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9609 · 3.2.1

The purposes of market research — practice questions

Practice and worked examples for 9609 The purposes of market research. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

A drinks company plans a new energy drink for teenagers. Market data shows there are 5 million teenagers in the target country, and 40% currently consume energy drinks. The company aims for a 10% share of this market in Year 1. Calculate the target number of customers and explain how market research would be used.

Show solution outline

Purpose: To quantify the market and set targets.

Step 1: Calculate the current market size. This is the number of teenagers who already buy energy drinks.

  • Market Size = Total Teenagers × Consumption Rate
  • Market Size = 5,000,000 × 40% = 2,000,000 consumers

Step 2: Calculate the sales target for Year 1. This is the company's goal based on its desired market share.

  • Sales Target = Market Size × Target Market Share
  • Sales Target = 2,000,000 × 10% = 200,000 customers

How Research Supports This:

  1. To Verify Data (Secondary & Primary Research): The initial calculation uses secondary data. The company would use primary research (surveys) to validate these figures and understand regional variations before committing to a national launch.
  2. To Understand Needs (Qualitative Research): To persuade 200,000 teenagers to switch brands or start consuming, the company must research their needs regarding flavour, brand image, health concerns, and price sensitivity using methods like focus groups.
  3. To Assess Competition: Research is needed to analyse the marketing mix of competitors who currently hold the market share the company wants to capture.

Worked example 2

A software firm is deciding whether to spend $50,000 on market research before a new app launch. The launch itself will cost $500,000. A successful launch is forecast to generate $2,000,000 in revenue. Without research, the probability of success is 40%. With research, this rises to 70%. Using Expected Monetary Value (EMV), advise the firm whether to undertake the research.

Show solution outline

Purpose: To assess the financial value of research and reduce risk. The financial outcome depends on success or failure:

  • Outcome of Success = Revenue - Launch Cost = 2,000,000−2,000,000 - 500,000 = +1,500,0001,500,000
  • Outcome of Failure = 0 Revenue - Launch Cost = -500,000500,000

Option 1: Launch WITHOUT Research

  • EMV = (Probability of Success × Outcome of Success) + (Probability of Failure × Outcome of Failure)
  • Probability of Failure = 1 - 40% = 60%
  • EMV (No Research) = (0.40 × 1,500,000)+(0.60×−1,500,000) + (0.60 \times -500,000)
  • EMV (No Research) = 600,000−600,000 - 300,000 = **300,000∗∗300,000**

Option 2: Launch WITH Research First, calculate the EMV of the launch decision assuming research is done, then subtract the research cost.

  • Probability of Success = 70%
  • Probability of Failure = 1 - 70% = 30%
  • EMV of launch = (0.70 × 1,500,000)+(0.30×−1,500,000) + (0.30 \times -500,000)
  • EMV of launch = 1,050,000−1,050,000 - 150,000 = 900,000900,000
  • Now, subtract the upfront cost of the research:
  • Final EMV (With Research) = 900,000−900,000 - 50,000 = **850,000∗∗850,000**

Conclusion: The Expected Monetary Value of launching with research ($850,000) is significantly higher than launching without ($300,000). The $50,000 investment in research is justified as it increases the expected value of the project by $550,000 (850,000−850,000 - 300,000). The firm should conduct the market research.

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