Market research is a critical tool that businesses utilise to gain a deep understanding of their target audience, their desires, and the factors influencing their purchasing decisions. In 2019 alone, the global market research industry generated a staggering revenue exceeding 73.4 billion U.S. dollars.
But why do businesses invest so much time and money into market research? This blog post will explore the four key purposes of market research, supported by real-life examples of businesses that have either effectively leveraged market research or faced the consequences of neglecting it in their decision-making process.
Learn more by watching the video and reading the blog post below:
Identifying Customer Needs
One of the fundamental purposes of market research is to identify the needs and wants of customers. By conducting market research, businesses can focus on key factors such as price, quality, choice, and convenience to collect valuable data and feedback. This information empowers businesses to provide products and services that cater to their customers' needs and preferences, ultimately leading to increased customer satisfaction and loyalty.
An example of the consequences of failing to identify customer needs through market
research can be seen with LG and Sony. Both companies launched their own 3D televisions following the success of the 2009 film Avatar in cinemas.
However, without sufficient market research, they failed to realise that customers did not have a strong desire to view television content in 3D at home. Consequently, both businesses eventually discontinued their 3D TV range. In contrast, Apple exemplifies the power of extensive market research through their annual Customer Pulse program, which cost them a record $18.75 billion on research and development in 2020. By understanding their customers' wants and needs, Apple successfully diversified their iPhone product range with the release of the iPhone 5c, targeting customers who desired an Apple iPhone without the highest specifications or premium price.
Identifying Gaps in the Market
Market research is invaluable in identifying gaps in the market, where potential demand for a product or service is not currently being met. While exploiting these gaps can be risky, it can also be highly rewarding if a business establishes itself as the market leader within that gap.
A prime example of a business that failed to capitalise on a gap in the market due to insufficient market research is Blockbuster. They declined an opportunity to buy Netflix for $50 million, failing to adapt their business model to the online streaming service that we know today. Blockbuster's failure to conduct thorough market research eventually led to their demise, while Netflix took advantage of the market gap, currently boasting a market value higher than Disney at a reported $194 billion.
On the other hand, Gymshark's success story demonstrates how market research can lead to identifying and exploiting a gap. Gymshark's co-founder, Ben Francis, recognised the lack of suitable gym clothing for himself, leading to the birth of Gymshark in 2012. By catering to the needs of slim teenagers, rather than older men with well-developed muscles, Gymshark grew into a global business valued at over $1.3 billion in 2020.
Reducing Risk
While market research cannot completely eliminate risk, it plays a crucial role in reducing it by providing businesses with valuable market insights and customer feedback. Businesses face various risks, such as investing in products that may not be needed by the market or failing to understand the market they operate within, potentially resulting in the loss of customers and negative public perception.
Colgate serves as an illustrative example of a business that suffered the consequences of inadequate market research. In the 1980s, Colgate expanded its product range into frozen foods without effectively reducing the risks associated with this brand extension strategy. Customers strongly associated Colgate with oral hygiene, making their frozen food products unappealing. Proper market research would have revealed this association, allowing Colgate to either launch the frozen food range under a different brand name or abandon the venture altogether, saving significant time and money.
Making Better Decisions
Market research empowers businesses to make informed decisions regarding launching new products or services, making changes to existing offerings, or investing in new store locations. By gathering feedback from customers, businesses can refine their strategies and offerings, enhancing their chances of success.
For instance, a bakery considering launching a new vegan pastry can provide samples to customers and gather feedback. Positive feedback would instill confidence in launching the product, while critical feedback could lead to recipe changes or a decision not to proceed with the vegan pastry. Lego serves as an excellent example of a business leveraging market research to make better decisions. After recognising that their products were primarily associated with boys, Lego conducted extensive market research involving 3,500 girls and their mothers over a four-year period. This research led to the launch of the "Friends" product range in 2012, featuring vibrant colors, altered packaging, and larger figures accommodating accessories like hairbrushes and purses. Lego's decisions were based on market research findings, resulting in the sale of twice as many Lego Friends sets as initially projected.
If you want to learn more about the key differences between the two main types of market research, just search for primary market research and secondary market research in our blog section.