the change in
quantity demanded is 2 times the change in income. A 1 per
cent change in income leads to a 2 per cent (2 × 1) change
in quantity demanded
If the income elasticity is 0.5 this means that the change in
quantity demanded is 0.5 times the change in income. A 1
per cent change in income leads to a 0.5 per cent (0.5 × 1)
change in quantitydemanded.

Why is income elasticity important?

The value of technology
Big data refers to large and complex data sets. These
have been difficult to analyse in the past but
improvements in technology is making the use of big
data more feasible.
The increase in e-commerce has had a massive impact
on how much data is available to analyse by a
marketing department.
People are numbers and formulas more than ever.

The value of technology
Lots of data doesn’t mean good quality information.
The skills of asking the correct question is even more
important. You need to be able to see the tree from the
woods.
Technology has enabled to work more quickly and efficiently.
Think spreadsheets.
Manipulation of data allows marketing department to find
patterns and trend which a generation ago could only be
dreamed of.

What impact does data have on …

Where can marketing research go
wrong
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vY

Understanding markets and customers

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