A Desiscion-Making Perspective on Marketing research - Marketing Research in Practice
A Desiscion-Making Perspective on Marketing research - Marketing Research in Practice
Marketing research is unquestionably a growth industry. Between 1978 and 1988 real expenditures on marketing research (that is, after adjusting for inflation) more than doubled! This is largely a consequence of economic and social changes that have made better marketing an imperative.
With marketing the new priority, marketing research is the rallying cry. Companies are trying frantically to get their hands on information that identifies and explains the needs of powerful new consumer segments now being formed. Kroger Co., for example, holds more than 250,000 consumer interviews a year to define consumer wants more precisely. Some companies are pinning their futures to product innovations, others are rejuvenating timeworn but proven brands, and still others are doing both.5
Not only are those companies that always did marketing research doing a great deal more, but the breadth of research activities also continues to expand:
• Senior management is looking for more support for their strategic decisions; so researchers are doing more acquisition and competitor studies, segmentation and market structure analyses, and basic strategic position assessments.
• Other functions, such as the legal department, now routinely use marketing research evidence. Corporate Affairs wants to know shareholders', bankers', analysts', and employees' attitudes toward
the company. The service department continuously audits service delivery capability and customer satisfaction.
• Entire industries that used to be protected from the vagaries of competition and changing customer needs by regulatory statutes are learning to cope with a deregulated environment. Airlines, banks, and financial services groups are looking for ways to overcome product proliferation, advertising clutter, and high marketing costs brought on by more sophisticated customers and aggressive competitors.
As the strategic relevance of marketing research has increased, so have the stakes. The cost of mistakes and bad judgment can be very high as we see in a recent malpractice case (described in the boxed insert). The case is also noteworthy because it promises to change the once comfortable relationship between researchers and their clients.
<em>BEECHAM PRODUCTS VS. YANKELOVICH, CLANCY SHULMAN
Beecham Products used the marketing research firm, Yankelovich, Clancy Shulman (YCS) to test Delicare, their new cold water detergent, in a simulated laboratory test market. A laboratory test market involves people being exposed to the advertising of a new product and then shopping in a room set up to resemble an area of a supermarket. The percentage who buy the brand in this simulated environment and the percentage who say they will repurchase it after using it are among the inputs used to predict sales of the new brand.
The Delicare test resulted in a prediction by YCS that Delicare would gain a dominant 45 percent to 52 percent share of the market from Woolite, the brand leader with 90 percent of the $103 million dollar market. The only condition was that Beecham would have to spend $18 million in advertising to launch the brand.
Beecham relied on these results for Delicare's national launch. Despite heavy introductory ad spending, performance was far below the projection, and share hovered around 20 percent. Beecham management was furious and sued YCS for $24 million in damages—accusing the firm of "negligence" and professional malpractice.
A key contention in the suit was that incorrect data was used in the YCS computer model used to predict market performance. The correct percentage of homes that use fine-fabric detergents is 30 percent but the suit claimed the researcher used an inaccurate figure of 75 percent.
The researchers rebutted with a lengthy catalog of shortcomings by Beecham, including premature termination of ad support; using different ads than were tested; and failing to get adequate distribution of trial sizes. They argued that it is no wonder that the forecast was faulty.
The suit which was settled out of court, sent Shockwaves through the research industry and raised several serious issues. Exactly what is the responsibility of a marketing research firm? If they make a mistake in designing a study do they accept responsibility for all decisions that were influenced by the study? Does the client, in this case Beecham, have the responsibility to understand every assumption that underlies a recommendation so that they can detect errors?
Source: "A Case of Malpractice in Market Research," Business Week (October 19, 1987); and "YCS Strikes Back," Adweeks Marketing Week (December 7, 1987).
</em>
Information Suppliers
The growing needs for marketing research information are satisfied by two types of suppliers shown in Figure 1-2, in-company and outside-company. Both can feed information directly to their clients who are users with decision-making needs. More often the outside suppliers will get their direction, and provide information to an inside research group. These inside suppliers translate the problems of their clients into specific information requirements, decide how the information will be collected and by whom, and then interpret the findings.
Information Users • General management
Planning Marketing and sales managers Product managers Lawyers
Information Suppliers: In Company Information Suppliers: Outside Company
• Marketin g research deoa tme it · Research consultants
• Sales analysis group • Marketing research suppliers
• Accounting department » Advertising agencie
• Corporate strategic planning
FIGURE 1-2
Participants in marketing research activities.
In-Company Suppliers The importance and influence of the marketing research function can be assessed in part by the position of the marketing research department within the organization. One approach is to have it report to the highest levels of general management and thus have its responsibilities merge with those of the strategic planning group. For example, Coca-Cola has a senior vice-president in charge of market research. Another approach is to have the department report to the top marketing officer, either directly or indirectly through a marketing services group. A third possibility is to have marketing research activities dispersed throughout the organization; however, there is then the risk that the marketing research activities will be fragmented and lack credibility and visibility. Further, if the research group is associated with sales or advertising, its mission naturally will be narrowed by the interests of that group.
Marketing Research Industry The information suppliers outside the company, as described in Figure 1-2, comprise the marketing research industry. There is no satisfactory measure of the size of this industry, although it is known that the top 50 U. S.-controlled research firms had revenues of $2253 million in 1987. This is an international industry; 33 percent of this revenue came from outside the United States, with $1519 million from the United States.
The total industry in the United States was estimated to be at least $2.2 billion in 1987, after taking account of research revenues by another 350 for-profit research organizations, as well as research conducted in house by such large manufacturers as General Foods and by advertising agencies. There are two distinct tiers within the industry. The top four firms are known as data-bank or syndicated-services companies and account for more than 50 percent of all research revenues. In Chapter 4 we will analyze the syndicated services of A. C. Nielsen, IMS International, Ar-bitron/Sami/Burke, and Information Resources Inc. to see why their revenues are as large as the rest of the companies combined. Within the second tier are firms that specialize predominantly in customized individual research projects, such as Burke International, Market Facts, Chilton Research, and Louis Harris and Associates.
The U. S. Bureau of the Census is technically outside the industry as defined earlier, but cannot be ignored, for it is unquestionably the largest survey research organization in the world. Revenue in 1987 was approximately $100 million which was almost entirely funded by federal agencies. A typical Census Bureau study conducted for the Department of Health,
Education, and Welfare, was designed to redefine the measure of poverty, provide incidence of disability, school enrollment figures, health insurance coverage, and the incidence of food stamp recipiency. This was a one-shot survey, spread out over several years and costing more than $10 million.
Most organizations rely on some facet of the market research industry to at least collect the information they need. In the next two chapters we will take the viewpoint of the researcher within the organization and see how the decision to use outside suppliers is made.
Marketing research is unquestionably a growth industry. Between 1978 and 1988 real expenditures on marketing research (that is, after adjusting for inflation) more than doubled! This is largely a consequence of economic and social changes that have made better marketing an imperative.
With marketing the new priority, marketing research is the rallying cry. Companies are trying frantically to get their hands on information that identifies and explains the needs of powerful new consumer segments now being formed. Kroger Co., for example, holds more than 250,000 consumer interviews a year to define consumer wants more precisely. Some companies are pinning their futures to product innovations, others are rejuvenating timeworn but proven brands, and still others are doing both.5
Not only are those companies that always did marketing research doing a great deal more, but the breadth of research activities also continues to expand:
• Senior management is looking for more support for their strategic decisions; so researchers are doing more acquisition and competitor studies, segmentation and market structure analyses, and basic strategic position assessments.
• Other functions, such as the legal department, now routinely use marketing research evidence. Corporate Affairs wants to know shareholders', bankers', analysts', and employees' attitudes toward
the company. The service department continuously audits service delivery capability and customer satisfaction.
• Entire industries that used to be protected from the vagaries of competition and changing customer needs by regulatory statutes are learning to cope with a deregulated environment. Airlines, banks, and financial services groups are looking for ways to overcome product proliferation, advertising clutter, and high marketing costs brought on by more sophisticated customers and aggressive competitors.
As the strategic relevance of marketing research has increased, so have the stakes. The cost of mistakes and bad judgment can be very high as we see in a recent malpractice case (described in the boxed insert). The case is also noteworthy because it promises to change the once comfortable relationship between researchers and their clients.
<em>BEECHAM PRODUCTS VS. YANKELOVICH, CLANCY SHULMAN
Beecham Products used the marketing research firm, Yankelovich, Clancy Shulman (YCS) to test Delicare, their new cold water detergent, in a simulated laboratory test market. A laboratory test market involves people being exposed to the advertising of a new product and then shopping in a room set up to resemble an area of a supermarket. The percentage who buy the brand in this simulated environment and the percentage who say they will repurchase it after using it are among the inputs used to predict sales of the new brand.
The Delicare test resulted in a prediction by YCS that Delicare would gain a dominant 45 percent to 52 percent share of the market from Woolite, the brand leader with 90 percent of the $103 million dollar market. The only condition was that Beecham would have to spend $18 million in advertising to launch the brand.
Beecham relied on these results for Delicare's national launch. Despite heavy introductory ad spending, performance was far below the projection, and share hovered around 20 percent. Beecham management was furious and sued YCS for $24 million in damages—accusing the firm of "negligence" and professional malpractice.
A key contention in the suit was that incorrect data was used in the YCS computer model used to predict market performance. The correct percentage of homes that use fine-fabric detergents is 30 percent but the suit claimed the researcher used an inaccurate figure of 75 percent.
The researchers rebutted with a lengthy catalog of shortcomings by Beecham, including premature termination of ad support; using different ads than were tested; and failing to get adequate distribution of trial sizes. They argued that it is no wonder that the forecast was faulty.
The suit which was settled out of court, sent Shockwaves through the research industry and raised several serious issues. Exactly what is the responsibility of a marketing research firm? If they make a mistake in designing a study do they accept responsibility for all decisions that were influenced by the study? Does the client, in this case Beecham, have the responsibility to understand every assumption that underlies a recommendation so that they can detect errors?
Source: "A Case of Malpractice in Market Research," Business Week (October 19, 1987); and "YCS Strikes Back," Adweeks Marketing Week (December 7, 1987).
</em>
Information Suppliers
The growing needs for marketing research information are satisfied by two types of suppliers shown in Figure 1-2, in-company and outside-company. Both can feed information directly to their clients who are users with decision-making needs. More often the outside suppliers will get their direction, and provide information to an inside research group. These inside suppliers translate the problems of their clients into specific information requirements, decide how the information will be collected and by whom, and then interpret the findings.
Information Users • General management
Planning Marketing and sales managers Product managers Lawyers
Information Suppliers: In Company Information Suppliers: Outside Company
• Marketin g research deoa tme it · Research consultants
• Sales analysis group • Marketing research suppliers
• Accounting department » Advertising agencie
• Corporate strategic planning
FIGURE 1-2
Participants in marketing research activities.
In-Company Suppliers The importance and influence of the marketing research function can be assessed in part by the position of the marketing research department within the organization. One approach is to have it report to the highest levels of general management and thus have its responsibilities merge with those of the strategic planning group. For example, Coca-Cola has a senior vice-president in charge of market research. Another approach is to have the department report to the top marketing officer, either directly or indirectly through a marketing services group. A third possibility is to have marketing research activities dispersed throughout the organization; however, there is then the risk that the marketing research activities will be fragmented and lack credibility and visibility. Further, if the research group is associated with sales or advertising, its mission naturally will be narrowed by the interests of that group.
Marketing Research Industry The information suppliers outside the company, as described in Figure 1-2, comprise the marketing research industry. There is no satisfactory measure of the size of this industry, although it is known that the top 50 U. S.-controlled research firms had revenues of $2253 million in 1987. This is an international industry; 33 percent of this revenue came from outside the United States, with $1519 million from the United States.
The total industry in the United States was estimated to be at least $2.2 billion in 1987, after taking account of research revenues by another 350 for-profit research organizations, as well as research conducted in house by such large manufacturers as General Foods and by advertising agencies. There are two distinct tiers within the industry. The top four firms are known as data-bank or syndicated-services companies and account for more than 50 percent of all research revenues. In Chapter 4 we will analyze the syndicated services of A. C. Nielsen, IMS International, Ar-bitron/Sami/Burke, and Information Resources Inc. to see why their revenues are as large as the rest of the companies combined. Within the second tier are firms that specialize predominantly in customized individual research projects, such as Burke International, Market Facts, Chilton Research, and Louis Harris and Associates.
The U. S. Bureau of the Census is technically outside the industry as defined earlier, but cannot be ignored, for it is unquestionably the largest survey research organization in the world. Revenue in 1987 was approximately $100 million which was almost entirely funded by federal agencies. A typical Census Bureau study conducted for the Department of Health,
Education, and Welfare, was designed to redefine the measure of poverty, provide incidence of disability, school enrollment figures, health insurance coverage, and the incidence of food stamp recipiency. This was a one-shot survey, spread out over several years and costing more than $10 million.
Most organizations rely on some facet of the market research industry to at least collect the information they need. In the next two chapters we will take the viewpoint of the researcher within the organization and see how the decision to use outside suppliers is made.
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