Chapter 8 / Market Research

Question 1

What is market research?

Answer 1

It is the collection of analysis of market information, to prevent errors.

Question 2

What are the reasons for market research?

Answer 2

It helps a business spot opportunities
It helps a business to decide what to do next
It helps to see if their plans are working .

Question 3

What is primary market research?

Answer 3

1) Primary research is when a business gathers new data.
2) Launch of products within small areas as a trial before country-wide.
3) Samples to predict the whole market.
4) Shows what a customer thinks of a product or advert.

Question 4

What is secondary research?

Answer 4

Internal sources of secondary data are loyalty cards, feedback from company salesmen, and analysis of the company’s sales reports.
Secondary data is faster/cheaper and easier to get hold of.
Secondary data might of been gathered for a different purpose therefore unreliable.

Question 5

What are the three main types of samples?

Answer 5

Random sample - Names are picked randomly from a list.
Stratified sample - The population is divided into groups and people are selected at random from each group.
Quota sample - people are picked who fit into a category.

Question 6

How does market research avoid bias?

Answer 6

1) Researchers should be careful to avoid any possible bias.
2) Questionnaires and interviews should avoid leading questions.
3) Avoid the interviewer effect, where the interview has an influence due to the tone and phrasing.
4) The more representative a sample is the more confident a business can be in the results

Question 7

Not spending enough on market research increases the risk

Answer 7

Market research can be expensive but not doing market research before starting a business increases the risk it will fail.

Question 8

What is time series analysis?

Answer 8

TSA is used to reveal underlying patterns by recording and plotting data over time.
Can be used to look for links between sales and marketing activities.

Question 9

Extrapolation can be used to Predict Future Sales

Answer 9

Trends from previous years can be continued into the future to forecast future sales.

Question 10

Correlation shows how closely variables are related

Answer 10

Correlation is a measure of how closely variables are related. Positive/Negative/Strong/Weak

Question 11

Sales forecasts can help other departments

Answer 11

Sales forecasts allow the finance department to produce cash flows. How much money is expected to come in and how much they need to spend.

Question 12

What is the price elasticity of demand?

Answer 12

How much the price change affects the demand.
Price Elasticity of Demand = % change in quantity demanded / % change in price.
Price elasticity is always negative.

Question 13

How to tell if the product is elastic or inelastic?

Answer 13

If the price elasticity demand is greater than 1, the product is price elastic.
If the price elasticity demand is less than 1, its price is inelastic.

Question 14

For price elastic products, the % change in demand is greater than the % change in price.

Answer 14

For price inelastic products the % change in demand is less than the % change in price.

Question 15

How does price elasticity affect revenue and profit?

Answer 15

Sales revenue = price of product * quantity sold.
If a product is elastic, a price increase decreases sales revenue. The money lost in sales will outweigh the money gained from the increase in price.

Question 16

What would happen if a product is inelastic?

Answer 16

A rise in price will make the sales revenue go up, the money lost from the % change in sales will be less than the money gained from an increase in price.

Question 17

How does price elasticity depend on the ease of switching?

Answer 17

1) Necessary products like milk are price inelastic as it is necessary.
2) Businesses differentiate their brand loyalty as loyal customers won’t switch when the price increases.
3) The ease of finding cheaper products online increases price elasticity.
4) Items costing a greater portion of a consumer’s income will be price elastic.

Question 18

What is the income elasticity of demand?

Answer 18

= %c change in quantity demanded / % change in real income.
If + 1 positive income elasticity of demand.
If less negative income elasticity of demand.

Question 19

How does price elasticity help businesses?

Answer 19

Price elasticity helps a manufacturer decide whether to raise or lower the price of a product.
They can see what might happen to the sales, and the sales revenue.