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The importance of market research

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Why read this? : We look at the importance of market research. Learn why understanding customer needs and wants matters so much in marketing. Plus, we share examples of how market research shapes the marketing mix. Read this to learn the importance of market research in delivering successful marketing.

Marketing’s role is to create profitable products and services which satisfy customer needs and wants. Market research‘s role is to discover insights about those needs and wants. You use these to create distinctive, relevant and engaging brand activation which drives sales and outperforms your competitors.

To understand the importance of market research, you first have to think about how a sale works. From both your own and the customer’s point of view.

The brand choice funnel

Most categories offer a wide choice of products or services. Customers look at the available range. They filter 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.

It’s driven by questions about how customers choose brands e.g. :-

  • Do they know the brand? (trust/awareness)?
  • Do they believe the brand could meet their needs? (consideration).
  • Which one best meets their needs? (trial)
The brand choice funnel - trust - aware - consider - trial - loyalty - repeat purchase

How much thought goes into purchase decisions varies by category. For example, there’s a big difference between buying a new house and ordering a coffee. But, whether it’s a high- or low-involvement decision, a conscious or unconscious one, we all regularly make buying decisions. (See our Rossiter Percy grid article for more on involvement levels in decision-making).  

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 and insights to create this distinctive, relevant and engaging marketing activity These help you create stronger marketing innovations, refine your pricing and distribution strategy, and deliver higher-impact marketing communications.

The importance of market research in innovation

Marketing innovation is when you create new products and services. 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.

Market research underpins these insights into the current market. It tells you a story about what’s going on. You use that story to decide on what actions to take.

Successful innovation based on good market research - Starbucks

Take Starbucks, for example. Launched in 1971, it now has 32,660 stores globally and a turnover of $26bn+. You see its logo everywhere.

But dig into why it’s been successful, and you see the importance of market research in its success.

Coffee used to be a standardised commodity product. You found it on the supermarket shelf or the breakfast cafe menu. Your choices were limited to adding milk or sugar. 

Green Starbucks logo on a concrete wall background

Starbucks changed all that. They created a range of offers and new ways of thinking about the coffee experience. The coffee world looks very different now. All those different roasts of coffee beans and different serving options like espressos, lattes and frappuccinos.

Starbucks’ market research and insights helped it find these unmet needs and wants in customers. It recognised 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 basis 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 in creating distinctive, relevant and engaging marketing activities.

Unsuccessful innovation based on poor research - New Coke

However, some innovations don’t meet all these key 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 got a very negative customer response. 

Side of an old apartment building with a classic Coca Cola advert on it

The company was forced to pull back and relaunch the old Coke (as Classic Coke) just 3 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 drove the negative response.

They didn’t research how customers would perceive the change. The company received over 40,000 complaint calls and letters. 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 use it 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 guide, we review the pricing 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%.

Screengrabs showing the range in prices between lowest and highest in four categories - kitchen rolls (+332%), cereal (+519%), toothpaste (+1.032%) ad bottled water (+1,122%)

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 as your competitors.

These price points don’t appear out of nowhere. Market research identifies what customers are willing to pay. Then you create more profitable products and services to fit that price.

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 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 customer loyalty. That’s where customers will pay any price for some brands, but only buy others when they’re on sale.

Shop window with two clothed mannequins and three price discount stickers on the window of 50%, 30% and 20%

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. 

Supermarket central aisle with lots of displays and signage on view

Supermarkets and other retailers do market research to validate these shelf layouts 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 where to best sell your brand and how to best sell in those places.

In online retailers, or if you set up your own online store, market research into what online shoppers want can make or break whether you get any sales online.

Market research and marketing communications

Finally, the most visible application of market research comes in your marketing communications, especially advertising and media planning.

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.

Communication market research usually uses both qualitative and quantitative market research to understand how customers understand key messages. It helps you refine and validate those messages. 

This research is usually confidential. So, we can’t share any examples we’ve worked on directly. But, we can look at some advertising and try and work out what market research we think sits behind it.

We’ll look at both a good and bad example to 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 well as a 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 was that young men often didn’t realise what others thought 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. Less attractive. 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 others really think of reckless driving had a huge impact. It was more than just the standard advertising measures that mattered though. The number of youth fatalities from reckless driving which had been growing (from 45 in 2005 to 64 in 2007) fell back as the campaign ran, dropping to 37 in 2009.

Market research and insights that saved 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 understand what customers really need.

This is basically what the advert says if you want to avoid burning your eyes by watching it. 

Look at our product.

Here are 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.

Doing it quietly and cost-effectively? Yes, maybe. But it won’t be the biggest decision driver, will it?

Insight - a blast of cool, instantly temperature-reducing air

What about that moment when you get inside from the heat? 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 almost all the adverts we see for that category still follow this poor insight approach. But watch other adverts and you soon see there are plenty of other categories like this.

For example, check out our banking adverts review article. Most of them struggle to have clear insights, despite 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 makes your marketing activity more effective.

It supports key parts of the marketing mix. That includes your marketing innovation, your pricing and distribution strategy, and all your marketing communications.

Market research which drives clear insights is the starting point that takes you from mediocre marketing to marvellous marketing.

Person holding glasses in front of them against a blurry street background

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. Plus, not all market research is expensive. There are also informal ways to do research which are quick and often free.  

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.

Check out our market research guides to learn more about the importance of market research. Or email us, if we can help you raise your game with market research. 

Photo credit

Glasses : Photo by Josh Calabrese on Unsplash

Starbucks : Photo by Khadeeja Yasser on Unsplash

Sales Promotion : Photo by Artem Beliaikin on Unsplash

Supermarket : Photo by Hanson Lu on Unsplash

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