Snapshot : You use market research to gather insights about customer needs and wants. These insights are the first step towards marketing success, as you use them to create relevant and motivating marketing activity that drives sales. In this article, we bring to life the importance of market research by showing the differences in marketing activities done with and without clear customer insights.
The purpose of marketing is to create products and services that better meet the needs and wants of customers than competitors do. Market research helps you identify those needs and wants, and helps you gain insights to better understand who your customers are.
Better customer understanding and insights leads to more distinctive, relevant and engaging marketing activity.
And that leads to more sales.
But to really understand the importance of market research, it’s worth considering how a sale actually happens from a business and customer point of view.
The brand choice funnel
Most categories offer a wide range of products or services.
Customer’s filter down the long list of available products to eventually make a decision on which one to buy in a process called the brand choice funnel.
There filters are usually based on whether they know or are familiar with the brand (awareness), whether they believe the brand could meet their needs and wants (consideration) and finally, which one they believe best meets their needs and wants. (trial)
The amount of thought, and even how conscious the customer is of the process varies from category to category.
There’s a big difference between buying a new house or car for example, than there is ordering a coffee or a snack. But over and over again, with a lot or a little thought, with conscious and sub-conscious thought processes, customers make decisions about what they’ll buy.
This is why you generate more sales from marketing activity that’s :-
- distinctive – so customers become aware of the brand
- relevant – so customers are more likely to consider the brand, and
- engaging – so customers are more likely to try the brand.
Market research is the first step in the process to create marketing activity that’s distinctive, relevant and engaging. Customer understanding and insights is what initiates these marketing outcomes.
The importance of market research in innovations
Marketing innovation means creating products and services to meet the needs and wants of customers in new and better ways. Customers pick the products and services that best meet their needs and wants. Improving and extending what you offer them makes them more likely to choose your brand.
Successful marketing innovation starts by understanding what customers think, feel and do with current products and services. Successful marketing innovations identify unmet or poorly met needs and wants. and generates ideas to better meet those needs and wants.
Market research underpins this understanding and insight into the current market.
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 driving 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 mainly limited to whether you wanted to add milk or sugar.
Starbucks changed all that with their range of offers and new way of thinking about the coffee shop experience. The coffee world looks very different now with its 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 sourcing stories about the products they buy.
They changed the conversation about how coffee is grown and made.
Starbucks recognised that treating yourself to a more luxurious version of a standard product gave you a little moment of pleasure in your day. It recognised 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 and 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, which when taste tested in blind taste testing was rated higher than Old Coke and Pepsi.
However, when it launched it met with a huge negative response from customers.
The company was forced to pull back and relaunch the previous formulation 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 would react to any change.
The blind taste test ignored that customers had a long set of emotional associations with the Coke brand. Any change to the formula would damage these, and that’s what led to the negative response.
They didn’t carry out market research into how customers would perceive the change in real terms. The company received over 40,000 complaint calls and letters about the change. There was a huge amount of negative publicity.
Good market research is more than just a general understanding of customers. It’s got to go deeper and understand 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 within your pricing strategy.
For example, in our guide to the brand development process, we review the price range on four categories – kitchen towels, bottled water, breakfast cereal and toothpaste.
These are all relatively standardised products in terms of how they are produced. But from a customer point of view, there’s clearly major differences in perception, based on the wide range of prices they’re willing to pay for different brands in those categories.
The difference between the lowest priced product and the highest priced product can be anywhere from 3 times to more than 10 times as much.
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 for, and then the brand development process creates products and services that match that price, in a way that’s profitable for the business.
Pricing is a key part of your brand identity and marketing plan. Market research supports key pricing decisions though both of those processes to identify the optimum price – volume mix to drive the most profitable sales for your business. Getting this balance right is much easier with solid customer understanding and is another example of the importance of market research.
Market research and sales promotions
Taking the price-volume mix a step further, market research also helps you optimise any sales promotions and price discounting you do. It helps you understand what impact they’ll have on customers, and how and when to best activate them.
Clearly, customers value a bargain, but being perceived as a bargain brand is not great for your profitability.
Market research helps you understand the complex dynamics around price elasticity, where some brands are a must buy at any price, while others are an only buy at a discounted price.
Obviously, you want your brand to be the former rather than the latter.
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 best get your product in front of them. For example, food manufacturers depend heavily on getting their products onto supermarket shelves. 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 most distinctive in those areas.
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 products and services. 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 create marketing activities which will persuade and influence customers. These insights are needs, wants, attitudes and behaviours that will unlock growth.
The better you understand customers, the more chance you can inspire and engage them to choose your brand.
Obviously, this research is usually confidential to the company which carries 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 the advertising. In the first case, there’s a clear insight which leads to a strong advert, while in the second case, we can’t really see the insight, and it seems a weak advert.
These examples help show the importance of market research in creating good marketing communications.
Good use of market research and insights
A former colleague introduced us to the Australian Road and Transport Authority’s Pinkie campaign from the mid 2000s.
They quoted this as a great example of deep insight into customer motivations. Even though it’s now a little old, it’s still a great advertising case study showing good use of insights.
This advert shows how understanding the customer motivation can drive a complete 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 lacked awareness of what other’s really think of them. They thought that ‘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 very real way to bring this to life.
Showing what other’s really think of reckless and dangerous driving in the advert 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 on the increase (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 spend time carrying out market research into customers, then you put yourself at a marketing competitive disadvantage.
Smaller companies worry about the cost of market research. But weigh that against the cost of getting a decision wrong.
If 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 clearly deliver a high return on your marker research investment.