3.2 Understanding Markets + Customers Flashcards
What are the 6 roles of market research
- competitor analysis
-identifying trends in the market
-pricing strategies - meeting consumer needs
-ideas for new product development
-customer feedback
Pros of primary market research
Specific to business
Reliable
Exclusive
Cons of primary market research
Time consuming
Expensive
Examples of primary research
Surveys , questionnaires , observations , focus groups , test marketing
Pros of secondary market research
Free or cheap
Quick and easy
Cons of secondary market research
Nor specific to business
Outfits be invalid or out of date
Not exclusive
Examples of secondary market research
Reports by industry publications , newspapers , internet , government , market research reports
What is sampling
Choosing a small group of people who are representative of the target population (the customers you are targeting)
What are the 3 methods of sampling
Random, stratified, quota
What is a confidence level
The probability that certain data is correct
What is a confidence interval
The range of outcomes for a given probability
What are confidence intervals typically used for
Market research, quality management, risk management, budgeting and forecasting
Factors that affect sales
Seasons, income levels , unemployment levels, changing social trends, actions of competitors, change in legislation , change of government
What is extrapolation
Using trends emerging from historical data to forecast the future
Pros of extrapolation
Useful method to predict future so can anticipate business activity
More effective when there are more years of data and the correlation is strong
Cons of extrapolation
Cannot be fully accurate down to PESTLE
What is the value in Tech gathering data
Provides faster communication
Relies on the business having the right data in the first place
Enables targeted sales messages
Make forecasting easier
What is elasticity of demand
The responsiveness of demand to a change in price or income
What does price elasticity of demand (PED) measure?
How significantly demand changes when price changes.
What does income elasticity of demand measure?
How significantly demand changes when income changes.
What types of goods are highly affected by price changes?
- Low income retail
- Branded goods
- Luxury items
What types of goods are not significantly affected by price changes?
- Gas/Fuel
- Electricity
- Alcohol
- Tobacco
Why is knowing price sensitivity important?
It enables anticipation of how customers will react to a change in price.
How is price elasticity of demand calculated?
(PED) = % change in quantity demanded / % change in price
What does it mean if a products PED is greater than 1
The product is price elastic
Change in price significantly affects demand
What does it mean if a products has a PED of less than 1
The product is price inelastic
A change in price does not significantly affect demand
What are the factors affecting Price Elasticity of Demand (PED)?
- Strength of brand
- Brand loyalty
- Whether product is a necessity
- Availability of reasonable substitutes
- Competition from similar products
These factors help determine how sensitive the demand for a product is to changes in price.
What does Income Elasticity of Demand (YED) measure?
The responsiveness of demand to a change in income.
YED is calculated as the percentage change in demand divided by the percentage change in income.
What is the YED value range for normal goods?
Between 0 and +1.
Normal goods see an increase in demand as income rises, but the increase is proportionately less than the increase in income.
What characterizes luxury goods in terms of YED?
YED is greater than +1.
Luxury goods experience a more than proportionate increase in demand as income rises.
What are inferior goods characterized by in terms of YED?
Negative YED (less than 0).
An increase in income leads to a decrease in demand for inferior goods as consumers opt for better alternatives.
What is the value of Price Elasticity of Demand (PED) for inelastic demand?
Less than 1.
Inelastic demand indicates that quantity demanded does not change significantly with price changes.
What happens to demand for normal goods as income rises?
Demand rises as income rises.
This relationship helps identify the nature of products in terms of consumer behavior and income changes.
