Understanding Markets and Customers

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Understanding Markets and Customers Understanding Markets and Customers

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Table of contents

    - Jonathan Midenhall

    Understanding markets and customers are essential for businesses. Why? To target their marketing efforts to the right groups of customers in an effective market setting. By doing this, the business gains a competitive advantage, creates customer engagement, and thus promotes longstanding relationships with customers. One way organizations can understand their markets and customers is through conducting market research and understanding consumer behavior. Let's take a look in more detail.

    Market Understanding Definition

    How do we try to understand markets? Well, marketers must collect a lot of data to find insightful information on the market and their customers.

    Market understanding means collecting data and turning it into insights for businesses to gain a competitive advantage.

    Segmentation, targeting, and positioning are methods marketers use to understand their customers, but beyond segmentation, marketers engage in market research to further their understanding of the market and customers. Although segmentation helps marketers generate customer profiles, market research can deepen their knowledge of customer and market wants and needs.

    Check out our market segmentation, targeting, and positioning explanation to find out more.

    Understanding the Market

    Market research helps businesses understand why customers purchase specific products or brands. It is directly related to the marketing mix, as it allows companies to make decisions about product, price, promotion, and place through the data collected during market research.

    Take a look at our marketing mix explanation to find out more about the 4Ps of marketing.

    Market research is the process by which companies collect data about customers and markets to help them construct a better marketing strategy.

    Understanding Markets and Customers: The benefits of market research

    As a marketer, collecting helpful information and good data is essential. Good research can:

    • Help companies make better marketing decisions.

    • Reduce the likelihood of making poor decisions.

    • Reduce risks.

    • Help companies identify their target market and customers.

    • Help companies understand their customers' wants and needs.

    • Help companies beat competitors to their target market and customers.

    • Help marketers engage their customers.

    • Contribute to building longstanding relationships with customers.

    • Help companies sustain a competitive advantage.

    Conducting Market Research

    Companies conduct market research to develop an understanding of their markets and customers. Figure 1 below shows the different types of market research firms may choose to undertake.

    Understanding Markets and Customers Diagram showing the market research types StudySmarterFig. 1. Market Research Types

    Market research helps describe the characteristics of markets and customers and their buying behavior (or how customers purchase a product or service, known as 'purchase patterns'). This area of research is known as descriptive research. This type of research helps identify trends and compare markets or different groups of customers.

    Another form of research is predictive research. This type of research helps a company predict customer and market trends: what might happen in the future?

    Explanatory research helps a company understand why a particular phenomenon occurs. This type of research can be useful in understanding why customers behave in certain ways.

    Exploratory research helps marketers investigate a market, for instance, when there is no existing information available in a particular market. Exploratory research helps identify and understand problems or gaps in the market.

    Take a look at our explanations of market research and market calculations to learn more about the benefits of conducting market research and analysis.

    Finally, market research helps marketers understand the 6Ws (who, what, when, where, why, what influences) of customers and markets. They are as follows:

    • Who are our customers, and who consumes our products? Remember, the consumer (the user) and the customer (the person who purchases the product) might be two different people.

    • What do they buy? Are some of our products more successful than others?

    • When are they buying? Some customers might purchase the product daily, whereas others might only purchase it monthly.

    • Where do they buy our products? Certain customers might prefer to shop in-store and experience face-to-face interactions, whereas others might prefer to shop online from the comfort of their own homes.

    • Why do customers buy our products? Do they buy it out of necessity? Do they buy it as a status symbol? Do they buy them as gifts to others?

    • What influences customers to purchase the product? Is it a complex purchase with many steps? Do others influence the purchase, or is it an individual decision?

    Marketers can develop better marketing strategies by finding answers to all these questions. Market research and customer understanding also help marketers gain insight into the types of products to develop - which product would be the most successful in satisfying our customers' wants and needs? Marketers might even discover new market trends that have not been addressed by other companies yet. Being the first to address a new customer need can result in a competitive advantage and high returns for the company.

    The Importance of Technology in Understanding Markets and Customers

    Recently, the state of technology and our access to technology have increased significantly. This development has made it easier for businesses to digitalize market and customer analysis and interpretation. Companies no longer have to physically go through old records and receipts to understand customers' and competitors' behavior, which saves time and helps them gain access to helpful information. Some of the digital tools used for market research include the following:

    1. The Internet provides businesses access to various secondary information sources such as reports, databases, articles, etc.

    2. Social media allows businesses to communicate directly with their existing customers and target potential customers directly with their advertisements and promotions. Through such direct communication, companies can create profiles of their customers and their behavior.

    3. Competitor websites include public information available to anyone. They, however, also have information valuable to businesses trying to compete in the same market. This way, companies can find helpful information about what their competitors are doing (market conditions).

    4. Online profiles and loyalty cards allow businesses to track and record what their customers are buying, how often they are buying, and how (online or offline) they are buying certain products or services. These profiles allow the business to gather valuable information on customer behavior which may help them understand how to create effective promotions and campaigns to target specific market segments.

    Understanding Customer Behavior

    Businesses try to understand customer behavior for a variety of reasons. They aim to create products and services that satisfy customer wants and needs. Therefore, customers are central to all marketing activities, and thus it is essential to understand their attitudes, behavior, and changes in behavioral factors.

    Consumer Behavior Overview

    Looking at consumer behavior is essential for businesses as it helps them understand why customers purchase certain products and services and what influences customers to do so. There are three basic types of customer behavior when it comes to purchasing

    • Routine purchases are purchases made by customers regularly and involve little thought or decision-making. Customers make routine purchases when they buy products like toilet paper, toothpaste, soap, or essential food items like bread or milk.

    • Impulse purchases happen without any prior planning. They are decisions made by the consumer on the spot. They include purchases like buying a small packet of sweets or chewing gum while queuing in a shop.

    • Informed purchases happen when customers take time to consider what they want to buy and make elaborate decisions about a product. Informed purchases include buying a house or a car.

    Understanding customer behavior is crucial. Customers vary. They have different attitudes and exhibit distinct behaviors when buying a product or service. This is important for businesses as it can help them differentiate their products and help them develop new products which are more successful than their competitors' products. Customer behavior is likely to change over time, so it is vital to understand current and predict future market trends. Some of the reasons why it is important to understand customer behavior are so that businesses can:

    • Develop effective marketing strategies.

    • Retain existing customers and target the right groups of new customers.

    • Understand competition in the market.

    • Predict market and customer trends.

    • Develop new products.

    As a result, companies should pay close attention to their target market and customer segments. One of the ways to do this is by conducting market research and analyzing consumer behavior.

    Check out our explanation of consumer behavior to learn more about how marketers try to understand customers.

    Understanding Markets and Customers - Key takeaways

    • We can understand customers and markets extensively through market research.
    • Market research helps us develop better marketing strategies and is directly related to the marketing mix.
    • There are several reasons businesses undertake market research: to describe, explain, predict, and explore.
    • Technology has significantly enhanced businesses' access to customer and market information.
    • Looking at customer behavior is essential for businesses as it helps them understand why customers purchase certain products and services and what influences customers to do so.
    • There are three basic types of customer behavior: impulsive, routine, and informed.
    • Customers have different attitudes and portray different behaviors when buying a product or service.
    • Understanding customer behavior can help businesses develop an effective marketing strategy and understand competition.
    Understanding Markets and Customers Understanding Markets and Customers
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    Frequently Asked Questions about Understanding Markets and Customers

    How do you understand market and customers?

    To understand markets and customers marketers must collect a lot of data to find insightful information on the market and their customers. Market understanding means collecting data and turning it into insights for businesses to gain a competitive advantage. 

    What is understanding the market?

    Understanding the market is important for all businesses. Companies must conduct market research and collect data on the market environment (including customers and competitors) to expand their understanding of the market. 

    What is the relationship between market and customer?

    To understand the markets and customers, marketers must conduct market research. Market research helps businesses understand why customers purchase specific products or brands. It is directly related to the marketing mix, as it allows companies to make decisions about product, price, promotion, and place.

    What is the importance of understanding the marketplace and customers?

    Understanding the marketplace and customers helps businesses make better decisions, reduce risks, identify their target market, understand customer wants and needs, and sustain a competitive advantage. As a result, if a business understands its marketplace and customers, it becomes more competitive.

    Why is it important to know your potential market?

    It is important to know your potential market as it can help you develop better marketing strategies. Market research and customer understanding also help marketers gain insight into the types of products to develop. Marketers might even discover new market trends that have not been addressed by other companies yet. Being the first to address a new customer need can result in a competitive advantage and high returns for the company.

    Test your knowledge with multiple choice flashcards

    Which of the following statements is correct? Observational research is useful as it lets researchers know the actual behavior of customers. Surveys are useful for quantitative research. 

    Which of the following is not a characteristic of perceptual mapping?It provides a visual representation of information. It is used by market researchers. It helps us understand market segments. It is based solely on industry data. 

    Which of the following statements is correct about market research? The qualitative researcher usually poses open-ended questions. Quantitative research involves smaller sample sizes. 

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