Why read this? : We look at the importance of market research. Learn why understanding customer needs and wants means so much in marketing. And learn from our examples where market research fits into different areas of the marketing mix. Read this to learn the importance of market research in delivering better marketing results.
The goal of your marketing has to be to create products and services which meet customer needs and wants. Those products and services also need to meet those needs and wants better than competitors do.
And that leads to more sales.
To understand the importance of market research, you need to think about how a sale works. Think about it from both your own, and the customer’s point of view.
The brand choice funnel
In most categories you’ve a wide range of products or services to choose from.
Customers look at what’s available. They filter down the list of options. Then, they decide what to buy. If they like it, they buy again. Marketing calls this process the brand choice funnel.
The way customers make buying choices depends on brands answering their questions :-
- Do they know the brand? (awareness)?
- Do they believe the brand could meet their needs? (consideration).
- Which one best meets their needs? (trial)
How much thought the customer puts into the decision varies from category to category.
There’s a big difference between buying a new house or car for example, than ordering a coffee or snack. But, whether it’s a big or small decision, a conscious or unconscious one, we all regularly have to make buying decisions.
This is why you get more sales from marketing activity that’s :-
- distinctive – makes customers aware of the brand.
- relevant – makes customers more likely to consider the brand.
- engaging – makes customers more likely to try the brand.
You use market research to help you create marketing activity that’s distinctive, relevant and engaging. Customer insights drive these marketing outcomes.
The importance of market research in innovations
Marketing innovation is when you create new products and services to meet customer needs. Customers pick brands which best meet their needs and wants. Improve what you offer them and they’re more likely to buy you. It’s a simple idea, though often tough to do well.
Successful innovation starts when you understand what customers think, feel and do with current brands. Successful innovation identifies unmet or poorly met needs. and generates ideas to meet those needs in better ways.
Successful innovation based on good market research - Starbucks
Take a brand like Starbucks for example.
Launched in 1971, it now has 32,660 stores globally and a turnover of over $26bn. But dig into why it’s been successful, and you see the importance of market research in their success.
In many markets, coffee used to be a standardised commodity product.
You found it on the supermarket shelf, or on the breakfast cafe menu. Your choices were limited to adding milk or sugar.
Starbucks changed all that. They created a range of offers and new way of thinking about the coffee shop experience. The coffee world looks very different now. All those different roasts of coffee beans and espressos, lattes and frappuccinos.
Starbucks market research and customer insights helped it find these unmet needs and wants in customers. It recognised that customers valued knowing more about the products they bought. Where they came from and how they were made.
They changed the whole conversation about coffee.
Starbucks saw that treating yourself to a more luxurious version of a standard product gave you a little moment of pleasure in your day. It saw that coffee stores could be repositioned as places to hang out and do stuff, rather than just places you buy coffee.
These insights were the foundation for their business growth. They led it to become the huge brand it is today. They’re a good example of the importance of market research to create marketing that distinctive, relevant and engaging.
Unsuccessful innovation based on poor research - New Coke
But sometimes innovations don’t meet all these important marketing objectives. In fact, most marketing innovations fail. Some estimates put the failure rate at 95% of all new products launched.
One of the most famous examples of an unsuccessful innovation was New Coke.
Launched in 1985, this was an upgraded flavour of Coke. When tested in blind taste testing, it rated higher than Old Coke and Pepsi.
However, when it launched it met with a hugely negative response from customers.
The company was forced to pull back and relaunch the old version of Coke (as Classic Coke) just three months later.
In this case, it wasn’t that Coke didn’t do any market research (they did with the taste tests). It’s that their market research didn’t do what it needed to do. It didn’t fully understand Coke drinkers and how they’d react to the change.
The blind taste test ignored that customers had emotional associations with the Coke brand. Any change to the formula would damage these. That’s what drove the negative response.
They didn’t carry out market research into how customers would perceive the change. The company received over 40,000 complaint calls and letters about the change. There was a huge amount of negative PR and publicity.
Good market research is more than just a general understanding of customers. It’s got to go deeper. You need to work out how specific marketing activity will affect customers.
Marketing innovation takes time and money. The importance of market research is that it improves the return on that time and money. It leads to more successful marketing innovation by getting closer to customer needs and wants.
Market research and pricing strategy
Market research also plays an important role in your pricing strategy.
For example, in our brand development process guide, we review the price range in 4 categories – kitchen towels, bottled water, breakfast cereal and toothpaste.
These are all relatively standardised products in terms of how they’re made.
So, you might expect prices to be similar. But the difference between the cheapest and most expensive options can be over 1,000%.
So customers clearly perceive products very differently. Otherwise they wouldn’t be willing to pay for any of the more premium priced products.
Just pause a moment. Imagine you could charge 10 times as much for your product as some competitors.
These price points don’t appear out of nowhere. Market research identifies what customers are willing to pay. Then you create products and services to fit that price, in a profitable way.
Pricing is a key part of your brand identity and marketing plan. Market research supports key pricing decisions through both of those processes. It helps you work out the optimum price – volume mix to drive the most profitable sales. Getting this balance right is much easier with customer insights. It’s another example that shows the importance of market research.
Market research and sales promotions
Taking the price-volume mix a step further, market research also helps you optimise sales promotions and price discounting. It helps you understand the impact they’ll have, and how and when to best activate them.
Customers clearly like a bargain. But being a bargain brand isn’t great for your profit and loss.
Market research helps you understand the complex dynamics around price elasticity. That’s where customers will pay any price for some brands, but only buy others when they’re on sale.
Market research and distribution strategy
Market research also supports key decisions in your distribution strategy.
You need to understand where customers currently buy, and how to get your product in front of them.
For example, food manufacturers depend heavily on supermarkets. That’s where the majority of food purchases happen.
There’s lots of evidence that products placed at eye level, or in prime locations (such as end of aisle) sell more. They’re more likely to get noticed.
Supermarkets and other retailers do market research to validate these shelf layout and store locations. Manufacturers carry out market research to justify the best placements for their brands.
In terms of distribution strategy, the importance of market research is it helps you plan out where best to sell your brand. It helps you plan out how best to sell in those places.
Market research and marketing communications
Market research helps you identify and generate the insights you use to grow your brand. These insights tell you about customer needs, wants, attitudes and behaviours. You use these to create marketing activities which persuade customers to choose your brand.
The better you understand customers, the more likely you’ll inspire and engage them to choose you.
Obviously, this research is usually confidential to the company carrying it out. We can’t share any examples we’ve worked on directly. But, we can look at some adverting and try and work back what market research we think sits behind it.
We’ll look at both a good and bad example. These 2 examples help show the importance of market research in creating good marketing communications.
Good use of market research and insights
An ex-colleague introduced us to the Australian Road and Transport Authority’s Pinkie campaign from the mid 2000s.
It’s a great example of insight into customer motivations. It works really well as mini case study to show good use of insights.
This advert shows how understanding customer motivation can drive a change in behaviour.
In this case, the objective was to reduce the amount of speeding in men aged 17 to 24. The insight is that young men often didn’t realise what other’s really think of them when they were driving recklessly. They thought ‘fast driving’ somehow made them cooler. More manly. And more attractive to the opposite sex.
But of course, the truth is the exact opposite.
Fast driving makes them look less cool. More idiotic. And less attractive to the opposite sex. The tiny dick symbol from all the on-looking women in this ad is a funny, but authentic way to bring this to life.
Showing what other’s really think of reckless and dangerous driving had a huge impact. It was more than just the standard advertising measures that matter though. The number of youth fatalities from reckless driving which had been growing (45 in 2005 to 64 in 2007) fell back as the campaign ran, dropping to 37 in 2009.
Market research and insights that saves lives. What could be more important than that?
Poor use of market research and insights
But what about advertising where there’s little or no insight? What does that look and sound like in comparison?
We’ve never run a campaign that didn’t have market research behind it. We had to research to find what we thought was a poor advert that lacked a key insight. With apologies, this Mitsubishi Electrical air-conditioning advert from 2014 was the one we settled on.
It’s not a bad looking advert. It just doesn’t seem to really understand what customers might actually need or want.
This is basically what the advert says, if you want to avoid burning your eyes by watching it.
Look at our product.
Here’s some nice people enjoying our product.
We’d like to give you a list of features and benefits (energy efficiency, 19db noise level, a filter system) that might make you want to buy our products
We’re not experts on air-conditioning units. But, we suspect nor are most customers who buy them either. A 19dB noise level sounds like it’d be quiet. But to be honest, we wouldn’t be 100% sure. And a filter system is probably a good thing, but do we need it? Again, who knows?
This is the sort of advertising driven by features the brand wants to talk about rather than customer needs and wants. For most customers, cooling the damn room down in the middle of the hot Australian summer is what they really need and want.
Doing it in a relatively quiet and cost effective way, yes, maybe. But it’s not going to be the biggest decision driver, is it?
Insight - a blast of cool, instantly temperature reducing air
What about that moment when you get inside from the heat outside? You turn the air conditioner on and get that blast of cool, instantly temperature reducing air. Isn’t that more impactful than a 19dB noise level and a filter?
Isn’t that what would grab your attention, if you were a customer? Wouldn’t you pay more attention and want that same feeling?
We’re sure the original advert boosted awareness. It might even have driven some consideration. Some customers might have liked the feature details enough to buy this unit. But you’d have to think this wasn’t a high performing advert.
With no insight, it’s hard not to judge this as a forgettable and bland piece of marketing activity.
We picked air conditioning as an example, because almost all the adverts we see for that category still follow this poor insight approach.
But watch advertising for any length of time, and you you spot plenty of other categories like this.
Check out our review of banking adverts for example. Most of them struggle to have clear insights, despite them clearly having the money to invest in market research.
Conclusion - the importance of market research
Great market research that leads to compelling customer understanding and insights greatly improves your marketing activity.
Market research that drives clear insights is the start point that takes you from mediocre marketing to marvellous marketing.
There’s a reason we put market research skills as the first section in our marketing skill guides. The importance of market research means it’s a critical first step towards improving your marketing.
Put simply, if you don’t do market research, you’ll never understand customers. And that means you’ll always be behind competitors.
Smaller companies worry about the cost of market research. But weigh that against the cost of bad decision-making. Make sure your market research company helps you find insights that grow your business. You’re their most important customer, and they win when you do.
Market research helps you launch more successful innovations, price your product at premium levels, optimise your distribution strategy and create distinctive, relevant and engaging communications. Those results clearly give you a high return on your market research investment.