Customer needs and market research
Customers choose on four needs: price, quality, choice and convenience. To understand them a business does market research: primary research collects new data itself (surveys, interviews, observation) — tailored but costly; secondary uses existing data (internet, statistics, trade reports) — cheap but maybe out of date. Data is qualitative (opinions and reasons) or quantitative (numbers). All research has reliability limits.
Segmentation, market mapping, competition
Market segmentation splits a market into groups (segments) with similar needs — by age, gender, location, income or lifestyle. Targeting a segment lets a firm tailor product, price and promotion to it. A market map plots rivals on two axes (e.g. price vs quality) to reveal a gap with few competitors. Reading rivals' strengths and weaknesses guides decisions, but demand is never certain — research reduces risk and uncertainty without removing them.
Added value = price minus input cost
Added value is what a firm adds to its bought-in inputs: A loaf costing 40 p in ingredients but sold for £1.80 has £1.40 of added value. It is not profit — labour, rent and marketing are not yet deducted. Firms raise added value through branding (a trusted name commands a higher price), a USP (a feature no rival matches), quality/design or convenience.
Drawn from real examiner reports.
Primary ≠ secondary research
Primary research collects new data yourself — surveys, interviews, observation. Secondary research uses data that already exists — internet, government statistics, trade reports (cheaper, but may be dated). A large minority cannot tell them apart, or write about 'research' in general. Asked about internet use for secondary research, fix the type first.
June 2023 Paper 1 Q5(c): a minority could not distinguish primary from secondary, writing generically about research.
How branding adds value, not why
When a question asks how branding creates added value, give the mechanism: branding builds a recognisable name → higher perceived value → customers accept a higher price than the input cost, widening the added-value gap. Answering why a firm brands describes benefits, not the mechanism — a list of pros and cons is not analysis on a 'how' item.
June 2024 Paper 1 Q3(e): candidates explained why a business brands and defaulted to advantages/disadvantages instead of how branding leads to added value; this did not count as analysis.
Qualitative ≠ quantitative data
Qualitative data is words — opinions, feelings and reasons (e.g. 'I find the service slow'); it tells you why customers behave as they do. Quantitative data is numbers and percentages (e.g. 68% prefer online ordering); it shows trends and lets you compare. Both come from primary or secondary research, and neither is 'better' — they answer different questions.
Added value ≠ profit
Added value = selling price minus the cost of bought-in inputs; it measures value created in production. Profit = revenue minus all costs (inputs plus wages, rent, marketing). A product with high added value can still make a loss if operating costs are high — so do not answer an added-value question with 'it makes more profit'.
Segmentation ≠ market research
Segmentation divides a market into groups (segments) with similar needs — age, gender, location, income, lifestyle. Market research is the separate activity of gathering data about customers and rivals. Segmentation decides who to target; research finds out what they want. Do not swap the two, or describe research when asked to segment the market.
Research reduces risk, not removes it
Market research does not guarantee success or remove risk — it only reduces uncertainty. The sample may be too small or biased; secondary data may be out of date; a market gap may exist because demand is simply too low to be profitable; and rivals may react to a launch. Earn AO3 marks by naming a limitation of the method used, not just its benefits.
Apply to the named business
Levelled items mark AO2 separately. A generic answer with no application is capped in the lower band on 'Analyse' and cannot reach Level 2 on a 9- or 12-mark item, however strong the analysis. Use the firm's product, market and figures, not a line echoing the stem.
Prepare for the harder command word
A topic met as 'explain' can reappear as 'analyse' (or justify/evaluate), demanding developed, linked chains applied to the business — not one point. Meeting customer needs threw candidates ready only to explain it. Practise each topic across the command-word ladder.
Build linked development strands
Analysis (AO3a) is scored on linked development strands, not the number of points: 0 = L0, 1 = L1, 2-4 = L2, 5+ = L3. Two separate advantages are not two strands. Develop one point as a chain — cause → effect → consequence — rather than listing undeveloped points.
Customers choose a product or service based on four key needs:
| Need | Example |
|---|---|
| Price | wanting value for money or the lowest price |
| Quality | needing the product to last or work reliably |
| Choice | wanting a range of sizes, flavours or styles |
| Convenience | needing home delivery or extended opening hours |
Meeting customer needs matters because satisfied customers return, recommend the business and help it grow. A business that ignores what customers want will lose sales to competitors that do listen.
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