Market Research

Definition

Market research is the process of gathering, analyzing, and interpreting information about a market, including information about the target audience, competition, and industry trends. This process helps businesses understand consumer needs and preferences, which is essential for setting pricing strategies and developing products. Effective market research provides insights that inform decisions on how to position products in the market and determine the viability of cost-plus pricing and target costing strategies.

5 Must Know Facts For Your Next Test

1. Market research can involve qualitative methods like focus groups and interviews or quantitative methods such as surveys and statistical analysis.
2. Understanding market demand through research helps companies determine a product's target cost to ensure profitability when using target costing.
3. When implementing cost-plus pricing, market research assists in understanding how much consumers are willing to pay, which influences the markup percentage.
4. Effective market research identifies trends that may affect production costs, ensuring that pricing strategies remain competitive.
5. Conducting thorough market research can reduce the risks associated with new product launches by validating demand before development.

Review Questions

• How does market research influence pricing strategies like cost-plus pricing?
  • Market research directly impacts cost-plus pricing by providing insights into what customers are willing to pay for a product. By understanding consumer preferences and price sensitivity through research, businesses can set a markup that not only covers costs but also aligns with market expectations. This ensures that prices remain competitive while still achieving desired profit margins.
• Discuss the role of market research in target costing and how it affects product development.
  • Market research plays a crucial role in target costing by helping businesses establish the acceptable selling price based on consumer expectations. By understanding the target audience's needs, companies can identify the maximum price point that consumers will pay, which then informs the allowable cost for product development. This approach ensures that products meet customer expectations while remaining profitable.
• Evaluate the long-term benefits of conducting regular market research in relation to pricing strategies over time.
  • Regular market research provides ongoing insights into changing consumer preferences, competitive dynamics, and emerging trends. By consistently analyzing this data, businesses can adjust their pricing strategies effectively to respond to shifts in the market landscape. This proactive approach not only enhances customer satisfaction by aligning products with their needs but also helps companies maintain profitability and market share in an evolving economic environment.

Related terms

Consumer Behavior: The study of how individuals make decisions to spend their available resources on consumption-related items.

Competitive Analysis: An assessment of competitors' strengths and weaknesses in the market, used to identify opportunities and threats.

Pricing Strategy:

A method businesses use to price their products or services based on costs, market demand, and competition.