Market research

Market research is the process of gathering, recording and analysing data about customers, competitors and the market. It turns a hunch about what buyers want into evidence a business can act on.

Four purposes

• Understand and meet customer needs — what people want, what matters most to them and what they are willing to pay, so the product is designed around what buyers have asked for.
• Spot a gap in the market — a customer need that no existing business is meeting, which gives an opening for a new or improved product (explained in the Gap in the market note).
• Reduce risk — research shows how likely a business idea is to succeed, so a business is less likely to pour savings into a product nobody wants.
• Inform business decisions — price, location, product features and promotion can be chosen using data rather than guesswork.

A worked example

Jodie is thinking about opening an indoor skate and scooter park in an empty unit on an industrial estate. Her research shows the nearest skatepark is outdoors and shuts at 4pm in winter, so riders have nowhere dry to go after school — a gap in the market. She also finds most riders would pay £4 for a two-hour session and that parents want a seating area with a view of the ramps, which shapes her prices and her layout. The same research tells her which evenings to open late and where to advertise, and it means she risks far less of her savings than if she had simply rented the unit and hoped.

Support, not a guarantee

Research makes success more likely, but it cannot promise it. Customers may say one thing and do another, or the market may change after the research was done, for example if costs rise. Its value also depends on how reliable the data is.

Primary research is collecting new information first-hand, also called field research. Common methods are surveys, questionnaires, focus groups and observation. Suppose you are testing an idea for a weekend board-game café. You could hand out questionnaires outside a comic shop asking players about their favourite games and snacks. Because you write the questions, the data is tailored to your decision, usually current and controlled by you. The downside is cost and time: designing fair questions needs skill, and focus groups use staff time, rooms and possibly travel.

Secondary research uses information already collected by someone else, also called desk research. Sources include internet research, market reports and government reports. Reading published Office for National Statistics figures on household spending in your area, or a trade magazine's report on café sales, is secondary research. It is often quicker and cheaper, and can provide a wide range of information and large amounts of data. However, it may not be specific to your café: the figures may cover the whole county, be several years old, or come from a source with something to promote. Secondary research is not always free either, as some market reports must be bought.

Comparing them

Primary research is not automatically better. A small, rushed questionnaire can be less trustworthy than a careful government report.

Market research can produce two types of data. Quantitative data is information that is numerical and can be counted. It answers questions about amounts, frequencies, and which people or places are involved. A bike shop could ask customers how many times a week they cycle or how much they spend on repairs. This type of data is quick to collect using short, closed questions and is easier to analyse. Results can be added up, compared and shown in tables or charts, which helps a business spot patterns.

The limitation is depth. Quantitative data shows what happens, but not why. Knowing that 60 customers chose the cheapest helmet does not explain whether they valued price, safety or style.

Qualitative data

Qualitative data is word-based information that helps you understand what people think, their reasons, opinions and motivations. It gives depth and insight into customer behaviour. Asking a cyclist What would make you ride more often? might reveal that busy roads are the main worry. That reason could shape a new service or message.

Qualitative data is harder to analyse and summarise because answers are not numbers. It can be time-consuming to collect and sort, and a small sample may not be generalisable to the whole market.

Primary research and secondary research can each produce quantitative or qualitative data. A questionnaire you run yourself could contain closed and open questions, and an existing market report could include sales figures and customer comments.

A survey is a market research method that asks questions of people or organisations. A survey is the overall approach and may use a written questionnaire, face-to-face interviews, telephone interviews, or a mixture. A questionnaire can form part of a survey, but the two terms are not interchangeable.

Questionnaires

A questionnaire is a list of questions answered by respondents, designed to gather information about consumer tastes. It must be carefully planned so the questions collect exactly what the business needs; vague or extra questions make the results harder to use. A questionnaire usually mixes closed questions, such as ‘How often do you visit a climbing wall?’ with set answers, and open questions, such as ‘What would make you visit more often?’ Closed questions produce quantitative data that is quick to count; open questions give qualitative detail about reasons.

Questionnaires can reach many people cheaply and give standardised answers, because everyone is asked the same questions, making answers easier to compare. But response rates can be low, some answers may be unclear or dishonest, and they give limited depth because there is no chance to ask ‘why?’ straight away.

Interviews

Interviews can be face-to-face or by telephone. They allow the researcher to ask follow-up questions and clarify confusing answers, so they can produce richer detail than a questionnaire alone. The drawback is that interviews are time-consuming and costly, especially face-to-face, so they usually involve fewer people. For example, an indoor climbing centre might interview 15 members about a new beginner session to understand their reasons in depth, then use a questionnaire to survey 200 visitors to check how many would pay for it.

A focus group is a market research method in which a small number of people are gathered so that they can respond to questions and exchange views about a product, brand, topic or issue. A person leading the session guides the conversation so that everyone has a chance to contribute.

Focus groups are usually fairly small, and they typically produce qualitative data: information about opinions, reasons and motivations rather than numbers. For example, a small cinema might invite eight regular customers to discuss a new loyalty scheme. Their comments could explain why they value free popcorn more than money off tickets, giving the cinema the reasons behind customer preferences.

Strengths of focus groups

The discussion format is a key strength. One person’s comment can prompt another person to add an idea that they might not have mentioned on their own. The business can also ask follow-up questions straight away, so vague answers such as “it feels too expensive” can be explored to find out what customers would consider good value.

Limitations of focus groups

Their small size means the views collected may not represent the whole market. Group influence can also affect the data: a confident participant may dominate, while quieter people may agree with the majority instead of giving their true view. The findings are therefore useful for understanding opinions and motivations, but they must be interpreted with caution rather than treated as proof of what all customers think.

Observation is a primary research method that involves watching what customers actually do in a natural setting, such as a shop, café or queue, rather than asking them. Physical observation means a person watches and records customers directly. Electronic observation uses technology, such as in-store cameras or website software that tracks clicks and pages viewed, to record what people do.

Observation is useful because it records actual behaviour, not reported behaviour. If you ask customers whether they stopped at a display, they might say yes to be helpful or because they cannot remember. Watching them shows what really happens. For example, a pet shop owner could watch shoppers at a new toy display and jot down what they do: pick up a toy, turn it over, check the price, then put it back. Notes like these are qualitative data, describing behaviour in words; counting how many shoppers picked a toy up would give quantitative data instead.

However, observation may not explain why behaviour occurs. The pet shop owner can see that shoppers put the toys back but cannot tell whether the price is too high, the packaging is unclear or the shelf is too high to reach. Observation records actions, not reasons, so it is often combined with questions. Customers who know they are being watched may also behave differently from usual.

Privacy and ethical issues

Watching consumers can raise privacy and ethical issues. Customers may not know they are being observed or recorded, and they may feel uncomfortable if they find out. A business should observe only in public areas, avoid collecting unnecessary personal details and, where possible, tell people what is happening or keep recordings anonymous.

Three methods of secondary research are internet research, government reports and market reports. They differ hugely in cost, detail and reliability.

Internet research

Internet research is the use of free or paid-for resources on the World Wide Web. It can provide vast amounts of readily available information about the market, consumers and the economy, often within minutes. For example, if you planned to launch a board game café you could spend an evening reading local news pages and review sites to see which nearby venues already run games nights and what customers say about them.

The drawbacks are that some information is unreliable or out of date, some pages are simply trying to sell you something, and there is so much material that you suffer from information overload. Much of it is not focused on your business question at all, some useful sites charge a subscription, and pages written in another language create a barrier.

Government reports

Government reports are official reports and statistics that can be accessed at no cost and cover broad issues such as the economy, population change and the labour market. They are generally reliable and cost nothing, but they are general rather than specific. A report on national household spending on leisure will not tell you how many people in your town play board games, so use it as useful background rather than an answer.

Market reports

Market reports are detailed and specific studies produced by private research companies and then sold to businesses. They can be expensive to buy because the company has done the digging for you, but they are often considered valuable for making decisions: they focus on one industry and give figures and trends you can act on.

Not all of these methods are free, and not all are reliable, so check who produced the information and when.

Social media is a useful tool for market research because it can provide both primary research, such as a poll you post yourself, and secondary research, such as reading existing comments, reviews or posts.

Reaching people quickly

Platforms let a business reach a wide range of people and collect large amounts of data in real time. For example, a small skateboard shop could post a question on its Instagram story asking followers which colour deck they prefer. Replies can arrive within hours, giving the shop fresh primary data without printing questionnaires. Reading public comments about a rival brand is secondary research from the same platform.

Spotting trends and targeting groups

Social media helps a business spot changes in consumer tastes and market trends quickly. Repeated comments about a feature, or a rising hashtag, can show what customers are starting to want. It also helps researchers segment the market: analytics tools can sort followers into groups, so a business can target a survey at the customers most likely to buy. Those same tools let you interrogate the data, filtering and comparing engagement to see which posts get the strongest reaction.

Why the data needs caution

Social media data can be unreliable, biased or unrepresentative. People who post online are not the whole market, and fake accounts or bots can distort counts. Privacy matters too: collecting personal data without consent can break data protection rules. A large number of responses does not automatically make the data trustworthy, because the sample may still be biased, and decisions based on poor data can waste money.

Reliable market research data is consistent, accurate and trustworthy enough to base business decisions on. If you asked the same customers the same question next week and got completely different answers, the data would not be reliable.

Improving reliability

Reliability improves when you use the most appropriate research method for the type of data required. If you want numbers, such as how many customers would pay £4 for a product, a structured questionnaire with closed questions works better than a few casual conversations. The sample — the group of people researched — must be large enough and representative of the market. That means it includes a fair mix of the customers you hope to attract, not just friends or one age group.

Collecting sufficient data lets you spot anomalies — unusual answers that do not fit the pattern — so one odd response does not distort your conclusion. Analysis must also be thorough and accurate: adding up totals correctly, checking percentages and comparing answers across groups. A spreadsheet with one mistyped figure can make accurate survey data look unreliable.

When data is unreliable

Unreliable data can lead a business to launch a product or service that does not match customer needs. For example, a café owner surveys only fitness fans and concludes that customers want low-sugar cakes, then finds ordinary families wanted larger slices at a lower price. Unreliable data can also mean a business misses a gap or opportunity in the market, so a competitor serves an unmet need first. Worse, it can lead to poor decisions — ordering too much stock, choosing the wrong location or setting an unprofitable price — with potentially damaging consequences such as wasted money and lost sales.

Market research is a powerful business tool, but only when its data is reliable. A large, representative sample and careful analysis turn opinions into evidence you can act on.