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Knowing Your Customers

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Business Studies

To succeed in the market, businesses need to know their customers. They need to know their wants and needs to provide them with products and services they will be willing to buy.

So, how can businesses make sure they understand their customers' wants and needs?

Exchange between businesses and consumers

An exchange is when someone gives up something in return for something else. This is what happens between businesses and consumers. Consumers give up their money in return for products or services offered by businesses.

Knowing your Customers Exchange between businesses and consumers StudySmarterAn exchange between businesses and consumers represented by a product and cash transfer, StudySmarter

Understanding customer needs and wants

To sell their products, businesses have to attract customers. They need to offer something that customers will want to pay for. For this reason, they need to understand their needs and wants.

Knowing Your Customers: Needs

A need is something that is essential for us to survive.

Necessities such as food and drink can be categorised as needs. This is because everyone needs something to eat and drink to survive.

Knowing Your Customers: Wants

A want is something that is desired.

Specific types of products such as a new iPhone or apple juice can be categorised as wants. This is because they are not essential to survive, but only desired.

Customers and consumers

Although these two terms are oftentimes used interchangeably, they do not have the same meaning.

A customer is a person who buys a product or service from a business. A consumer is a person who uses a product or service provided by a business.

If you buy a drink for your friend, you are a customer, but your friend is the consumer. This is because you bought it, but your friend will drink it.

Carrying out market research

Market research is the process of gathering, analyzing, and utilising data in order to make effective marketing decisions.

Market research typically includes aspects such as:

  • Demand - how much of the product or service do customers want to buy.

  • Market share - producer's share of the market's sales.

  • Competition - the size and number of competitors in a market.

  • Target market - a specific segment in the market.

Why do businesses carry out market research?

Businesses that do not know their customers are more likely to fail. Therefore, they carry out market research to avoid costly mistakes.

If a company does not know its customers and produces the wrong product, it might have to:

  • Withdraw the product because of low sales,

  • Amend the product to match customers’ needs,

  • Lower the price to attract customers,

  • End up damaging its brand name.

All of these consequences might be very costly to a business. Withdrawing the product means spending money on the manufacturing of products that will not be sold; amending the product costs additional money; lowering the price lowers profits, and damaging the firm’s brand name will affect its reputation.

Imagine a firm that produces and sells snow boots in Egypt. Although some people might want to buy them to go on a trip to a colder, snowy place, snow boots will not thrive in this market, as Egypt is a warm place where it does not snow at all. That is why people will be unlikely to buy such a product.

Methods to identify and meet customer needs

To identify and meet customer needs and wants, it is crucial to select the correct marketing mix.

The marketing mix is a combination of factors that have an impact on a customer’s decision to purchase a product or service.

Although there are numerous factors that influence the decision, the four most important are:

  • Product - what product is offered,

  • Price - at what price it is offered,

  • Place - where it is offered,

  • Promotion - how it is promoted.

Imagine you want to buy shoes. You will need to find a business that offers the shoes you are looking for. If you are looking for black high heels, you will not go to a supermarket. Instead, you will go to a shoe shop. The shop will also need to offer shoes at a price affordable to you. If you are on a tight budget, you will eliminate all the expensive shops and look around in shops that are cheaper. You will also go to a shop that you are able to go to location-wise. You will be unlikely to drive to a shop that is 100 miles away. Instead, you will choose one that is closer. Finally, you will go to a shop that you saw advertised.

To sum up, when buying shoes, you will look for a shop that offers shoes you are looking for, at a price affordable to you, in a place you can go to, and you are aware it exists.

Knowing Your Customers: Being competitive

Not only do businesses have to know their customers but also their competitors. If they are familiar with both customers and competitors, they are familiar with the entire market. It means that they can respond to changes in the market and remain competitive.

Imagine you run a shop that sells shoes. You keep an eye on the market. You know that recently customers have been buying more formal shoes. Moreover, you have noticed that your competitors lowered their prices to attract more customers. To remain competitive, you might want to increase the production of formal shoes to satisfy the demand. You might also want to lower the prices to be cheaper than your competitors.

Businesses have to come up with ideas to make their product or service better than competitors. In this way they will be competitive and increase their sales. There are numerous ways to make a product or service better.

Knowing Your Customers - Key takeaways

  • An exchange is when someone gives up something in return for something else. This is what happens between businesses and consumers.
  • A need is something that is essential for us to survive.
  • A want is something that is desired.
  • A customer is a person who buys a product or service from a business.
  • A consumer is a person who uses a product or service provided by a business.
  • The marketing mix is a combination of factors that have an impact on a customer’s decision to purchase a product or service. The four most important are product, price, place, and promotion.
  • Market research is the process of gathering, analysing, and utilising data in order to make effective marketing decisions.
  • Businesses that do not know their customers are more likely to mess up, which may cost them a lot of money.
  • The marketing mix is a combination of factors that have an impact on a customer’s decision to purchase a product or service.
  • To remain competitive, not only do businesses have to know their customers, but also their competitors.

Knowing Your Customers

To sell their products, businesses have to attract customers. They need to offer something that customers will want to pay for. For this reason, they need to identify who their target customers are and understand their wants and needs.

To meet customer needs and wants, it is crucial to identify your customers. This can be done through market research. Market research is the process of gathering, analyzing, and utilising data in order to make effective marketing decisions. Thus, market research helps businesses identify a specific target segment in the market.

Identifying customers means selecting and understanding your target audience. A business needs to know who wants to buy its products and services. As such, this process is known as identifying customers.

Customer needs can be identified through market research. Market research explores how much demand there is for a product or service, evaluates competitors' offerings, and allows businesses to identify their target markets.

To understand customers and identify customer needs and wants, businesses need to conduct market research and make sure to select an appropriate marketing mix. The marketing mix is a combination of factors that have an impact on a customer’s decision to purchase a product or service, thus allowing the business to improve customer understanding.

Final Knowing Your Customers Quiz

Question

Define exchange.


Show answer

Answer

An exchange is when someone gives up something in return for something else.

Show question

Question

What is an opportunity cost?


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Answer

Opportunity cost is the forgone benefit that would have been derived from an option not chosen.


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Question

Explain why the opportunity cost matters in the exchange process.


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Answer

The exchange must be worthwhile and beneficial for both businesses and consumers. For businesses that means gaining profit from a good or service sold, and for customers that means gaining value for the money paid. What is more, the benefits gained from the exchange must be better than those that could be gained somewhere else.


Show question

Question

What is a need?


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Answer

A need is something that is essential for us to survive.

Show question

Question

Give an example of a need.


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Answer

Food or drink.


Show question

Question

What is a want?


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Answer

A want is something that is desired.


Show question

Question

Give an example of a want.


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Answer

A specific type of food or drink; crisps, or sparkling water.

Show question

Question

Define a customer.


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Answer

A customer is a person who buys a product or service from a business. 

Show question

Question

Define a consumer.


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Answer

A consumer is a person who uses a product or service provided by a business. 

Show question

Question

Is a customer the same as a consumer?


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Answer

No

Show question

Question

What is a marketing mix?

Show answer

Answer

The marketing mix is a combination of factors that has an impact on a customer’s decision to purchase a product or service.


Show question

Question

What are the four main factors that influence a customer’s decision to purchase a product or service?


Show answer

Answer

Product, price, place, and promotion


Show question

Question

Give an example of a problem that might occur if a business does not know its customers.


Show answer

Answer

It may have to:


  • Withdraw the product because of low sales,
  • Amend the product to match customers’ needs,
  • Lower the price to attract customers,
  • End up damaging its brand name.


Show question

Question

What can businesses do to remain competitive?

Show answer

Answer

Respond to changes in the market, and be better than competitors.

Show question

Question

Besides customers, who do businesses have to keep an eye on to be competitive?


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Answer

Competitors


Show question

Question

A ___ is something that is essential for us to survive. 

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Answer

need

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Question

A ___ is something that is desired. 


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Answer

want

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Question

A consumer is a person who buys a product or service from a business. 


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Answer

False

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Question

A consumer is a person who uses a product or service provided by a business.


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Answer

True

Show question

Question

___ is the process of gathering, analyzing, and utilising data in order to make effective marketing decisions.


Show answer

Answer

Market research 

Show question

Question

The ___ is a combination of factors that have an impact on a customer’s decision to purchase a product or service.


Show answer

Answer

marketing mix 

Show question

Question

An ___ is when someone gives up something in return for something else.

Show answer

Answer

exchange 

Show question

Question

If you buy a drink for your friend, you are a ___ and your friend is a ___. 


Show answer

Answer

customer ... consumer

Show question

Question

Necessities such as food and drink can be categorised as... 


Show answer

Answer

needs. 

Show question

Question

Specific types of products such as a new iPhone or apple juice can be categorised as...


Show answer

Answer

wants. 

Show question

Question

A customer is a person who...

Show answer

Answer

buys a product or service from a business. 

Show question

Question

A consumer is a person who...

Show answer

Answer

uses a product or service provided by a business. 

Show question

Question

Market research is the process of gathering, analyzing, and utilising ___ in order to make effective marketing decisions.


Show answer

Answer

data 

Show question

Question

The marketing mix is a combination of factors that have an impact on...


Show answer

Answer

a customer’s decision to purchase a product or service. 

Show question

Question

The four most important factors of the marketing mix are product, price, place and...

Show answer

Answer

promotion.

Show question

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