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Chapter 1: Introduction
1.3 Research Question
Chapter 2: Literature Review
2.2 What is Consumer Behaviour?
2.3 Basic Needs
2.4 Decision Making Process
2.5 Factors that influence consumer behaviour
2.5.2 Social Factors
2.5.3 Personal Factors
2.5.4 Psychological Factors
2.5.7 Stages of Perception
2.5.8 Beliefs and Attitudes
2.6 Loyalty as a Factor
2.6.1 The Aaker model
2.6.2 The Aaker model Categories
2.7.1 Reasons for switching supplier
2.7.2 Reasons for not switching supplier
2.7.3 Domestic electricity structure in Ireland
2.7.4 Electricity Transmission and Generation Map
Chapter 3: Methodology
3.2 Qualitative Research
3.2.1 Face to face interviews
3.2.2 Focus Groups
3.2.3 Online Questionnaires or surveys
3.3 Quantitative Research
3.3.1 Casual-comparative Research
3.3.2 Correlational Research
3.4 Research Approach
3.5 Research Phases
3.5.1 Quantitative Method
3.5.2 Qualitative Method
3.7 Data Analysis
3.7.1 Response Rate
Chapter 4: Findings and Analysis
4.2 Phase One
4.2.1 Demographic Details
4.2.2 Age and Gender
4.2.3 Marital Status and Dependents
4.2.4 Employment Status
4.2.5 Household Income Status
4.2.6 Residential Status
4.2.7 Responsibility for payment of electricity bill
4.2.8 Switching behaviour
4.2.9 Current Electricity Supplier
4.2.10 Knowledge of Switching
4.2.11 Ease of Switching
4.2.12 Switching Choice
4.2.13 Contact by Suppliers
4.2.14 Switching Comparisons
4.2.15 Consumers understanding of the electricity market
4.2.16 Awareness of Existing Suppliers
4.2.17 Understanding Roles
4.2.18 Decision making process
4.2.19 Choosing a Supplier
4.2.20 Choosing a Supplier based on Payment Methods
4.2.21 Factors that influence consumer behaviour
4.2.22 Type of Spender
4.2.23 Post purchase evaluation
4.2.24 Consumer Satisfaction with Suppliers
4.3 Phase Two
4.3.1 Demographic Details
4.3.2 Switching behaviour
4.3.3 Current Supplier
4.3.4 Satisfaction with current supplier
4.3.6 Contact by suppliers. (Effects on switching choice)
4.3.7 Decision making process
4.3.8 Factors to consider when choosing a supplier
4.3.9 Choosing a supplier
4.3.10 Choosing a Supplier based on Payment Methods
4.3.11 Comparing Suppliers
4.3.12 Consumers understanding of the electricity market
4.3.13 Understanding Roles
4.3.14 Factors that influence consumer behaviour
4.3.15 Type of Spender
Chapter 5: Conclusions and Recommendations
5.2 Typical Consumers and Awareness Levels
5.3 Factors that Influence a consumers decision making process
5.4 Consumer concerns
5.5 Research Reflections and Limitations
5.6 Suggestions for Further Research
Table of Figures
This study was conducted to investigate consumer behaviour and attitudes in relation to remaining with or switching electricity supplier.
Secondary research in the form of a literature review examines the history, development and understanding of the factors which affect consumer behaviour in general.
Primary research explores consumer behaviour, attitudes and understanding in relation to electricity suppliers.
Primary research was conducted in two phases.
Phase one involved 100 consumer surveys using an online distribution method. Phase two involved conducting fifteen interviews with local household electricity consumers.
This investigation found that the main decision to remain with or switch electricity supplier came down to cost. Trust in electrical supplier’s claims was shown to have an effect on choice. Recommendations by family, friends and colleagues also had an impact. The main influences found included switching, combination supply deals, environmental considerations and payment methods etc.
Furthermore the research has shown that there is high potential for the electricity supply industry to improve marketing associated with switching and should include information on regulations and responsibilities. The research included in this paper may be of interest to consumer behaviour analysts, marketing professionals, electricity suppliers, marketers of the electrical supply industry and researchers in this topic area.
This dissertation has investigated the factors effecting consumer behaviour particularly in the area of electricity supplier choice.
“The retail electricity market in Ireland has been fully open to competition since 2005, allowing all customers to choose their electricity supplier. While imported fossil fuel prices will remain the main driver of electricity prices, an effectively competitive retail electricity market benefits customers through improved choice and quality of tariff products, increased pressure to reduce prices and a high quality service”.
(Commission for energy regulation, 2010)
The market which was traditionally dominated by ESB is now open to competition from multiple electricity suppliers. While ESB had a monopoly on the market it was primarily concerned with domestic consumer demand, this ‘demand’ was used to configure the generation and network assets to achieve a level and consistent supply of electricity to all its customers. Domestic electricity customers are now able to enjoy the many benefits offered by new suppliers i.e. lower cost electricity, flexible payment methods and combination electricity and gas supply packages.
Market share is now the main focus for many of these supply companies, therefore it is vital for electricity suppliers to understand consumer behaviour in relation to domestic supplier choice. As previously noted, consumer behaviour has altered in reaction to the effects of a global economic crisis and austerity budgeting introduced by the Irish government.
“Having endured this economic recession since the third quarter of 2008 Ireland’s economy grew in the second quarter of 2013 reversing three consecutive quarters of contraction and technically emerging from recession”. (Duffy, 2015)
Consumer spending retracted during the economic crisis as families and individuals were forced to reduce their outgoings as a result of cuts to salaries and state benefits. “Over the course of the first six months of 2014 numerous indicators suggested that consumers showed an increased appetite towards spending. This follows a period in which consumer spending fell by 10% since the crisis, with retail sales having fallen by as much as 25% from the peak at one stage”. (O'Leary, 2014)
However, further research has proven that over 50% of all Irish shoppers have said that they have switched to cheaper brands in the past year in order to save money. With a further 50% saying that they intend to keep doing this next year. “We are responding more frugally than even the Greeks where the economy has shrunk even more than ours over the past few years”. (McWilliams, 2015)
It is this change in consumer behaviour towards electricity suppliers in particular which is be the focus of this research.
The focus of this research is to understand the factors which effect consumer behaviour and how these factors may vary between consumers. It is intended that this research will identify the behavioural reasons for consumer loyalty and consumer switching. By asking “What are the factors which effect consumer behaviour in regard to choosing an electricity supplier”, the research will also investigate how the electricity market is viewed in general by domestic consumers in relation to areas such as competition, pricing, switching and brand awareness. The results of this research will enable a better understanding of consumer behaviour in relation to electricity suppliers. A secondary aspect of the research will show the trends associated with switching and / or loyalty of consumers in this regard.
What are the factors that effect consumer behaviour with regard to switching electricity supplier?
Understanding consumer behaviour, and how this varies between customers, is vital for organisations if they are to improve and evolve their marketing and sales opportunities with regard to potential and existing customers. “The study of consumer behaviour is rapidly evolving as researchers recognise and implement new techniques and perspectives to understand the nature of consumption behaviour. “From a practitioner’s perspective, consumer research is pertinent so as to enable him to understand changing consumer behaviours” (Brosekhan and Velayutham, 2010). As part of the research for this paper I will be utilising several proven models which investigate and explain the nature of the decision making process, the motivations behind a consumers buying behaviour and switching and loyalty.
The term “consumer behaviour” can be defined as the behaviour that consumers display in assessing firstly the requirement for and then the purchase, use, and value of products and services that they expect will satisfy their needs. (Behaviour, 2011) However, Gilbert and Veloutsou (2006) explain that the measurement of consumer behaviour is more exploratory rather than a precise, exact science.
Maslow (1943) stated that people are motivated to achieve certain needs, motivation can be defined as a reason or reasons why an individual might behave in a particular way. Therefore motivation can be treated as a major determinant in the behaviour of consumers.
Maslow's (1943, 1954) hierarchy of needs includes five motivational needs, often depicted as hierarchical levels within a pyramid. When one need is fulfilled a person seeks to fulfil the next one, and so on.
Maslow’s motivation theory suggests five separate levels of basic human needs motivators which must be satisfied in a specific order beginning with the lowest level. Physiological needs for survival i.e. to stay alive and reproduce, and security i.e. the need to feel safe, are the most fundamental and primary needs. They are followed by social needs, the need for love and feeling of belonging.
Self-esteem, the need to feel worthy, respected, and have status. The final and highest level needs are self-actualization needs, self-fulfilment and achievement. (See figure 2.2.1)
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Figure 2.2.1 Maslow’s Needs Pyramid
By FireflySixtySeven [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons
The basic needs are said to motivate people when they are unmet. Also, the need to fulfil such needs will become stronger the longer the duration they are denied. For example, the longer a person goes without food the more hungry they will become. If we are to follow Maslow’s model we must consider that the consumer will have to make many decisions when faced with the desire to fulfil his/her needs. In the case of consumers these decisions will be based on the requirement to enter into a buying decision in order to make a purchase.
Engel, Blackwell and Kollat (1978) developed a model, the EKB Model, to explain how consumers arrived at a buying decision, it is referred to as the Decision Making Process.
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Figure 2.3.1 EKB Model
As with Maslow’s Hierarchy of Needs, the EKB Models’ Decision Making Process also has five unique and distinctive parts.
Tan (2010) states that the EKB model builds directly onto the foundations set down by Howard (1963) and Nicosia (1966) in the areas of consumer psychology theories.
Stage 1: Problem Recognition:
This stage deals with the consumer’s recognition that they have a need or a problem. For the purposes of this investigation we must consider that the consumer requires a domestic electricity supply, or are not happy with their current provider for some reason.
Stage 2: Information Search:
The second stage involves the search for alternatives. The consumer will search for alternatives to satisfy their current want or need.
Stage 3: Alternative Evaluation:
The third stage engages the consumer in an evaluation of the available alternatives.
Stage 4: Choice:
Based on the conscious or unconscious decisions arrived at in the previous steps, this the point at which a consumer will actually make his/her choice and complete the purchase.
Stage 5: Outcome:
Having made the final decision and completing the purchase the consumer enters the final phase of the process. An evaluation of the decision and purchase will take place to identify whether the consumer is satisfied or dissatisfied. If the evaluation phase has returned a negative result the process may need to be repeated until a satisfactory outcome has been achieved.
Following on from this the external and internal factors that drive the decision making process can be shown in The Hawkins, Best and Coney Consumer Behaviour Model (1998)
Hawkins, Best and Coney (1998) looked at consumer based upon several internal and external factors. Internal factors such as perception, memory, motives, learning, personality, emotions and attitudes, are all factors which are unique and are within each consumer. These are affected by external factors such as culture, subculture, demographics, social status and family to name but a few (Tan 2010).
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Figure 2.4.1 The Hawkins, Best and Coney Consumer Behaviour Model ,
These factors when fed into a consumer’s lifestyle will lead to personal experiences and acquisitions, which in turn will contribute to their decision making process thus creating an individual form of consumer behaviour. The HBC model builds on the EKB model and broadens it to include the external and internal influences that mould an individual’s behaviour. However, it must be recognised that factors that include emotions, perceptions, attitude, family, social and demographics are recognised as direct influence in consumer decision making. “A purchase decision is a result of each and all of these factors. As an individual a consumer is led by their culture, sub culture, social class, membership of groups, family, personality and psychological traits etc. And is influenced by cultural trends as well as their social and societal environment”(Perreau 2015)
The H.B.C. model takes the view correctly or incorrectly that consumers will make rational and carefully planned decisions, and when it comes to making these decisions that they have analysed all the options and alternatives available to them. “Similar to the EKB model, the HBC model interprets the decision making process as a flow that is rational, well thought and deliberated, weighting cost and functional benefits”. (Tan 2010) Although the EKB Model identifies the many issues that a consumer must contemplate in order to satisfy the process of making a purchase decision, there are multiple factors which themselves provide the basis for the previously noted five steps. These factors and the thought processes that are used to enable a consumer to arrive at a satisfactory conclusion regarding a buyer decision are simply an overview of what can be more easily described as consumer behaviour.
There are many factors which have a direct influence on consumer behaviour such as cultural, social, personal and psychological. (Shah, 2015)
Culture is crucial factor to be included when it comes to understanding the needs and behaviours of an individual consumer. It is the culture of an individual which decides the way he/she behaves. In simpler words, culture is nothing but the ingrained values of an individual. What an individual learns from his parents and relatives as a child becomes his/her culture. Cultural factors have a significant effect on an individual’s buying decision. Every individual has different sets of habits, beliefs and principles which he/she develops from his family status and background. What they see from their childhood becomes their culture. Cultural factors are coming from the different components related to culture or cultural environment from which the consumer belongs. “Throughout their existence, an individual will be influenced by their family, friends, cultural environment or society and will be taught those values and preferences as well as common behaviours to their own culture”. (Perreau, 2013)
Social factors also impact the buying behaviour of consumers. The important social factors to be included are reference groups, family, role and status. Here we should note that social class is not only determined by income but there are various other factors as well such as: wealth, education, occupation etc. “The importance of understanding the role of social influence, how others affect our emotions, opinions, or behaviours, in consumption has a long and varied history in the fields of sociology, psychology, and marketing. As a topic area, social influence is incredibly broad, covering everything from mere presence effects and mimicry to more direct forms of social persuasion”. (Dahl, 2013)
Personal factors can also affect the consumer behaviour. Some of the important personal factors that influence this behaviour include, age, occupation, financial circumstances, lifestyle (activities, interests, opinions and demographics), and personality. These explain why consumer preferences often change as their personal situation evolves. (Rani, 2014)
Four psychological factors have been identified and are associated directly with consumer behaviour. Perception, motivation, learning, beliefs and attitudes have all been investigated by many experts in the area of psychology and have contributed greatly to the overall understanding of behaviours associated with consumers. (Perreau, 2013)
The level of motivation also affects the buying behaviour of customers. Every person has different needs such as physiological needs, biological needs, social needs etc. The nature of the needs is that, some of them are most pressing while others are least pressing. Therefore a need becomes a motive when it is more pressing to direct the person to seek satisfaction. (Rani, 2014)
“Consumer perception refers to the process by which a customer selects, organizes, and interprets information/stimuli inputs to create a meaningful picture of the brand or the product. It is a three stage process that translates raw stimuli into meaningful information. Each individual interprets the meaning of stimulus in a manner consistent with his/her own unique biases, needs and expectations.” (Solomon, 2011)
Three stages of perception are exposure, attention and interpretation.
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Figure 2.5.1 Stages of Perception
In simpler terms, it is how a customer see's a particular brand with whatever he or she has been able to understand by watching the products, its promotions, feedback etc. It is the image of that particular brand in the mind of the customer. (Solomon, 2011)
Customer possesses specific belief and attitude towards various products. Since such beliefs and attitudes make up brand image and affect consumer buying behaviour therefore marketers are interested in them. Marketers can change the beliefs and attitudes of customers by launching special campaigns in this regard (rani, 2014). When we consider Maslow’s theory along with the EKB Models’ decision making process and the various factors listed previously we must also give consideration to other stimuli which may have an impact on a consumer’s behaviour. Another well-developed and tested model of consumer behaviour is known as the stimulus-response model, represented in the figure below.
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Figure 2.5.2 Stimulus-Response Model of Behaviour
The three stage stimulus response model represents the process of buyer behaviour.
Marketing and other factors (input stimuli) enter the customers “black box” and consequently elicit “buyer” responses.
The “black box” can be explained as the processing stage of a purchase. The “Buyer characteristics” stage will influence how he or she perceives and understands the input stimuli. This is the stage where the consumer processes the factors unique to them in their interpretation and which will directly affect their decision making process. The factors that influence consumer behaviour will determine that buyer’s characteristics and are identified in the “black box”.
The decision-making process along with the buyer characteristics will determine what type of buying behaviour is undertaken by the consumer.
The buyer responds to the first two stages by entering into a purchase, which is effected by any or all of the listed components.
“Customer loyalty is the new Holy Grail. All companies want it.”(Henry 2000). Henry also stated that “customer loyalty is a fuzzy, under analysed concept. So much depends on it, yet the term may confuse as much as it reveals.” Henry believed that when a company has what it perceives as a “loyal” customer base the trend is to neglect them in pursuit of the constant need for new customers, which leads to complacency and in fact incurs a loss to their customer base. He also revealed that retaining loyal customers is important, but it also creates a deceptive shroud of safety for a business, which can lead to stagnancy in a company’s attitude to design, development, quality and competitiveness.
Duffy (2003) noted that the strategic goal for all companies was the development of customer loyalty. He states “that customer loyalty is a feeling that a customer has about a brand. Loyalty ultimately generates positive and financial results”. He also stated that the marketers end goal was customer retention that customer acquisition was not the key, and would not ensure long term success.
The Aaker model was designed to look specifically at brand equity and considers that the consumer fits into what is referred to as a loyalty pyramid. Aaker (1991) categorised the consumer as;
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Figure 2.6.1 The Aaker model Pyramid,
The Switcher is classified as a consumer who is price sensitive, who has no brand loyalty and is constantly seeking a better offer or deal.
The Habitual consumer is neither satisfied nor dissatisfied with their existing supplier enough to change brand. The habitual consumer will continue to remain with their current brand or supplier until they are sufficiently influenced by another option.
The Satisfied Consumer is one who is satisfied with their brand and will loyal to that brand based on several factors including price, switching costs, switching ease, associated risks etc. If a brand provider can positively assure the consumer that these factors are without risk then the loyalty of that consumer can be secured.
These consumers truly “Like” the brand, and have made an emotional connection to the brand via the symbol, experience, nostalgia or quality.
5. Committed Buyer.
The Committed consumer occupies the top tier of Aaker’s pyramid.
“These consumers are ones that are completely loyal and are invested heavily in a brand. They are important as their recommendations about the brand can attract new consumers to the brand”. (Moisescu 2015)
As this paper is an investigation into the factors affecting a consumer’s behaviour when selecting an electricity supplier, we must also be aware that unlike most other regularly purchased items such as food, clothing, electrical appliances etc, electricity is simply a commodity which is utilised by many people in our modern society. It is not a good that can be bought off a shelf and packaged to be opened later for use by a consumer, it has no mass, no weight, no smell or taste and so cannot be treated like other products. This is however not the case in other countries such as The United States where according to (Steinkamp, 2016) “legal proceedings have been required to determine the classification of electricity as either a “good” or a “service””. It is however, a commodity that we do not purchase on a daily basis like other tangible items such as milk or a newspaper for example. But regardless of its classification, electricity is something we utilise in every facet of our daily lives. Consumers will purchase electricity from a supplier of their choice and will usually enter into fixed term contracts for the provision of that electricity to their homes. Initially, the electricity supply connection will be provided to the consumer’s home by the ESB Networks’. It is at this point that the consumer is free to choose an electricity supplier. With the opening of the electricity market in Ireland consumers are able to switch from one supplier to another and so we must also investigate and understand the “switching” behaviour of these consumers.
Consumers often have several reasons for switching electricity supplier and it is difficult to name just one or two reasons. A study performed by the Norwegian Energy Regulator NordREG (2006) indicated that the; “Importance of the price of electricity to the customer’s budget and the resulting interest in switching suppliers to make savings in electricity bills, the obstacles to switching, how informed the customers are about the electricity market and the switching opportunities, availability and access to switch-specific information like competing suppliers and prices, and the proportion of the total end-user price that is influenced by a switch”. In this article these reasons are called “market structure based” reasons for switching and not switching electricity supplier.
One might assume that the main reasons for consumers to switch electricity supplier would be in order to achieve financial savings, recommendations from family, friends and colleagues, dissatisfaction with a current supplier, the ease of switching, and brand awareness. The main reasons for the consumers not to switch electricity supplier could be as a result of loyalty, based on a consumers satisfaction with a current supplier, abstinence from switching, due to a lack of understanding of the benefits associated with a switch or misinformation in relation to switching costs.
All of these assumptions in relation to consumers switching decisions are valid and deserve further investigation.
One would be correct in assuming that financial savings are the main motivator for consumers to switch electricity supplier, this assumption has been confirmed by research done in this area (Ek et al. 2007, Gamble et al. 2007, Lewis et al. 2004, ET 2005, Ofgem 2004 and Rowlands et al. 2004). Those who have most to save (especially households with electric heating) are more motivated to make financial savings. These motives were identified at least by Ek et al. (2007), ET (2005), Lewis et al. (2004) and Walsh et al. (2005).
The dissatisfaction of a customer with a previous electricity supplier is not investigated by most of the available research conducted in this area. One might again assume that this “dissatisfaction” would contribute to a consumers switching behaviour in some cases, but this may not be one of the main reasons to switch supplier. In contrast there exists an array of miscellaneous reasons for consumers to consider switching supplier. Some of these reasons include, switching ease (e.g. Lewis et al. 2004), good and active marketing and selling (ET 2005 and Ofgem 2004) and desire for better customer service (ET 2005 and Ofgem 2004).
Domestic customers’ reasons for not switching electricity supplier seem to be much more extensive than those reasons identified in favour of switching. Given the history of the Irish electricity market and the semi-state ownership of the main supply company for many past decades, one might be under the impression that many customers exhibit a loyalty to that supplier out of a sense of willingness to support a home-grown national company. Some customers might have other reasonable arguments for not switching to another supplier. These may include, the insignificance of the benefit that is possible to be achieved by switching (as found by e.g. Ek et al. 2007, Gamble et al. 2007, Lewis et al. 2004, ET 2005, Ofgem 2004 and TEMO 2005). This seems to be a very strong reason for not switching supplier. For example, Lewis et al. (2004) found that the main reasons for customers not switching supplier were the facts that price savings seem to be relatively small for most customers, this may be due to low consumption levels or similar pricing structures adopted by competing suppliers.
Sturluson (2003) states: “Consumers’ persistence to stay with incumbent suppliers can also stem from a limited interest in acquiring the relevant information to make a switch. This lack of interest can of course be rational in itself if the cost of acquiring information of sufficient quality exceeds the expected gains of switching”.
The perception that switching supplier or comparing suppliers’ prices may be difficult or time consuming, will have an effect on a consumers willingness to engage in a “switch” unless there is a strong persuasive element involved in that “switch” e.g. increased monetary savings.
Ibáñez et al. (2006) claimed: “In many cases, unsatisfied customers stay with their company because the time and effort needed to choose another energy provider are perceived as laborious”. High searching costs have also been found to be a significant switching barrier by Ek et al. (2007), Lewis et al. (2004), TEMO (2005) and Walsh et al. (2005). A lack of trust towards unfamiliar electricity suppliers may also result in a negative switching behaviour.
The results of research done by Lewis et al. (2004) suggest that many consumers are under the impression that there are no good supply companies, so it is not worth while engaging in a switch. Also Walsh et al. (2005) found that consumers do not trust other providers because of uncertainties about those providers’ ability to provide the same service as their existing supplier and this in turn makes the consumer unwilling to switch.
In Ireland electricity is produced by many generating companies and is transmitted and distributed to homes via the ESB’s electricity network. The quality of electricity supplied to a consumer is completely dependent on the distribution system operator (in this case ESB Networks), and the supplier/vendor of electricity to the consumer is incapable of effecting any change to that quality of supply. In relation to marketing, each supplier can only offer a value for money service which can be difficult for consumers to understand given the similar pricing structures adopted by these companies. One of the main reasons for non-switching behaviour is that consumers do not have to make any choices at the electricity market if they do not want to, because they will always get supplied with electricity anyway. The electricity network is operated by Eirgrid/SONI and the domestic electricity demand is catered to by numerous generation companies.
The Eirgrid / SONI transmission and generation map in Figure 007 illustrates the complex electricity transmission network but more importantly also gives an overview of the types of generating facilities which are owned and run by most of the major suppliers of domestic electricity in Ireland.
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Figure 2.6.2 Eirgrid/SONI Electricity Transmission Map
Source: http://oceanenergyireland.ie/Content/Images/Spokes/Grid/ TransmissionMap.jpg
There are numerous approaches that can be taken when beginning research for a particular topic. The most widely used approaches are known as Qualitative and Quantitative research. These methods are utilised by researchers to gather data relating to the topic under investigation or analysis. The associated advantages and disadvantages of these two methods of research were investigated by the researcher in order to determine if they were an appropriate choice for this research.
Qualitative research is the method used to explore the attitudes and behaviours of consumers and their perceptions in relation to certain goods or services which they are considering buying. Qualitative research is about finding out not just what people think but why they think it.
Assurances regarding the appropriate type of respondent to an interview i.e. demographics etc.
More personalised questions may be asked to stimulate in-depth feedback.
This technique is time consuming and may incur costs associated with arranging meetings or visits with participants.
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