Market Research & Market Segmentation

Why businesses carry out market research

Before a business launches a product or opens a new branch, it needs to know whether anyone actually wants what it plans to sell. Market research is the process of gathering and analysing information about customers, competitors and the wider market.

Good research helps a business:

Find out customer needs and wants so products match demand.
Reduce the risk of launching a product that fails.
Identify a gap in the market where few rivals operate.
Set the right price and choose the best places to sell.
Decide how to promote the product and to whom.

Key term Market research — collecting and analysing information about customers and the market to support business decisions.

Gap in the market — a customer need that no existing business is currently meeting.

A business that ignores research is, in effect, guessing. A business that researches well can make decisions based on evidence.

Primary and secondary research

Research is split into two types depending on who first collected the data.

Primary (field) research is information collected first-hand for a specific purpose. The business (or a hired agency) gathers it directly from customers.

Secondary (desk) research uses information that already exists and was collected by someone else, usually for another purpose.

Primary research methods:

Surveys / questionnaires — a set list of questions asked in person, by post, by phone or online. Cheap per person and good for reaching many people.
Interviews — a one-to-one conversation that allows detailed, in-depth answers.
Focus groups — a small group discusses a product, guided by a researcher, giving opinions and feelings.
Observation — watching how customers behave, for example counting shoppers or filming how people move around a store.

Secondary research sources:

The internet — websites, online articles and competitor sites.
Market reports — paid-for studies by specialist research firms.
Government data — official population and spending statistics.
Internal company records — past sales figures the business already owns.

Exam tip A common mistake is to call any online questionnaire "secondary". If the business writes the questions and asks customers itself, it is primary research — even online. Secondary means the data already existed.

The table below compares the two types.

Quantitative and qualitative data

Research produces two kinds of data.

Quantitative data is numerical — facts and figures that can be measured and put into charts, such as "62% of shoppers buy weekly". It is good for spotting trends and comparing options.

Qualitative data is descriptive — opinions, feelings and reasons, such as "customers said the packaging looked cheap". It explains why people behave as they do.

Key term Quantitative data — information shown as numbers (how many, how much).

Qualitative data — information about opinions, attitudes and reasons (why).

Surveys often give quantitative data; focus groups and interviews give richer qualitative data. Most businesses use both together.

Sampling and reliable data

A business usually cannot ask every possible customer, so it studies a sample — a smaller group chosen to represent the whole target market (the population).

The quality of a decision depends on the quality of the data behind it. Data is more reliable when:

The sample is large enough — too few people may give misleading results.
The sample is representative of the real target market, not just friends or one age group.
Questions are clear and unbiased, not leading the customer to a particular answer.

Watch out A small or biased sample can make research dangerously misleading. If a sweet shop only surveys children, it learns nothing about adult buyers. Bigger, fairer samples cost more but give results the business can trust.

Market segmentation

A market segment is a group of customers who share similar characteristics. Market segmentation means splitting the whole market into these groups so the business can target each one effectively.

Common ways to segment a market:

Key term Market segment — a group of customers with similar needs or characteristics.

Target market — the specific segment(s) a business aims to sell to.

Why businesses target segments:

Products and marketing can be tailored precisely to that group's needs.
Promotion is more efficient — money is not wasted on people unlikely to buy.
The business can charge prices each segment is willing to pay.
It helps a business stand out by serving a group rivals ignore.

Real world Car makers segment heavily. A small, low-cost city car targets younger, lower-income drivers, while a large premium SUV targets higher-income families. The same company designs and prices each model for a different segment.

Identifying customer needs

Segmentation and research together help a business work out exactly what customers need. A need is something essential, while a want is a desirable extra. By asking, observing and analysing data, a business can match its product features, price, and service to what the target customer truly values — for example, students may need affordable revision tools above all else.

Market mapping (positioning maps)

A market map, or positioning map, is a diagram with two axes showing where products sit in the market relative to each other. Typical axes are price (low–high) and quality (low–high), or traditional–modern.

A market map is useful because it:

Shows gaps in the market where no rival currently sits.
Reveals where competition is crowded.
Helps a business position a new product clearly.

Watch out A gap on a market map does not always mean a money-making opportunity. There may be a gap because customers simply do not want that combination (e.g. very expensive and very low quality).

Mass markets and niche markets

Businesses must decide how broad their market is.

A mass market sells a product that appeals to a very large number of customers — for example, soft drinks or basic clothing. Sales volumes are high, prices are usually competitive, and there are often many rivals.

A niche market is a small, specialised segment with particular needs — for example, left-handed scissors or vegan dog food. Fewer customers, but often less competition and the chance to charge higher prices.

Exam tip When asked to evaluate whether to target a niche or mass market, balance both sides: niche offers higher margins but greater risk if demand dries up; mass offers high sales but fierce competition. A judgement that weighs up the business's situation scores the top marks.