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Business · Spotting a business opportunity

Customer needs

Customers buy what meets their needs: the right price, the right quality, enough choice and convenience. A business that understands those needs makes sales and survives; one that does not, fails.

  • 6 key terms
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Teacher resources

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Student handouts

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Last Chapter

Answer from memory before the answers appear.

  • Give the three reasons why new business ideas come about.

    Changes in technology, changes in consumer wants, and products or services becoming obsolete.

  • Name the three rewards of starting a business.

    Business success, profit and independence.

  • What is added value?

    Selling price minus the cost of bought-in materials.

  • Name two ways a business can add value.

    Any two of: convenience, branding, quality, design, a unique selling point.

Learning Objectives

  1. 1Explain what is meant by customer needs.
  2. 2Explain the four main customer needs: price, quality, choice and convenience.
  3. 3Explain why identifying and understanding customer needs generates sales.
  4. 4Explain why meeting customer needs is vital for a business's survival.

THE BIG IDEA

No customers, no business.

Every successful business starts by working out what its customers need - and then giving it to them better than anyone else.

What Are Customer Needs?

A customer need is what a customer requires from a product or service.

  • Customers

    The people or businesses that buy a product. They are not always the same as consumers, who use it - a parent buying a child's toy is the customer; the child is the consumer.

  • Needs

    What customers require before they will buy: a price they can pay, a quality they expect, a choice they like and a way of buying that suits them.

  • Different customers, different needs

    A student, a family and a retired couple buying the same product may want very different things from it.

  • The business's job

    Find out what customers need, then provide a product that meets those needs better than competitors do.

What Customers Need

  • Price

    The amount customers are willing and able to pay. It must feel like good value for money.

  • Quality

    How well the product is made and how well it works - it must meet or beat what the customer expects.

  • Choice

    A range of products, sizes, colours or options, so customers can find exactly what suits them.

  • Convenience

    How easy it is to buy and use the product: location, opening hours, delivery and ordering online.

Price

Customers want a price that they think is fair for what they get.

  • Value for money

    Customers compare the price with the benefits they get. A higher price is acceptable if the quality or convenience is higher too.

  • What they can afford

    Customers on low incomes may choose the cheapest option; others will pay more for quality or a brand.

  • Competition

    Customers can easily compare prices, especially online, so a business charging more than rivals must give a reason to pay it.

  • Example

    Discount supermarkets such as Aldi and Lidl have grown quickly by meeting customers' need for low prices.

Quality

Customers want a product that does what it should and lasts.

  • What it means

    A product is good quality if it meets customers' expectations - not necessarily the most luxurious version.

  • Reliability

    Customers want products that work and do not break, and services that are delivered properly every time.

  • Reputation

    A reputation for quality brings customers back and encourages them to recommend the business.

  • Example

    Customers expect a £5 umbrella to keep them dry; they expect a £50 umbrella to last for years.

Choice

Customers like to be able to choose.

  • Range

    Different sizes, flavours, colours or versions of the product.

  • Personal taste

    Choice lets each customer find something that suits them exactly.

  • Too much choice

    Too many options can confuse customers and increase a business's costs of holding stock.

  • Example

    A coffee shop offers different sizes, milks, syrups and decaffeinated options to suit every customer.

Convenience

Customers want buying and using a product to be quick and easy.

  • Location

    Shops close to home, work or school, or on the way to them.

  • Opening hours

    Being open when customers want to shop - early, late or at weekends.

  • Online and delivery

    Ordering on a website or app, next-day delivery and click-and-collect.

  • Example

    Convenience stores charge higher prices than large supermarkets, but customers pay because the shop is nearby and open late.

From Understanding to Survival

Each step depends on the one before it.

  1. 1 Identify customer needs

    Find out what customers want, usually through market research.
  2. 2 Provide a product that meets them

    Get the price, quality, choice and convenience right.
  3. 3 Generate sales

    Customers buy the product, and come back to buy again.
  4. 4 Business survival

    Enough sales mean enough revenue to cover costs and make a profit, so the business survives.

Meeting Needs, or Missing Them

A business that meets customer needs

  • Customers buy the product, so sales rise.
  • Customers come back and become loyal.
  • Happy customers recommend it to others.
  • It can often charge a higher price.
  • It is more likely to survive and grow.

A business that misses them

  • Customers buy from competitors instead.
  • Sales fall and stock is left unsold.
  • Unhappy customers post bad reviews.
  • It may have to cut prices to sell anything.
  • It is more likely to fail.

Case study

Greggs: Meeting Customer Needs

Greggs, the bakery chain, meets several customer needs at once. Its prices are low compared with coffee shops and sandwich chains, its shops are on high streets, at stations and in retail parks for convenience, and it offers choice from breakfast rolls to sausage rolls to salads. In January 2019 it responded to a change in what its customers wanted by launching a vegan sausage roll, which became one of its best-selling products. By listening to its customers, Greggs has grown to more than 2,000 shops across the UK.

2019 The vegan sausage roll launched
2,000+ Greggs shops across the UK

Needs Detective

Pick three businesses you have bought from this month - for example a supermarket, a takeaway and an online shop. For each one, decide which customer need it meets best (price, quality, choice or convenience) and explain how.

1. Name the business.

2. Name the customer need it meets best.

3. Give one piece of evidence to back it up.

A good answer shows: Three businesses, each linked to one customer need with a specific piece of evidence, such as opening hours, a price or the size of the range.

Can I...?

  1. 1Explain what customer needs are.
  2. 2Explain how price, quality, choice and convenience are customer needs.
  3. 3Explain why meeting customer needs generates sales.
  4. 4Explain why meeting customer needs helps a business survive.
  5. 5Use a real business as an example.

Summary & Exam Focus

  • Customers need the right price, quality, choice and convenience.
  • Different customers have different needs.
  • Meeting customer needs generates sales and customer loyalty.
  • A business that does not meet customer needs is unlikely to survive.

Exam focus

Explain one reason why it is important for a business to identify customer needs. (3 marks) (3 marks)

Explain questions are worth 3 marks: 1 for the reason, then 2 for linked steps of explanation. Take the chain all the way to sales, revenue or survival.

Key terms

The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.

Customer
A person or business that buys a product.
Consumer
The person who uses a product. They may not be the customer who bought it.
Customer needs
What customers require from a product: the right price, quality, choice and convenience.
Value for money
When customers feel the benefits of a product are worth the price they pay.
Convenience
How quick and easy it is for customers to buy and use a product.
Customer loyalty
When customers keep buying from the same business rather than switching to competitors.

Questions and answers

9 questions set on this lesson, with the mark schemes and model answers open.

1. Exam question State 1 mark Foundation

State one customer need.

Mark scheme — 1 mark available

  • Any one of: price; quality; choice; convenience — 1 mark

Model answer

Convenience.

2. Exam question Define 1 mark Foundation

Define the term 'customer needs'.

Mark scheme — 1 mark available

  • What customers want or require from a product / service — 1 mark

Model answer

The things customers require from a product or service, such as the right price, quality, choice and convenience.

3. Exam question Outline 2 marks Foundation

Outline one way a business could meet customers' need for convenience.

Mark scheme — 2 marks available

  • A way identified, e.g. location / opening hours / online ordering / delivery — 1 mark
  • Developed: how this makes buying easier for customers — 1 mark

Model answer

The business could offer online ordering with home delivery (1), so customers can buy the product without having to travel to a shop (1).

4. Exam question Explain 3 marks Foundation

Explain one reason why it is important for a business to identify customer needs.

Mark scheme — 3 marks available

  • A reason identified, e.g. generate sales / survival / customer loyalty / beat competitors — 1 mark
  • First linked point of explanation — 1 mark
  • Second linked point of explanation — 1 mark

Model answer

To generate sales (1). If the business knows what customers need, it can provide a product at the right price, quality and convenience (1). This means customers are more likely to buy from it rather than from competitors, increasing revenue and helping the business survive (1).

5. Exam question Analyse 6 marks Core

Source: Maya runs a small sandwich shop near a busy train station. Most of her customers are commuters buying breakfast and lunch on their way to work. A new supermarket has opened next door selling meal deals at a lower price than Maya's sandwiches. Analyse the importance to Maya of meeting her customers' need for convenience.

Mark scheme — 6 marks available

  • AO2 (Application, 3 marks): uses the context - commuters, the station, the supermarket's lower prices — Level 1-3
  • AO3a (Analysis, 3 marks): chains of reasoning showing why convenience matters to Maya's sales and survival — Level 1-3

Model answer

Maya's customers are commuters who are often in a hurry, so convenience is one of their most important needs. If she opens early and serves quickly, commuters can buy breakfast without missing their train, which means they are more likely to choose her shop every day. This builds loyal customers and regular sales. Convenience is also how Maya can compete with the new supermarket. She cannot match its lower prices, but if she offers faster service, pre-ordering on an app or a loyalty card, commuters may pay a little more to save time. This means she can protect her sales and revenue even though she is more expensive.

6. Multiple choice 1 mark Foundation

Which one of the following is a customer need?

  1. A Profit
  2. B Convenience Correct
  3. C Independence
  4. D Market share

Why: The four customer needs are price, quality, choice and convenience.

7. Multiple choice 1 mark Core

A shop opens until midnight so customers can buy food on their way home from work. Which customer need is it meeting?

  1. A Price
  2. B Quality
  3. C Choice
  4. D Convenience Correct

Why: Opening late makes it easier for customers to buy when it suits them - convenience.

8. Multiple choice 1 mark Core

A parent buys a toy for their child. Who is the consumer?

  1. A The child Correct
  2. B The parent
  3. C The toy shop
  4. D The toy manufacturer

Why: The consumer uses the product. The parent is the customer because they bought it.

9. Multiple choice 1 mark Stretch

Why is meeting customer needs important for business survival?

  1. A It reduces the business's costs
  2. B It means the business needs no market research
  3. C It generates the sales and revenue the business needs to cover its costs Correct
  4. D It guarantees the business will have no competitors

Why: Meeting needs generates sales and revenue; without enough revenue to cover costs, a business fails.