The purpose and methods of market research: demand

The idea

Demand is the quantity of a product that customers are willing and able to buy at a given price over a period of time. Market research exists to estimate this demand before a business commits resources. Primary research, such as surveys or test trading, gathers new data directly from potential customers; secondary research uses existing sources such as government statistics or competitor sales figures. A business might survey 200 local residents and find that 60 (30%) would buy a monthly delivery box at £15. If the local population is 10,000, extrapolating this 30% suggests a potential demand of roughly 3,000 units per month in that area. Demand differs from desire because it requires both willingness and ability to pay. It also varies with price, income, season and competitor actions, so estimates are uncertain and should be updated as conditions change.

What earns the marks

• Defines demand as the quantity customers are willing and able to buy at a given price over a stated time period.
• Explains that market research is used to estimate demand before a business invests or launches a product.
• Distinguishes primary research, which collects new first-hand data, from secondary research, which uses existing data.
• Applies demand estimation to a context, for example extrapolating survey responses to estimate total potential sales in a target population.
• Recognises that demand estimates are uncertain because price, income, season and competitor behaviour change over time.

Common mistakes and how to put them right

• Treating demand as the same as what customers want or need.

  Put it right: Demand requires both willingness and ability to pay at a given price.

• Assuming a sample size directly equals total demand.

  Put it right: Sample findings (e.g. 30% of respondents) must be extrapolated to the wider target population to estimate total demand.

• Confusing primary and secondary research.

  Put it right: Primary data is newly collected by the business while secondary data already exists.

Exam tips

• Anchor every answer in the case study context, naming the product, price and customer group where the case gives them.
• Use demand language precisely: refer to willingness and ability to buy at a given price rather than vague popularity.
• When evaluating, weigh the cost and reliability of research against the risk of launching a product with weak demand.