3.2 Understanding Markets + Customers

Question 1

What are the 6 roles of market research

Answer 1

• competitor analysis
  -identifying trends in the market
  -pricing strategies
• meeting consumer needs
  -ideas for new product development
  -customer feedback

Question 2

Pros of primary market research

Answer 2

Specific to business
Reliable
Exclusive

Question 3

Cons of primary market research

Answer 3

Time consuming
Expensive

Question 4

Examples of primary research

Answer 4

Surveys , questionnaires , observations , focus groups , test marketing

Question 5

Pros of secondary market research

Answer 5

Free or cheap
Quick and easy

Question 6

Cons of secondary market research

Answer 6

Nor specific to business
Outfits be invalid or out of date
Not exclusive

Question 7

Examples of secondary market research

Answer 7

Reports by industry publications , newspapers , internet , government , market research reports

Question 8

What is sampling

Answer 8

Choosing a small group of people who are representative of the target population (the customers you are targeting)

Question 9

What are the 3 methods of sampling

Answer 9

Random, stratified, quota

Question 10

What is a confidence level

Answer 10

The probability that certain data is correct

Question 11

What is a confidence interval

Answer 11

The range of outcomes for a given probability

Question 12

What are confidence intervals typically used for

Answer 12

Market research, quality management, risk management, budgeting and forecasting

Question 13

Factors that affect sales

Answer 13

Seasons, income levels , unemployment levels, changing social trends, actions of competitors, change in legislation , change of government

Question 14

What is extrapolation

Answer 14

Using trends emerging from historical data to forecast the future

Question 15

Pros of extrapolation

Answer 15

Useful method to predict future so can anticipate business activity
More effective when there are more years of data and the correlation is strong

Question 16

Cons of extrapolation

Answer 16

Cannot be fully accurate down to PESTLE

Question 17

What is the value in Tech gathering data

Answer 17

Provides faster communication
Relies on the business having the right data in the first place
Enables targeted sales messages
Make forecasting easier

Question 18

What is elasticity of demand

Answer 18

The responsiveness of demand to a change in price or income

Question 19

What does price elasticity of demand (PED) measure?

Answer 19

How significantly demand changes when price changes.

Question 20

What does income elasticity of demand measure?

Answer 20

How significantly demand changes when income changes.

Question 21

What types of goods are highly affected by price changes?

Answer 21

• Low income retail
• Branded goods
• Luxury items

Question 22

What types of goods are not significantly affected by price changes?

Answer 22

• Gas/Fuel
• Electricity
• Alcohol
• Tobacco

Question 23

Why is knowing price sensitivity important?

Answer 23

It enables anticipation of how customers will react to a change in price.

Question 24

How is price elasticity of demand calculated?

Answer 24

(PED) = % change in quantity demanded / % change in price

Question 25

What does it mean if a products PED is greater than 1

Answer 25

The product is price elastic Change in price significantly affects demand

Question 26

What does it mean if a products has a PED of less than 1

Answer 26

The product is price inelastic A change in price does not significantly affect demand

Question 27

What are the factors affecting Price Elasticity of Demand (PED)?

Answer 27

* Strength of brand * Brand loyalty * Whether product is a necessity * Availability of reasonable substitutes * Competition from similar products ## Footnote These factors help determine how sensitive the demand for a product is to changes in price.

Question 28

What does Income Elasticity of Demand (YED) measure?

Answer 28

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.

Question 29

What is the YED value range for normal goods?

Answer 29

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.

Question 30

What characterizes luxury goods in terms of YED?

Answer 30

YED is greater than +1. Luxury goods experience a more than proportionate increase in demand as income rises.

Question 31

What are inferior goods characterized by in terms of YED?

Answer 31

Negative YED (less than 0). An increase in income leads to a decrease in demand for inferior goods as consumers opt for better alternatives.

Question 32

What is the value of Price Elasticity of Demand (PED) for inelastic demand?

Answer 32

Less than 1. Inelastic demand indicates that quantity demanded does not change significantly with price changes.

Question 33

What happens to demand for normal goods as income rises?

Answer 33

Demand rises as income rises. This relationship helps identify the nature of products in terms of consumer behavior and income changes.