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=Hatmm84sqm0

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

Customer Income

Sales

Price

Sales

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

Extrapolation

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

Task

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 demandedchanges

The bigger the number the more quantitydemanded 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 quantitydemanded has changed −10 per cent following a +50 per cent increase in price; this means the priceelasticity 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 therehas 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 thequantity 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; thismeans 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 saleshave fallen by a relatively greater percentage.

Task sheet

Product A Product B Product C Product DOriginal 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 Demanded20% -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 theincome, all other factors constant.

% change in quantity demanded % change in consumer income

Income elasticity of demand

• 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

Income elasticity of 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.

Income elasticity of demand• 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 technologyLots 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

https://www.youtube.com/watch?v=hxRqKgjD3vY

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