A $120,000 guess: Lena and Marco want a fourth shop, on Station Road, right by the railway station. Fitting it out costs $120,000.
Their forecast
- $30,000 of net cash flow in its first year
The guess it rests on
- That enough people hurrying to a train will stop for bread and a coffee
- If they do not, the $120,000 is spent and gone
So before they sign anything, they set out to find out. Collecting and studying information about customers, competitors and the market, so that a decision rests on evidence rather than a hunch, is market research.
When the business collects new information itself, first-hand, to answer its own question, that is primary market research (also called field research). Nobody had these answers before Lena went and asked.
How a business carries out market research: from the question, through collecting the data, to the decision. At Station Road the question is simple: will commuters buy from us, and what?
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Why a business carries out market research
To know its customers
What do the people in its target market want, when, and at what price? Lena has never sold to commuters: she does not know if they want a loaf at 7 a.m. or only a coffee.
To lower the risk of a big decision
Evidence before spending. A few days of research is cheap next to a $120,000 shop that nobody visits.
To keep up with a changing market
Tastes change and rivals move. Crumbline plc already sells coffee and a pastry for $3.50 inside the station. Research shows what the competition offers, and what customers make of it.
To improve a product before it launches
Priti's new breakfast range can be tasted, criticised and changed before her bakers make it every night.
To check a forecast, or explain a result
Is $30,000 in year one realistic? And if sales later fall, research finds out why, rather than guessing.
Research lowers the risk; it does not remove it: Research costs money and time: staff standing at the station for a week are not serving in the shops. People also say one thing and do another, and a market can change after the research is done.
Match the research to the decision: So the size of the research should match the size of the decision. A $120,000 shop deserves a week of careful research. A new cake flavour can simply be put on the counter for a day.
There are two ways to collect first-hand information: ask people or watch them. Asking can be done with many people at once (a survey), one at a time (an interview) or in a small group (a focus group). Watching is observation. Lena will use all four at Station Road.
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How many would buy?: Lena's first question is about numbers. How many commuters would stop, and at what time of day?
To answer a 'how many' question she needs the same questions put to a lot of people.
A survey asks many people the same set questions, usually on a form (a questionnaire). It can be done on paper, online, by phone or face to face.
Marco writes ten short questions. For one week two staff stand at the station entrance, from 6:30 to 9:00 and from 17:00 to 19:00, and a poster with a QR code lets people answer on their phones. 240 people answer.
What a survey gives
- Reaches many people quickly and cheaply, especially online
- Everyone gets the same questions, so answers can be counted and compared: 70% of morning commuters said yes
- People can answer without giving their name, so they are more honest about awkward things like price
- Easy to repeat next year and see what has changed
Where it falls short
- A ticked box says what, not why: 'would not buy' gives Lena no reason
- A badly worded question pushes people to one answer: 'Wouldn't you love fresh bread on your way to work?'
- Many people ignore it, and the ones who stop to answer may not be typical of everyone
- What people say they will do is not always what they do
Marco's second question is different. Would the offices around Station Road order lunches for their meetings? Only five office managers make that decision. He does not need 240 answers; he needs to understand five people well.
So he books a twenty-minute interview with each: a one-to-one conversation, face to face or by phone, where the person asking can follow an answer with another question.
What an interview gives
- Detail and reasons: the why behind an answer
- Follow-up questions: 'You said your last caterer let you down. How?'
- The interviewer can explain a question the person has misunderstood
- Suits a few important people, such as the managers who place large orders
Where it falls short
- Slow and costly per person: five interviews take Marco two days
- Few people, so their views may not be shared by everyone else
- The interviewer's tone or wording can steer the answers (interviewer bias)
- Long spoken answers are hard to add up and compare
Survey or interview?: A survey puts the same questions to many people, to count the answers. An interview is a conversation with one person at a time, to understand their reasons.
'How many?' points to a survey. 'Why?' points to an interview.
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Tasting the breakfast range: Priti, the head baker, has created a breakfast range for Station Road.
The breakfast range
- A breakfast roll
- An oat and apple pastry
- A $4 coffee-and-croissant deal
Before her bakers make them every night, Lena wants to see how people react to them, and hear why.
A focus group is a small group of people, usually six to ten, who discuss a product or an idea together, guided by a leader (a moderator) who asks open questions and keeps the talk going.
Kofi, who manages the Market Square shop, invites eight regular customers in one evening. They taste each item and talk for an hour while Kofi takes notes.
What a focus group gives
- A real discussion: people react to each other, and ideas come up that nobody planned
- Reactions to taste, look and packaging, seen first-hand
- Quicker and cheaper than eight separate interviews
- The leader can ask 'why?' when someone pulls a face
Where it falls short
- Eight people may not represent the market: these are regulars who already like Lena's, not commuters
- One loud voice can sway the rest, until everyone agrees (groupthink)
- The leader can steer it: the eight know Kofi well and may be too polite to criticise
- Costly to repeat, and hard to find people who match the customers you want
Sometimes the best evidence is not what people say but what they do. For five weekday mornings, Marco stands opposite the empty Station Road unit from 6:30 to 9:00 and counts.
On average 1,850 people pass each morning, most of them between 7:15 and 8:15, and about one in eight is already carrying a coffee from Crumbline's stand inside the station. That is observation: watching and recording what people actually do. Counting the people who pass a spot is a footfall count.
What observation gives
- Real behaviour, not what people say they would do
- No questions, so no wording that can push people to an answer
- Can cover large numbers: 1,850 people a morning
- Cheap: one person, a notebook and a counter
Where it falls short
- It shows what people do, never why: Marco cannot tell why commuters walk past
- People who know they are watched may act differently
- Five mornings in one season may not be typical: rain or school holidays change the numbers
- The watcher may see what they hope to see
Asking or watching?: Surveys, interviews and focus groups ask people, so they give opinions and reasons. Observation watches people, so it gives behaviour.
A business that wants both runs both.
No method is best everywhere. Choose by three things: what you need to know, who can tell you, and how much time and money the decision deserves.
| Method | Best for | At Station Road | Main drawback |
|---|---|---|---|
| Survey | How many people think or would do something | 240 commuters: would they buy, and when? | Says what, not why; wording can steer answers |
| Interview | Reasons, from a few important people | Five office managers: would they order lunches? | Slow and costly per person; the interviewer can steer |
| Focus group | Reactions to a product, and a discussion of why | Eight regulars taste the breakfast range | Small, may not represent the market; groupthink; the leader's influence |
| Observation | What people actually do | Counting the 1,850 who pass each morning | Shows what, never why; people act differently when watched |
Often more than one: Lena used all four, because each filled a gap left by another. The count said how many people pass. The survey said how many would buy. The interviews said why offices order lunches. The focus group said which items to bake.
Together they tell her far more than any one of them alone.
Collecting the answers is half the job; the other half is reading them. Here is what Lena's station survey found, split by when people were asked.
| When asked | People who answered | Would buy | Might buy | Would not buy |
|---|---|---|---|---|
| Mornings, 6:30 to 9:00 | 160 | 112 (70%) | 32 (20%) | 16 (10%) |
| Evenings, 17:00 to 19:00 | 80 | 28 (35%) | 20 (25%) | 32 (40%) |
| All answers | 240 | 140 (58.3%) | 52 (21.7%) | 48 (20%) |
Commenting on results, step by step
Say what the results show
Demand at Station Road looks strong in the morning and weak in the evening.
Prove it with a figure
70% of the 160 morning answers would buy, against 35% of the 80 evening answers.
Say what it means for the decision
Open early, at 6:30, with breakfast ready to go; the evening trade may not pay for the staff to stay late.
Say how far to trust it
240 answers in a week, when 1,850 people pass every morning; one week only; only people who chose to stop; and saying 'I would buy' is not buying.
A figure on its own is not a comment: 'Only 80 people answered in the evening' describes the table. 'The evening result rests on only 80 answers, so it is less reliable than the morning one' is a comment.
Say what the number means for the business, and name the number.
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How this comes up: Short parts on a case, with a table or a description of the research the business did.
| The question | Marks |
|---|---|
| Explain one reason why the business should carry out market research | 2 |
| Explain one, or two, disadvantages of the focus group it used | 2 or 4 |
| Explain two methods of primary research, other than surveys, it could use | 4 |
| With a table of results: comment on the survey, or on the results | 2: one comment in context, one figure from the table |
The pattern for each point
- Name the point. A disadvantage of a focus group: it is small, and the people in it may not represent the market.
- Show it in the case. The eight are Market Square regulars who already like Lena's; Station Road's customers will be commuters.
- For a second point, pick a different idea. Not 'small' twice: the leader's influence, groupthink, or the cost of repeating it.
- Show that one in the case too. Kofi led the group, and the eight know him as their shop manager.
Two traps: No case, no second mark. 'Focus groups are small' is one mark. 'Only eight regulars, none of them commuters' is two.
Read the method the question names. Asked for methods other than surveys, a questionnaire is a survey. Asked about a focus group, the drawbacks of interviews do not answer it.
Explain two disadvantages for Lena's Bakery of using a focus group to research its new breakfast range.
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