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Understanding Markets and Customers

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Understanding Markets and Customers

Amazing things will happen when you listen to the consumer.

- Jonathan Midenhall

Companies need to understand their markets and customers. Why? To target their marketing efforts to the right groups of customers in an effective market setting. By doing this, the business gains a competitive advantage, creates customer engagement, and thus promotes longstanding relationships with customers. One way organizations can develop an understanding of their markets and customers is through market research and consumer behavior. Let's take a look in more detail.

Market Understanding Definition

How do we try to understand markets? Well, marketers must collect a lot of data to find insightful information on the market and their customers.

Market understanding means collecting data and turning it into insights for businesses to gain a competitive advantage.

Segmentation, targeting, and positioning are methods marketers use to understand their customers, but beyond segmentation, marketers engage in market research to further their understanding of the market and customers. Although segmentation helps marketers generate customer profiles, market research can deepen their knowledge of customer and market wants and needs.

Check out our market segmentation, targeting, and positioning explanation to find out more.

Understanding the Market

Market research helps businesses understand why customers purchase specific products or brands. It is directly related to the marketing mix, as it allows companies to make decisions about product, price, promotion, and place through the data collected during market research.

Take a look at our marketing mix explanation to find out more about the 4Ps of marketing.

Market research is the process by which companies collect data about customers and markets to help them construct a better marketing strategy.

Understanding Markets and Customers: The benefits of market research

As a marketer, collecting helpful information and good data is essential. Good research can:

  • Help companies make better marketing decisions.

  • Reduce the likelihood of making poor decisions.

  • Reduce risks.

  • Help companies identify their target market and customers.

  • Help companies understand their customers' wants and needs.

  • Help companies beat competitors to their target market and customers.

  • Help marketers engage their customers.

  • Contribute to building longstanding relationships with customers.

  • Help companies sustain a competitive advantage.

Conducting Market Research

Companies conduct market research to develop an understanding of their markets and customers. Figure 1 below shows the different types of market research firms may choose to undertake.

Understanding markets and customers Market research types StudySmarterFig. 1. Market Research Types

Market research helps describe the characteristics of markets and customers and their buying behavior (or how customers purchase a product or service, known as 'purchase patterns'). This area of research is known as descriptive research. This type of research helps identify trends and compare markets or different groups of customers.

Another form of research is predictive research. This type of research helps a company predict customer and market trends: what might happen in the future?

Explanatory research helps a company understand why a particular phenomenon occurs. This type of research can be useful in understanding why customers behave in certain ways.

Exploratory research helps marketers investigate a market, for instance, when there is no existing information available in a particular market. Exploratory research helps identify and understand problems or gaps in the market.

Take a look at our explanations of market research and market calculations to learn more about the benefits of conducting market research and analysis.

Finally, market research helps marketers understand the 6Ws (who, what, when, where, why, what influences) of customers and markets. They are as follows:

  • Who are our customers, and who consumes our products? Remember, the consumer (the user) and the customer (the person who purchases the product) might be two different people.

  • What do they buy? Are some of our products more successful than others?

  • When are they buying? Some customers might purchase the product daily, whereas others might only purchase it monthly.

  • Where do they buy our products? Certain customers might prefer to shop in-store and experience face-to-face interactions, whereas others might prefer to shop online from the comfort of their own homes.

  • Why do customers buy our products? Do they buy it out of necessity? Do they buy it as a status symbol? Do they buy them as gifts to others?

  • What influences customers to purchase the product? Is it a complex purchase with many steps? Do others influence the purchase, or is it an individual decision?

Marketers can develop better marketing strategies by finding answers to all these questions. Market research and customer understanding also help marketers gain insight into the types of products to develop - which product would be the most successful in satisfying our customers' wants and needs? Marketers might even discover new market trends that have not been addressed by other companies yet. Being the first to address a new customer need can result in a competitive advantage and high returns for the company.

The Importance of Technology in Understanding Markets and Customers

Recently, the state of technology and our access to technology have increased significantly. This development has made it easier for businesses to digitalize market and customer analysis and interpretation. Companies no longer have to physically go through old records and receipts to understand customers' and competitors' behavior, which saves time and helps them gain access to helpful information. Some of the digital tools used for market research include the following:

  1. The Internet provides businesses access to various secondary information sources such as reports, databases, articles, etc.

  2. Social media allows businesses to communicate directly with their existing customers and target potential customers directly with their advertisements and promotions. Through such direct communication, companies can create profiles of their customers and their behavior.

  3. Competitor websites include public information available to anyone. They, however, also have information valuable to businesses trying to compete in the same market. This way, companies can find helpful information about what their competitors are doing (market conditions).

  4. Online profiles and loyalty cards allow businesses to track and record what their customers are buying, how often they are buying, and how (online or offline) they are buying certain products or services. These profiles allow the business to gather valuable information on customer behavior which may help them understand how to create effective promotions and campaigns to target specific market segments.

Understanding Customer Behavior

Businesses try to understand customer behavior for a variety of reasons. They aim to create products and services that satisfy customer wants and needs. Therefore, customers are central to all marketing activities, and thus it is essential to understand their attitudes, behavior, and changes in behavioral factors.

Consumer Behavior Overview

Looking at consumer behavior is essential for businesses as it helps them understand why customers purchase certain products and services and what influences customers to do so. There are three basic types of customer behavior when it comes to purchasing

  • Routine purchases are purchases made by customers regularly and involve little thought or decision-making. Customers make routine purchases when they buy products like toilet paper, toothpaste, soap, or essential food items like bread or milk.

  • Impulse purchases happen without any prior planning. They are decisions made by the consumer on the spot. They include purchases like buying a small packet of sweets or chewing gum while queuing in a shop.

  • Informed purchases happen when customers take time to consider what they want to buy and make elaborate decisions about a product. Informed purchases include buying a house or a car.

Understanding customer behavior is crucial. Customers vary. They have different attitudes and exhibit distinct behaviors when buying a product or service. This is important for businesses as it can help them differentiate their products and help them develop new products which are more successful than their competitors' products. Customer behavior is likely to change over time, so it is vital to understand current and predict future market trends. Some of the reasons why it is important to understand customer behavior are so that businesses can:

  • Develop effective marketing strategies.

  • Retain existing customers and target the right groups of new customers.

  • Understand competition in the market.

  • Predict market and customer trends.

  • Develop new products.

As a result, companies should pay close attention to their target market and customer segments. One of the ways to do this is by conducting market research and analyzing consumer behavior.

Check out our explanation of consumer behavior to learn more about how marketers try to understand customers.

Understanding Markets & Customers - Key takeaways

  • We can understand customers and markets extensively through market research.
  • Market research helps us develop better marketing strategies and is directly related to the marketing mix.
  • There are several reasons businesses undertake market research: to describe, explain, predict, and explore.
  • Technology has significantly enhanced businesses' access to customer and market information.
  • Looking at customer behavior is essential for businesses as it helps them understand why customers purchase certain products and services and what influences customers to do so.
  • There are three basic types of customer behavior: impulsive, routine, and informed.
  • Customers have different attitudes and portray different behaviors when buying a product or service.
  • Understanding customer behavior can help businesses develop an effective marketing strategy and understand competition.

Frequently Asked Questions about Understanding Markets and Customers

To understand markets and customers marketers must collect a lot of data to find insightful information on the market and their customers. Market understanding means collecting data and turning it into insights for businesses to gain a competitive advantage. 

Understanding the market is important for all businesses. Companies must conduct market research and collect data on the market environment (including customers and competitors) to expand their understanding of the market. 

To understand the markets and customers, marketers must conduct market research. Market research helps businesses understand why customers purchase specific products or brands. It is directly related to the marketing mix, as it allows companies to make decisions about product, price, promotion, and place.

Understanding the marketplace and customers helps businesses make better decisions, reduce risks, identify their target market, understand customer wants and needs, and sustain a competitive advantage. As a result, if a business understands its marketplace and customers, it becomes more competitive.

It is important to know your potential market as it can help you develop better marketing strategies. Market research and customer understanding also help marketers gain insight into the types of products to develop. Marketers might even discover new market trends that have not been addressed by other companies yet. Being the first to address a new customer need can result in a competitive advantage and high returns for the company.

Final Understanding Markets and Customers Quiz

Question

What is PED?

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Answer

Price elasticity of demand (PED) measures how responsive demand is to a change in price. In other words, it measures the extent to which demand for a product or service changes if the price of that product or service changes.

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Question

How do you calculate PED?


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Answer

PED can be calculated by dividing the percentage change in quantity demanded by the percentage change in price.

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Question

What does it mean if the absolute value of PED is greater than one? 


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Answer

If the absolute value of PED is greater than one it means that demand is elastic.

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Question

What does it mean if the absolute value of PED is smaller than one? 


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Answer

If the absolute value of PED is smaller than one it means that demand is inelastic.

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Question

What does it mean if the absolute value of PED is equal to one?


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Answer

If the absolute value of PED is equal to one, it means that demand is unitary.

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Question

At the beginning of the year Product A was selling at £5 and demand for Product A was 15,000 units. The next year Product A was selling at £6 and demand for Product A was 12,000 units. Calculate the price elasticity of demand.


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Answer

Change in quantity demanded = (12,000-15,000) / (15,000) = -0.2 = - 20%


Change in price = (6-5) / (5) = 0.2 = 20% 


PED = -20% / 20% = 1 


A PED of 1 implies that demand is unitary. 

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Question

What is YED? 


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Answer

Income elasticity of demand measures how responsive demand is to a change in income.

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Question

How do you calculate YED? 


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Answer

YED can be calculated by dividing the percentage change in quantity demanded by the percentage change in real income.

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Question

What does a YED larger than 1 imply? 


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Answer

If YED is more than one, it implies income elastic demand. This means that a change in income will result in a proportionally larger change in quantity demand.

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Question

What does a YED that is smaller than 0 imply? 


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Answer

If YED is smaller than zero, it implies a negative elasticity of demand. In other words, when consumers' average income increases, they demand less of the product.

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Question

What does it mean when YED is between 0 and 1?


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Answer

YED is between 0 and 1 for normal goods. It implies that an increase in income will lead to an increase in the quantity demanded.


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Question

What is an inferior good? 


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Answer

An inferior good is a product that consumers demand less of when their income increases.

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Question

Name an example of a normal good.

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Answer

Clothing.

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Question

In 2004 consumers were earning on average £19,000 and demanding 1 million units of Product A. In 2005 consumers were earning on average £22,000 and demanded 500,000 units of Product A. Calculate the income elasticity of demand. What could this YED signify?


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Answer

Change in quantity demanded = (500,000 - 1,000,000) / (1,000,000) = -0.5 = -50%


Change in income = (22,000 - 19,000) / (19,000) = 0.16 = 16% 


YED = -50% / 16% = -3,125


A YED of -3,125 implies negative elasticity of demand. This could signify that the good is inferior. 

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Question

Name the five basic primary research methods.

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Answer

  • Surveys 

  • Focus groups 

  • Interviews 

  • Observation

  • Field experiments 

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Question

What is one of the advantages of using surveys? 


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Answer

Surveys are a useful tool for conducting quantitative research.

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Question

What is one of the disadvantages of focus groups? 


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Answer

Focus groups can lead to issues with bias if certain participants do not feel comfortable with expressing their true opinions.

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Question

What is a moderator? 


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Answer

Focus groups and interviews involve a moderator who asks the group/individual questions and guides the discussion.

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Question

Name two examples of field experiments. 


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Answer

Test marketing, and A/B testing.

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Question

Name two different types of interview styles. What is the difference between them? 


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Answer

Interviews can be structured with a list of specific questions the moderator asks the interviewee. Interviews can also be semi-structured where the interviewer asks a set of predetermined questions and then proposes a topic and lets the interviewee decide what they want to talk about, regarding the topic.

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Question

Which of the following statements is correct? 


  1. Observational research is useful as it lets researchers know the actual behavior of customers. 

  2. Surveys are useful for quantitative research. 

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Answer

Both statements are correct. 

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Question

What is the first step of the marketing research process?

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Answer

Defining the research problem and objectives.

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Question

What are the steps you would take during the second phase of the marketing research process? 


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Answer

During this step (step 2: developing the research plan) the researcher would decide whether they are going to be collecting primary or secondary data and the type of research method they are going to use (surveys, focus groups, etc.). This step also involves coming up with a sampling plan.  

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Name three different types of sampling methods. 


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Answer

  • Random 

  • Stratified 

  • Convenience 

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Question

What would you do during steps 3 and 4 of the marketing research process?


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Answer

During step three you collect the data. In step four, you analyse the data.

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Question

What is the fifth step of the marketing research process? 


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Answer

Presenting your findings. During this step, you would format your analysis and data into detailed insights. You would translate your data into useful recommendations for managers.

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Question

What is the last step of the marketing research process? 


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Answer

During the last step (step 6) you are going to be making your decision. This is where your organisation decides how to tackle the problem you were researching with the findings you presented. The step could also involve a decision on whether you launch your new product or not.

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Question

What is a positioning map?  

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Answer

A positioning map is a visual representation of market positioning. It represents a range of positions a product has or could have in the market. The positioning map is represented on a scatter plot diagram and it maps the positioning of competitors in relation to the brand.

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Question

What is an example of the dimensions that could be used to map a market? 


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Answer

Example: Price and Quality. High price/low price,  and high quality/low quality would make up the four quadrants.

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Question

What does a positioning map tell you about competition? 


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Answer

The positioning map tells you how your brand compares to competitors' brands. It shows how your business's brand is positioned in relation to similar brands offered by competitors.

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Question

Name two benefits of a positioning map. 


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Answer

The positioning map can be used: 

  • To analyze competition and competitors' positioning. 

  • As a tool that helps market researchers.

  • To understand the product positioning aspect of the market mix.

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Question

Name two limitations of a positioning map. 


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Answer

  • Just because you have identified a gap in the market does not mean that the product will be successful.

  • The scale or dimensions that you have used might not be the most effective ones for the market or industry you are trying to examine. 

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Question

How would you create a positioning map? 


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Answer

To create a positioning map you need to first decide which product or brand your business would like to compare to its competitors. You then need to decide which dimensions you are going to use for your diagram. A positioning map always has to feature two different dimensions. You then have to plot your brand and competitors' brands on the scatter plot diagram; this will become your positioning map.

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Question

What is a perceptual map? 


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Answer

A perceptual map is a visual representation of how customers view a business' product or brand. It allows managers to understand which brands are their closest competitors and which attributes of their product or brand play the biggest role in differentiating them from competitors.

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Question

What is the difference between a perceptual map and a positioning map?


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Answer

A perceptual map shows how consumers view your product, whereas a positioning map is not based on consumer perceptions.

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Question

Name two advantages of perceptual mapping?


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Answer

  • Help us understand market segments. 

  • Useful for market researchers. 

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Question

Name one of the disadvantages of perceptual mapping.  


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Answer

It is often time-consuming and expensive to collect this type of data.

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Question

Which of the following is not a characteristic of perceptual mapping?

  1. It provides a visual representation of information. 

  2. It is used by market researchers. 

  3. It helps us understand market segments. 

  4. It is based solely on industry data. 

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Answer

D.

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Question

What is qualitative research?

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Answer

Qualitative research focuses on gathering and analyzing data that is non-numerical. This type of research tries to describe certain situations and understand characteristics, opinions, concepts, and experiences.

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Question

What is quantitative research?


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Answer

Quantitative research is the opposite of qualitative research. This type of research focuses on collecting numeric data which can, later on, be analyzed by the researcher through different statistical measures.

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Question

Which of the following statements is correct about market research? 


  1. The qualitative researcher usually poses open-ended questions. 

  2. Quantitative research involves smaller sample sizes. 

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Answer

Only statement I. is correct. 

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Question

What are the two types of market research?


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Answer

The two different types of market research are primary and secondary research.

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Question

What is primary market research?


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Answer

Primary market research is a type of research that an organization plans itself and involves collecting new data that has not been gathered before.

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Question

What is secondary market research?


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Answer

Secondary market research is a type of research that involves gathering data that already exists. This can include internet research, examining market reports or government data. This type of information has been collected before for a purpose other than your research.

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Question

What are two advantages of primary market research?


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Answer

  • It is specific to the business. 

  • It can provide unique insight into the wants and needs, characteristics, attitudes, and behaviors of a business's customers. 

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Question

What are two advantages of secondary market research? 


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Answer

  • It is less costly than conducting primary research. 

  • It is simpler to gather. 

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Question

Secondary market research can _____________. 


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Answer

Provide access to industry-specific information

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Question

One of the disadvantages of secondary research is: 

  1. It can be quite costly. 

  2. It can be very time consuming. 

  3. It is available to your competitors. 

  4. It requires specific skills to be carried out. 

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Answer

C.

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Question

Which of the following is a disadvantage of primary research? 

  1. It can provide data that is less specific to your business. 

  2. You often need a specialized team to conduct the research. 

  3. The information is available to your competitors. 

  4. The data could have been gathered a long time ago.

Show answer

Answer

B.

Show question

Question

Which of the following statements is correct about market research? 


  1. Primary research can take a long time to complete. 

  2. Secondary research can provide access to industry-specific knowledge. 

Show answer

Answer

Both statements are correct. 

Show question

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