Skip to content
MarkSchemeMarkScheme
Sign up — no card

7115 · 3.2

Market research — practice questions

Practice and worked examples for 7115 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. State three research purposes before launch.

Show solution outline

1. Segment sizing: How many teenagers buy energy drinks? Is the segment growing (3.1.3)?

2. Concept & taste testing: Do target customers like flavour, branding, can design? Focus groups (3.2.2).

3. Price sensitivity: What price maximises volume vs margin? Links to penetration vs skimming (3.3.4).

Without research, firm risks wrong mix and wasted promotion spend.

Worked example 2

A tech firm is considering launching a new smartwatch. The launch will cost $2,000,000. Without research, managers estimate a 40% chance of success, which would generate $3,000,000 in profit. A market research study costing $50,000 is proposed. The marketing director believes this research could increase the probability of a successful launch to 75% by refining the product features. Evaluate whether the firm should undertake the market research.

Show solution outline

This problem can be solved by comparing the Expected Monetary Value (EMV) of the two options: launching with research vs. launching without research.

Step 1: Calculate the EMV of launching WITHOUT research.

The potential outcomes are success (profit) or failure (loss of launch cost).

  • Value of Success = +3,000,0003,000,000
  • Value of Failure = -2,000,0002,000,000
  • Probability of Success = 40% or 0.4
  • Probability of Failure = 100% - 40% = 60% or 0.6

EMV = (Value of Success × P(Success)) + (Value of Failure × P(Failure)) EMV = (3,000,000×0.4)+(−3,000,000 \times 0.4) + (-2,000,000 × 0.6) EMV = 1,200,000−1,200,000 - 1,200,000 **EMV without research = 0∗∗0**

Step 2: Calculate the EMV of launching WITH research.

First, account for the definite cost of the research. Then, calculate the EMV of the launch decision with the improved probabilities.

  • Cost of Research = -50,00050,000
  • Value of Success = +3,000,0003,000,000
  • Value of Failure = -2,000,0002,000,000
  • New Probability of Success = 75% or 0.75
  • New Probability of Failure = 100% - 75% = 25% or 0.25

EMV of launch decision = (3,000,000×0.75)+(−3,000,000 \times 0.75) + (-2,000,000 × 0.25) EMV of launch decision = 2,250,000−2,250,000 - 500,000 = 1,750,0001,750,000

Now, subtract the cost of the research to find the total EMV for this option: Total EMV = 1,750,000−1,750,000 - 50,000 **Total EMV with research = 1,650,000∗∗1,650,000**

Step 3: Conclusion & Evaluation.

  • EMV without research = 00
  • EMV with research = 1,650,0001,650,000

Comparing the two expected values, undertaking the market research leads to a much higher expected financial outcome (1,650,000vs1,650,000 vs 0). The $50,000 investment in research is justified because it significantly reduces the risk of failure and increases the potential financial return by $1,650,000. Therefore, the firm should conduct the market research.

Mark a 7115 question on this topicFull lessonOpen in course studio