Chapter 4: Conducting Marketing Research & Forecasting Demand
Chapter questions What constitutes good marketing research? What are good metrics for measuring marketing productivity? How can marketers assess their return on investment of marketing expenditures? How can companies more accurately measure and forecast demand?
The Marketing Research System
Marketing Research is defined as Systematic design, collection, analysis, and Reporting of data and findings Relevant to a specific marketing situation facing a company Marketing research can be seen as the systematic and objective search for and analysis of (data and) Information relevant to the identification and solution of any problem in the field of marketing: Note the use of the wound "systematic" which stress the need for careful planning of the research in all its stage. This requires a clear and concise statement of the exercise, the techniques to be used, the information that is required and the analytical technique that will be employed. The word "objective" stresses the need for impartiality that is, seeking the fact without colouring due to already held views and options. Marketing research is fundamentally about the acquisition and analysis of information required for the making of marketing decision.
Types of Market Research Firms
Syndicated Service Research Firms Firms gather consumer & trade information, which they sell for a fee e.g. ACNielsen Custom Marketing Research Firms They design & carry out research studies for various clients based on specific briefs Specialtyline Marketing Research Firms Provides specialized research services such as developing a research brief, collecting field data, and preparing data analysis & reports for other firms
The marketing research process
Step 1: Problem Definition The first step in any marketing research project is to define the problem. In defining the problem, the researcher should take into account the purpose of the study, the relevant background information, what information is needed, and how it will be used in decision making. Problem definition involves discussion with the decision makers, interviews with industry experts, analysis of secondary data, and, perhaps, some qualitative research, such as focus groups. Once the problem has been precisely defined, the research can be designed and conducted properly. Problem should not be defined either too broadly or too narrowly Specify decision alternatives What is to be researched? (Content, scope of research) Why is to be researched? Output clear definition of problem & research objectives
Step 2: Development of an Approach to the Problem Development of an approach to the problem includes formulating an objective or theoretical framework, analytical models, research questions, hypotheses, and identifying characteristics or factors that can influence the research design. This process is guided by discussions with management and industry experts, case studies and simulations, analysis of secondary data, qualitative research and pragmatic considerations. Developing the most efficient plan for gathering the required information involves decisions on Data Sources Research Approaches Research Instruments Sampling Plan Contact Methods Secondary data are data that were collected for another purpose, and already exist somewhere Primary data are freshly gathered data for a specific purpose or for a specific research project Research starts with examining secondary data Collect primary data - in case of outdated, inaccurate, incomplete, unreliable secondary data
Step 3: Research Design Formulation A research design is a framework or blueprint for conducting the marketing research project. It details the procedures necessary for obtaining the required information, and its purpose is to design a study that will test the hypotheses of interest, determine possible answers to the research questions, and provide the information needed for decision making. Conducting exploratory research, precisely defining the variables, and designing appropriate scales to measure them are also a part of the research design. The issue of how the data should be obtained from the respondents (for example, by conducting a survey or an experiment) must be addressed. It is also necessary to design a questionnaire and a sampling plan to select respondents for the study. More formally, formulating the research design involves the following steps Secondary data analysis Qualitative research Methods of collecting quantitative data (survey, observation, and experimentation) Definition of the information needed Measurement and scaling procedures Questionnaire design Sampling process and sample size Plan of data analysis
Step 4: Field Work or Data Collection Data collection involves a field force or staff that operates either in the field, as in the case of personal interviewing (in-home, mall intercept, or computer-assisted personal interviewing), from an office by telephone (telephone or computer-assisted telephone interviewing), or through mail (traditional mail and mail panel surveys with prerecruited households). Proper selection, training, supervision, and evaluation of the field force helps minimize data-collection errors. Primary data are collected using various research approaches Observational Research Gather fresh data by observing the relevant actors & settings, observing as they shop or consume products Focus Group Research A focus group is a gathering of 6 to 10 people who are invited to spend a few hours with a skilled moderator in order to discuss a product, service, organization, or any other marketing entity Survey Research Surveys are conducted to learn about peoples knowledge, beliefs, preferences & satisfaction It requires development of a survey instrument, usually a questionnaire, which the respondents are asked to fill up Behavioral Data Customers actual purchases reflect preferences & are normally more reliable Experimental Research Most scientifically valid research The purpose is to capture cause-and-effect relationships by eliminating competing explanations of the observed findings
Step 5: Data Preparation and Analysis Data preparation includes the editing, coding, transcription, and verification of data. Each questionnaire or observation form is inspected, or edited, and, if necessary, corrected. Number or letter codes are assigned to represent each response to each question in the questionnaire. The data from the questionnaires are transcribed or key-punched on to magnetic tape, or disks or input directly into the computer. Verification ensures that the data from the original questionnaires have been accurately transcribed, while data analysis, guided by the plan of data analysis, gives meaning to the data that have been collected. Univariate techniques are used for analyzing data when there is a single measurement of each element or unit in the sample, or, if there are several measurements of each element, each RCH variable is analyzed in isolation. On the other hand, multivariate techniques are used for analyzing data when there are two or more measurements on each element and the variables are analyzed simultaneously.
Step 6: Report Preparation and Presentation The entire project should be documented in a written report which addresses the specific research questions identified, describes the approach, the research design, data collection, and data analysis procedures adopted, and presents the results and the major findings. The findings should be presented in a comprehensible format so that they can be readily used in the decision making process. In addition, an oral presentation should be made to management using tables, figures, and graphs to enhance clarity and impact.
For these reasons, interviews with experts are more useful in conducting marketing research for industrial firms and for products of a technical nature, where it is relatively easy to identify and approach the experts. This method is also helpful in situations where little information is available from other sources, as in the case of radically new products.
Research Instruments Instruments in collecting primary data Questionaires Consists of a set of questions presented to respondents Most common instrument to collect primary data because of its flexibility Close-ended questions specify all the possible answers & provide answers that are easier to interpret & tabulate Open-ended questions allow respondents to answer in their own words & often reveal more about how people think Question Types A question with two possible answers In arranging this trip, did you personally phone Air India? Yes No
Multiple Choice - A question with three or more answers With whom are you traveling on this trip? No one Spouse Spouse and children Children only Business associates/friends/relatives An organized tour group
Likert Scale - A statement with which the respondent shows the amount of agreement/ disagreement Indicate your level of agreement with the following statement: Small airlines generally give better service than large ones. Strongly disagree Disagree Neither agree nor disagree Agree Strongly agree
Semantical Differential - A scale connecting two bipolar words. The respondent selects the point that represents his or her opinion Air India Large ....Small Experienced..Inexperienced Modern...Old-fashioned
Importance Scale - A scale that rates the importance of some attribute Airline food service is _____ to me. Extremely important Very important Somewhat important Not very important Not at all important
Rating Scale - A scale that rates some attribute from poor to excellent Air Indias food service is _____. Excellent Very good Good Fair Poor
Intention to buy scale - A scale that describes the respondents intention to buy How likely are you to purchase tickets on Air India, if in-flight Internet access were available? Definitely buy Probably buy Not sure Probably not buy Definitely not buy
Completely unstructured - A question that respondents can answer in an almost unlimited number of ways What is your opinion of ICICI Bank?
Word association - Words are presented, one at a time, & respondents mention the first word that comes to mind What is the first word that comes to your mind when you hear the following? Finance ________________________ Bank _____________________ Multi National Banking _____________________
Sentence Completion An incomplete sentence is presented & respondents complete the sentence When I choose an bank, the most important consideration in my decision is: ________________________________________________________________ ________________________________________________________________ __________________________.
Story completion An incomplete story is presented, & respondents are asked to complete it I submitted to clear my L/C quite a few days ago, I have still not received from my BankerComplete the Story ________________________________________________________________ ________________________________________________________________ ______________________
Picture (empty ballons)
Thematic Apperception Test (TAT)
Questionaire Dos and donts
Ensure questions are free of bias Make questions simple Make questions specific Avoid jargon Avoid sophisticated words Avoid ambiguous words Avoid negatives
Donts Avoid hypothetical questions Avoid words that could be misheard Use response bands Use mutually exclusive categories Allow for other in fixed response questions
Qualitative Measures Use of qualitative methods for gauging consumer opinion Qualitative Research Techniques are relatively unstructured measurement approaches that permit a range of possible responses
Drawbacks o Samples are often very small & may not generalize broader population o Different researchers examining same qualitative results may draw very different conclusions Some qualitative measures are o o o o o o o o o o o o Word associations Projective techniques Visualization Brand personification Laddering Shadowing Behavior Mapping Consumer Interactions Camera Journals Extreme User Interviews Storytelling Unfocused groups
Technological Devices used in research Galvanometers can measure the interest or emotions aroused by exposure to a specific ad or picture Eye cameras study respondents eye movements to see where their eyes land first, how long they remain on a given item, and so on Skin sensors, brain wave scanners & full body scanners to get consumer responses Audiometers attached to TV records when the set is on & to which channel it is tuned GPS measures how many billboards a person may walk or drive by during a day
Sampling Plan Sampling unit: Who is to be surveyed? Develop a sampling frame
Sample size: How many people should be surveyed? Sampling procedure: How should the respondents be chosen? Using probability & nonprobability sampling methods
Types of Samples Probability Samples Simple random sample Stratified random sample Cluster sample
Non probability Samples Convenience sample Judgment sample Quota sample Types of Probability samples Simple random sample every member of the population has an equal chance of selection Stratified random sample the population is divided into mutually exclusive groups (such as age groups), and random samples are drawn from each group Cluster (area) sample the population is divided into mutually exclusive groups (such as city blocks), & the researcher draws a sample of the groups to interview
Types of Non probability samples Convenience sample the researcher selects the most accessible population members Judgment sample the researcher selects population members who are good prospects for accurate information Quota sample the researcher finds and interviews a prescribed number of people in each of several categories
Contact Methods Types of Personal Interview Arranged Interviews marketers contact respondents for an appointment & often offer a small payment or incentive Intercept Interviews researcher stops people at a shopping mall or busy street corner & request an interview on the spot
Pros and Cons of Online Research/Interview Advantages Inexpensive Fast Accuracy of data, even for sensitive questions Versatility Disadvantages Small samples Skewed samples Technological problems Inconsistencies Characteristics of Good Marketing research Scientific method Research creativity Multiple methods models Interdependence Value and cost of information Healthy skepticism Ethical marketing
Marketing Decision Support System A marketing decision support system (sometimes abbreviated MKDSS) is a decision support system for marketing activity. It consists of information technology, marketing data and modeling capabilities that enable the system to provide predicted outcomes from different scenarios and marketing strategies, so answering "what if?" questions. A MKDSS is used to support the software vendors planning strategy for marketing products. It can help to identify advantageous levels of pricing, advertising spending, and advertising copy for the firms products. This helps determines the firms marketing mix for product software. A Marketing Decision Support System is a coordinated collection of data, systems, tools, and techniques with supporting hardware and software by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action
Barriers Limiting the Use of Marketing Research A narrow conception of the research Fact-finding operation Uneven caliber of researchers Less-competent marketing researches Poor framing of the problem Failure to set up the research problem correctly Late and occasionally erroneous findings Managers are disappointed when marketing research costs too much or takes too much time, they want accurate & conclusive results Personality and presentational differences Differences between styles of line managers & marketing researchers Concreteness, simplicity & certainty V/S abstract, complicated & tentative
Typical Problems in Rural Research Low literacy levels require innovations in questionnaire design scales Wide geographical dispersion requires long travels A large number of languages and dialects, requiring multiple translations Non-availability of working population at normal places of residence Poor access to women respondents Villages layout based on caste lines, requiring innovative sampling
Measuring Marketing Productivity An important task of marketing research is to assess the efficiency and effectiveness of marketing activities Marketers increasingly are being held accountable for their investment and must be able to justify marketing expenditures to senior management. With marketing costs already high and continuing to rise, senior executives are tired of seeing what they consider to be wasteful marketing failed new product and lavish ad campaigns, extensive sales calls, and expensive promotions that are unable to move the sales needle. Marketing research can help address this increased need for accountability. Two complementary approaches to measure marketing productivity are: 1. Marketing metrics to assess marketing effects and 2. Marketing-mix modeling to estimate causal relationships and how marketing activity affects outcomes.
1. Marketing Metrics Marketers employ a wide variety of measures to assess marketing effects. Marketing metrics is the set of measures that helps firms to quantify, compare, and interpret their marketing performance. Marketing metrics can be used by brand managers to design marketing programs and by senior management to decide on financial allocations. When marketers can estimate the dollar contribution of marketing activities, they are better able to justify the value of marketing investments to senior managements. Many marketing metrics relate to customer-level concerns such as their attitudes and behavior; others relate to brand-level concerns such as market share, relative price premium, or profitability. Companies can also monitor an extensive set of metrics internal to the company. One important set of measures relates to a firms innovativeness. For example, 3M tracks the proportion of sales resulting from its recent innovations. Another key set relates to employees.
Sample Marketing Metrics
Evaluating Marketing Metrics Short-term results reflects profit & loss concerns Sales turnover Shareholder value Changes in brand equity Customer awareness, attitude, behaviors Market share Relative price premium No. of complaints Distribution & availability Total no. of customers Perceived quality Loyalty & retention
2. Marketing-Mix Modeling Marketing mix modeling is a term of art for the use of statistical analysis such as multivariate regressions on sales and marketing time series data to estimate the impact of various marketing tactics on sales and then forecast the impact of future sets of tactics. It is often used to optimize advertising mix and promotional tactics with respect to sales revenue or profit. The techniques were developed by econometricians and were first applied to consumer packaged goods, since manufacturers of those goods had access to good data on sales and marketing support. In the recent times MMM has found acceptance as a trustworthy marketing tool among the major consumer marketing companies. Marketing-mix models analyze data from a variety of sources, such as retailer scanner data company shipment data pricing media promotion spending data
to understand more precisely the effects of specific marketing activities
3. Marketing Dashboards Summary of relevant internal & external measures, for synthesis and interpretation They are instruments, real-time indicators to ensure proper functions Helps improve understanding and analysis
Two key market-based scorecards o A customer-performance scorecard records how well the company is doing year after year on customer-based measures o A stakeholder-performance scorecard tracks the satisfaction of various constituencies who have a critical interest in and impact on the companys performance including employees, suppliers, banks, distributors, retailers, and stockholders Sample Customer Performance scorecard measures: o % of new customers to average # o % of lost customers to average # o % of win-back customers to average # o % of customers in various levels of satisfaction o % of customers who would repurchase o % of target market members with brand recall o % of customers who say brand is most preferred
Marketing Measurement Pathways
Forecasting and Demand Measurement
The measures of Market Demand Potential market the set of consumers who profess a sufficient level of interest in a market offer Available market the set of consumers who have interest, income & access to a particular offer Qualified available market the set of consumers who have interest, income, access & qualifications for the particular market offer Target market the part of the qualified available market, the company decides to pursue Penetrated market the set of consumers who are buying the companys product
Vocabulary for Demand Management Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program Market forecast only one level of industry marketing expenditure will actually occur; the market demand corresponding to this level is called the market forecast Market potential maximum market demand; limit approached by market demand as industry marketing expenditures approach infinity for a given marketing environment
Company demand is the companys estimated share of market demand at alternative levels of company marketing effort in a time period. The companys share of market demand depends on how its products, services, prices, communications, and so on are perceived relative to the competitor. Company sales forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment. Company sales potential is the sales limit approached by company demand as companymarketing effort increases relative to that of competitors.
Estimating Current Demand Total market potential Area market potential Market buildup method Multiple-factor index method Industry Sales & Market Shares